at tie-in prices, and (7) below when all-ornone bids are offered for more than one item.

(2) Priorities. Negotiations for the setaside portion will be conducted with eligible concerns in the following order of priority:

Group 1. Small business concerns which are also persistent labor surplus area con

cerns.

Group 2. Small business concerns which are also substantial labor surplus area con

cerns.

Group 3. Small business concerns which are not labor surplus area concerns.

Within each of the above groups, negotiation for each Item will be conducted with eligible concerns in the order of their bids on the non-set-aside portion, beginning with the lowest responsive bid. However, see (5) below for the method of determining the bid when separate quantities are offered at different prices, (6) below when separate quantities are offered at tie-in prices, and (7) below when all-or-none bids are offered for more than one item.

(3) Quantity. The quantity of the setaside portion of an Item which may be awarded to an eligible concern shall be as follows:

(1) Where a concern has not specified a quantity of the item on the Bidder's Statement of Set-Aside Quantity Desired, the quantity shall be no greater than the quantity of such concern's bid on the non-setaside portion of that Item, less the quantity, if any, of that Item awarded to that concern under the non-set-aside portion.

(11) Where a concern has specified a quantity of the Item on the Bidder's Statement of Set-Aside Quantity Desired, the quantity shall be no greater than the total of the entire non-set-aside portion of the Item and the quantity thereof specified on the Bidder's Statement of Set-Aside Quantity Desired, less the quantity, if any, of that Item awarded to that concern under the non-set-aside portion.

(4) Price. The set-aside portion shall be awarded at the highest unit price awarded on the non-set-aside portion, adjusted to reflect transportation and other cost factors which were considered in evaluating bids on the non-set-aside portion. However, see (6) and (7) below for the highest unit price when the highest award is made as a result of tiein bids or all-or-none type of qualification.

(5) Separate quantities at different prices. Where a concern has submitted a bid for separate quantities of the non-set-aside portion of an Item at different prices, without conditioning the Government's right to accept one or more such quantities upon its concurrent acceptance of another quantity of the Item, each separate quantity shall be considered as a separate bid for the purpose of determining the eligibility of the concern with respect to the 120 percent limit prescribed in (c) (1) above, and for the purpose of determining under (c) (2) above the standing of that bid in the order of negotiations for the set-aside portion of that Item.

(6) Separate quantities at tie-in prices. Where a concern has submitted a bid for separate quantities of the non-set-aside portion of an Item at different prices, and has conditioned the Government's right to accept any one or more of such quantities upon its concurrent acceptance of another quantity of the Item, the weighted average of the prices for such conditioned quantities shall be considered the unit price for the purpose of determining, with respect to such conditioned quantities, (1) the eligibility of the firm with respect to the 120 percent limit of (c) (1) above, (ii) the priority status of the firm under (c) (2) above, and (iii) the highest unit price for awards under (c) (4) above if the highest award on the non-set-aside portion was made on such conditioned bid.

(7) All-or-none bids. Where a concern has submitted an "all-or-none” bid for more than one item and thereby has conditioned the Government's right to award any item upon its concurrent award or another item, the unit price for each Item on an "all-ornone" basis shall be considered independent unit prices for the purpose of determining the eligibility and priority status of the concern for the set-aside portion of each item. In no event will a set-aside award be made for an Item to such bidder as a higher unit price than his "all-or-none" unit price for the Item on the non-set-aside portion.

(d) Definitions.

(1) A "small business concern" is a concern, including its affiliates, which is independently owned and operated, is not dominant in the field of operation in which it is bidding on Government contracts, and can further qualify under the criteria set forth in regulations of the Small Business Administration (Code of Federal Regulations, Title 13, Section 121.3-8). In addition to meeting these criteria, a manufacturer or a regular dealer submitting bids or proposals in his own name must agree to furnish in the performance of the contract end items manufactured or produced in the United States, its possessions, or Puerto Rico, by small business concerns: Provided, That this additional requirement does not apply in connection with construction or service contracts.

(2) The term "labor surplus area" means a geographical area which is a persistent labor surplus area or a substantial labor surplus area, or both, as defined below:

(1) "Persistent Labor Surplus Area" means an area which (A) is classified by the Department of Labor as an "Area of Substantial and Persistent Labor Surplus" (also called "Area of Substantial and Persistent Unemployment") and is listed as such by that Department in conjunction with its publication "Area Labor Market Trends," or (B) is certified as an area of substantial and persistent labor surplus by the Department of Labor pursuant to a request by a prospective contractor.

(ii) "Substantial Labor Surplus Area" means an area which (A) is classified by the Department of Labor as an "Area of Sub

stantial Labor Surplus" (also called “Area of Substantial Unemployment") and which is listed as such by that Department in conjunction with its publication "Area Labor Market Trends," or (B) is certified as an area of substantial labor surplus by the Department of Labor pursuant to a request by a prospective contractor.

(3) The term "labor surplus area concern" includes persistent labor surplus area concerns and substantial labor surplus area concerns as defined below:

(1) "Persistent labor surplus area concern" means a concern that agrees to perform, or cause to be performed, a substantial proportion of a contract in persistent labor surplus areas. A concern shall be deemed to perform a substantial proportion of a contract in persistent labor surplus areas if the costs that the concern will incur on account of manufacturing or production performed in such areas (by itself or its first-tier subcontractors) amount to more than 50 percent of the contract price.

(ii) "Substantial labor surplus area concern" means a concern that agrees to perform, or cause to be performed, a substantial proportion of a contract in substantial labor surplus areas. A concern shall be deemed to perform a substantial proportion of a contract in substantial labor surplus areas if the costs that the concern will incur on account of manufacturing or production performed in substantial labor surplus areas or in substantial and persistent labor surplus areas (by itself or its first-tier subcontractors) amount to more than 50 percent of the contract price.

(e) Identification of areas of performance. Each bidder desiring to be considered for award as a small business labor surplus area concern on the set-aside portion of this procurement shall identify in his bid the geographical areas in which he proposes to perform, or cause to be performed, a substantial proportion of the production of the contract. If the Department of Labor classification of any such area changes after the bidder has submitted his bid, the bidder may change the areas in which he proposes to perform, Provided, That he so notifies the Contracting Officer before award of the set-aside portion. Priority for negotiation will be based upon the labor surplus classification of the designated production areas as of the time of the proposed award.

(1) Agreement. The bidder agrees that, if awarded a contract as a small business persistent labor surplus area concern under the set-aside portion of this procurement, he will perform, or cause to be performed, a substantial proportion of the production in areas classified at the time of award, or at the time of performance of the contract, as persistent labor surplus areas; and that if awarded a contract as a small business substantial labor surplus area concern under the set-aside portion of this procurement, he will perform, or cause to be performed, a substantial proportion of the production in areas classified at

the time of award, or at the time of performance of the contract, as substantial or persistent labor surplus areas.

(g) Token bids. Notwithstanding the provisions of this Notice, the Government reserves the right, in determining eligibility or priority for set-asde negotiations, not to consider token bids or other devices designed to secure an unfair advantage over other bidders eligible for the set-aside portion.

(h) Instruction for indicating portion of set-aside quantity desired. The quantity of each item which has been set aside is set forth on the attached Bidder's Statement of Set-Aside Quantity Desired, which is to be filled in only by small business concerns, as provided in (b) (2) above. Furthermore, it is to be used by such a bidder only when (1) he has submitted a bid for the entire nonset-aside quantity of an Item, and (2) he desires a total quantity in excess of the nonset-aside quantity thereof. Whether or not a small business concern may participate in the set-aside portion is dependent on its eligibility in accordance with (c) above. It should be noted, however, that to be eligible for the set-aside portion the bidder need not have filled in the Bidder's Statement of SetAside Quantity Desired. The latter should only be filled in where the bidder desires a quantity in excess of the non-set-aside quantity.

[The issuing office will identify by line item number the supplies being procured as to which a portion is set aside and will designate the quantity set aside for each such item. The portion of set-aside quantity desired column will be left blank for the bidder or offeror to fill in. Where the definition of a small business concern for a given industry, as prescribed by the Small Business Administration and promulgated within the Department of Defense, differs from that set forth in the notice above, the notice shall be appropriately modified to reflect such definition.]

(e) (1) After the award price for the non-set-aside portion has been determined, negotiations may be conducted for the set-aside portion. Procurement of the set-aside portion shall in all instances be effected by negotiation. Negotiations shall be conducted only with those bidders or offerors who have submitted responsive bids or proposals on the non-set-aside portion at a unit price no greater than 120 percent of the highest award made or to be made on the nonset-aside portion and who are determined to be responsible prospective contractors for the set-aside portion of the procurement. Negotiations shall be conducted

with small business concerns in the order of priority as indicated in the foregoing notices: Provided, That, where equal low bids are received on the non-set-aside portion from concerns which are equally eligible for the set-aside portion, the concern which is awarded the non-set-aside portion (under the equal low bid procedure of § 2.407-6 of this chapter) shall have first priority with respect to negotiations for the set-aside portion. The set-aside portion will be awarded at the highest unit price awarded or to be awarded for the non-set-aside portion. A bidder or offeror entitled to receive an award for quantities of an item under the non-set-aside portion and who accepts the award of additional quantities under the set-aside portion shall not be requested to accept a lower price because of the increased quantities of the award, nor shall negotiation be conducted with a view to obtaining such a lower price based solely upon receipt of award of both portions of the set-aside. This does not prevent acceptance by the contracting officer of voluntary reductions in price from the low eligible offeror prior to award, acceptance of voluntary refunds (see § 1.312), or the change of prices after award by negotiation of a contract modification.

(2) When the award price for the nonset-aside portion has been determined and where an award will be made to a small business concern and the same small business concern is entitled to receive the set-aside portion of a solicitation, the set-aside portion may be added to the basic contract by supplemental agreement. The supplemental agreement shall include the Examination of Records clause, applicable to the set-aside portion only. For purposes of Part 16 of this chapter, the non-set-aside and set-aside portions shall be reported separately.

[26 F.R. 5298, June 14, 1961, as amended at 29 F.R. 2815, Feb. 29, 1964; 29 F.R. 11813, Aug. 19, 1964]

appropriate in accordance with existing regulations (see §§3.201-2(b) (2) and 3.210-3 of this chapter as to negotiation). [28 FR. 12547, Nov. 23, 1963] § 1.707

Subcontracting with small busi

ness concerns.

[27 F.R. 3443, Apr. 11, 1962]

§ 1.707-1 General.

(a) It is the policy of the Government to enable small business concerns to be considered fairly as subcontractors to contractors performing work or rendering services as prime contractors or subcontractors under Government procurement contracts, and to assure that prime contractors and subcontractors having small business subcontracting programs will consult through the purchasing activity with the SBA at its request.

(b) The SBA is not authorized, however, to prescribe the extent to which any contractor or subcontractor shall subcontract or specify the concerns to which subcontracts shall be granted, nor does it vest in SBA authority respecting the administration of individual prime contracts or subcontracts.

[27 F.R. 3443, Apr. 11, 1962]

§ 1.707-2 Small business subcontracting program.

The Government's small business subcontracting program requiries Government prime contractors to assume an affirmative obligation with respect to subcontracting with small business concerns. In contracts which range from $5,000 to $500,000, the contractor undertakes the obligation of accomplishing the maximum amount of small business subcontracting which is consistent with the efficient performance of the contract. This undertaking is set forth in the contract clause prescribed in § 1.707-3(a). In contracts which may exceed $500,000, the contractor is required, pursuant to the clause set forth in § 1.707-3(b) to undertake a number of specific responsibilities designed to assure that small business concerns are considered fairly in the subcontracting role and to impose similar responsibilities on major subcontractors. (The liaison officer required by the latter clause may also serve as liaison officer for labor surplus area matters.) [27 F.R. 3443, Apr. 11, 1962]

§ 1.707-3 Required clauses.

(a) The "Utilization of Small Business Concerns" clause below shall be in

cluded in all contracts in amounts which may exceed $5,000 except (1) contracts which, including all subcontracts thereunder, are to be performed entirely outside the United States, its possessions, and Puerto Rico; and (2) contracts for services which are personal in nature: UTILIZATION OF SMALL BUSINESS CONCERNS (JAN. 1958)

(a) It is the policy of the Government as declared by the Congress that a fair proportion of the purchases and contracts for supplies and services for the Government be placed with small business concerns.

(b) The Contractor agrees to accomplish the maximum amount of subcontracting to small business concerns that the Contractor finds to be consistent with the efficient performance of this contract.

(b) The "Small Business Subcontracting Program" clause below shall be included in all contracts (except maintenance, repair and construction contracts) which may exceed $500,000, which contain the clause required by paragraph (a) of this section and which, in the opinion of the purchasing activity, offer substantial subcontracting possibilities. Prime contractors who are to be awarded contracts that do not exceed $500,000 but which, in the opinion of the purchasing activity, offer substantial subcontracting possibilities, shall urged to accept the clause. SMALL

be

BUSINESS SUBCONTRACTING PROGRAM (JULY 1964)

(a) The Contractor agrees to establish and conduct a small business subcontracting program which will enable small business concerns to be considered fairly as subcontractors and suppliers under this contract. In this connection, the Contractor shall—

(1) Designate a liaison officer who will (1) maintain liaison with the Government on small business matters, (ii) supervise compliance with the “Utilization of Small Business Concerns" clause, and (iii) administer the Contractor's "Small Business Subcontracting Program."

(2) Provide adequate and timely consideration of the potentialities of small business concerns in all "make-or-buy" decisions.

(3) Assure that small business concerns will have an equitable opportunity to compete for subcontracts, particularly by arranging solicitations, time for the preparation of bids, quantities, specifications, and delivery schedules so as to facilitate the participation of small business concerns. Where the Contractor's lists of potential small business subcontractors are excessively long, reasonable effort shall be made to give all such small business concerns an opportunity to compete over a period of time.

(4) Maintain records showing (i) whether each prospective subcontractor is a small business concern, (ii) procedures which have been adopted to comply with the policies set forth in this clause, and (iii) with respect to the letting of any subcontract (including purchase orders) exceeding $10,000, information substantially as follows:

(A) Whether the award went to large or small business.

(B) Whether less than three or more than two small business concerns were solicited. (C) The reason for non-solicitation of small business if such was the case.

(D) The reason for small business failure to receive the award if such was the case when small business was solicited.

The records maintained in accordance with (iii) above may be in such form as the individual Contractor may determine, and the information shall be summarized quarterly and submitted by the purchasing department of each individual plant or division to the Contractor's cognizant small business liaison officer. Such quarterly summaries will be considered to be management records only and need not be submitted routinely to the Government; however, records maintained pursuant to this clause will be kept available for review.

(5) Notify the Contracting Officer before soliciting bids or quotations on any subcontract (including purchase orders) in excess of $10,000 if (i) no small business concern is to be solicited, and (11) the Contracting Officer's consent to the subcontract (or ratification) is required by a "Subcontracts" clause in this contract. Such notice will state the Contractor's reasons for non-solicitation of small business concerns, and will be given as early in the procurement cycle as possible so that the Contracting Officer may give the Small Business Administration timely notice to permit SBA a reasonable period to suggest potentially qualified small business concerns through the Contracting Officer. In no case will the procurement action be held up when to do so would, in the Contractor's judgment, delay performance under the contract.

(6) Include the "Utilization of Small Business Concerns" clause in subcontracts which offer substantial small business subcontracting opportunities.

(7) Cooperate with the Contracting Ofcer in any studies and surveys of the Contractor's subcontracting procedures and practices that the Contracting Officer may from time to time conduct.

(8) Submit DD Form 1140-1 each month in accordance with instructions provided on the form, except that where the Contractor elects to report on a corporate rather than a plant basis, he may submit his reports to the Military Department having the responsibility for the Small Business Subcontracting Program at the corporate headquarters. The reporting requirements of this subparagraph (8) do not apply to Small Business

Contractors, Small Business Subcontractors, or educational and nonprofit institutions.

(b) A "small business concern" is a concern that meets the pertinent criteria established by the SBA and set forth in paragraph 1-701 of the Armed Services Procurement Regulation.

(c) The Contractor agrees that, in the event he fails to comply with his contractual obligations concerning the small business subcontracting program, this contract may be terminated, in whole or in part, for default.

(d) The Contractor further agrees to insert, in any subcontract hereunder which is in excess of $500,000 and which contains the "Utilization of Small Business Concerns" clause, provisions which shall conform substantially to the language of this clause, including this paragraph (d), and to notify the Contracting Officer of the names of such subcontractors; except that the subcontractor will submit the DD Form 1140-1 reports to the Military Department having the responsibility for reviewing its Small Business Subcontracting Program. (A subcontractor may request advice from the nearest military purchasing or contract administration activity as to the Military Department to which he should submit his reports.)

(c) The "Small Business Subcontracting Program (Maintenance, Repair and Construction)" clause below shall be included in all contracts for maintenance, repair and construction work which may exceed $500,000, which contain the clause required in paragraph (a) of this section and which in the opinion of the purchasing activity, offer substantial subcontracting possibilities.

SMALL BUSINESS SUBCONTRACTING PROGRAM (MAINTENANCE, REPAIR AND CONSTRUCTION) (MAR. 1964)

(a) The Contractor agrees to establish and conduct a small business subcontracting program which will enable small business concerns to be considered fairly as subcontractors, including suppliers, under this contract. In this connection, the Contractor shall designate an individual to (i) maintain liaison with the Government on small business matters, and (ii) administer the Contractor's Small Business Subcontracting Program.

(b) Prior to completion of the contract and as soon as the final information is available, the Contractor shall submit a completed DD Form 1140-1 to the Government addressees prescribed thereon. This subparagraph (b) is not applicable if the Contractor is a small business concern.

(c) The Contractor further agrees (1) to insert the "Utilization of Small Business Concerns" clause in subcontracts which offer substantial subcontracting opportunities, and (ii) to insert in each such subcontract exceeding $500,000 a clause conforming sub

stantially to the language of this clause except that subcontractors shall submit DD Form 1140-1 direct to the Government addressees prescribed on the Form. The Contractor will notify the Contracting Officer of the name and address of each subcontractor that will be required to submit a report on DD Form 1140-1.

[27 F.R. 3443, Apr. 11, 1962, as amended at 29 F.R. 2816, Feb. 29, 1964; 29 F.R. 6912, May 27, 1964; 29 F.R. 11814, Aug. 19, 1964]

§ 1.707-4 Responsibility for reviewing the subcontracting program.

(a) Only one Department shall be responsible for reviewing a contractor's Small Business Subcontracting Program. Subject to paragraph (b) of this section, such review shall be the responsibility of

(1) The Department previously assigned specific contractors by the Director for Small Business Policy of the Department of Defense.

(2) If subparagraph (1) of this paragraph is inapplicable, the responsibility shall be assigned through cordinated action of the Director of Small Business Policy of the Department of Defense and the Small Business Advisors of the Departments.

(b) In appropriate instances, however, when jointly determined by the Director of Small Business Policy and the Small Business Advisors of the Departments, criteria other than those specified in paragraph (a) of this section may be used in assigning responsibility to a Department for reviewing an individual contractor's Small Business Subcontracting Program.

(c) The Department placing a contract with a prime contractor containing the "Small Business Subcontracting Program" clause shall either (1) assume responsibility for reviewing the subcontracting program of the prime contractor if such Department meets the criteria specified in paragraph (a) or (b) of this section, or (2) promptly request in writing the Small Business Advisor of the Department which does meet such criteria to assume responsibility for review of this program.

(d) Promptly upon receipt of the names of subcontractors who will participate in the Small Business Subcontracting Program, the Department concerned will assume, or provide for the assumption of, responsibility for review of each subcontractor's program in accordance with procedures set forth in paragraph (a) or (b) of this section.