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(e) The responsible Department will determine the adequacy of the contractor's Small Business Subcontracting Program and bring any deficiencies to the attention of the contractor's designated liaison officer with a request for corrective action.

[27 F.R. 3444, Apr. 11, 1962, as amended at 29 FR. 2818, Feb. 29, 1964]

§ 1.707-5 Reports on DD Form 1140-1.

In connection with the submission of DD Form 1140-1 Reports under the "Small Business Subcontracting Program" clause, a subcontractor may contact the nearest military purchasing or contract administration activity and request advice as to the Department to which he should submit reports. The military purchasing or contract administration activity shall, through channels, submit such a request to the Small Business Advisor of the Department concerned. The Small Business Advisor shall submit it to the Director for Small Business Policy of the Department of Defense for his determination in coordination with the Small Business Advisors of the Departments.

[29 F.R. 2818, Feb. 29, 1964]

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Each purchasing activity shall assist the SBA to obtain such reasonably obtainable information and records concerning the subcontracting of its prime contractors and its subcontractors, having contracts that contain the Small Business Subcontracting Program clause, as the SBA may deem necessary. cordingly, the contracting officer or his representative, separately, or together with a representative of SBA may periodically conduct studies and surveys of the contractor's subcontracting procedures and practices and those of his subcontractors. Such studies and surveys may originate with the purchasing activity in order to have available the pertinent data concerning subcontracting by its primes, or, if such data is not currently available, the studies and surveys may originate upon the request of the SBA for such data. On the basis of the foregoing studies, surveys, and records, the SBA may make recommendations to the purchasing activity regarding methods for increasing small business participation in subcontract awards. SBA and the purchasing activity will

freely interchange, at the operating level, information resulting from these surveys. [27 F.R. 3444, Apr. 11, 1962]

§ 1.707-7 SBA review of agency records.

To the extent that subcontracting records are maintained in purchasing or contract administration activities, such records shall be made available to SBA, upon request for review. [27 F.R. 3445, Apr. 11, 1962]

§ 1.708 Mobilization planning.

The policy of placing a fair proportion of purchases and contracts with small business concerns (see § 1.702) applies in the field of mobilization planning and each Military Department shall continually study its industrial readiness planning procedures to include the Small Business Program, to the maximum practical extent.

[27 F.R. 3445, Apr. 11, 1962]

Subpart H-Labor Surplus Area
Concerns

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§ 1.801-1

Labor surplus area concern. Labor surplus area concern includes: (a) Persistent labor surplus area concerns which will perform or cause to be performed any contracts awarded to them as labor surplus area concerns substantially in "Areas of Substantial and Persistent Labor Surplus"; and

(b) Substantial labor surplus area concerns which will perform or cause to be performed any contracts awarded to them as labor surplus area concerns substantially in "Areas of Substantial Labor Surplus."

A concern shall be deemed to perform a contract substantially in "Areas of Substantial and Persistent Labor Surplus" if the costs that it incurs on account of manufacturing or production (by itself

or its subcontractors) in such areas amount to more than 50 percent of the contract price. A concern shall be deemed to perform a contract substantially in "Areas of Substantial Labor Surplus" if the costs that it incurs on account of manufacturing or production (by itself or its subcontractors) in such areas or in "Areas of Substantial or Persistent Labor Surplus" amount to more than 50 percent of the contract price.

Example A. ABC Company, manufacturing in a full employment area bids on a contract at $1,000. ABC Company will incur the following costs:

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Except as provided in § 1.806 with respect to depressed industries, it is the policy of the Department of Defense to aid labor surplus areas by placing contracts with labor surplus area concerns, to the extent consistent with procurement objectives and where such contracts can be awarded at prices no higher than those obtainable from other concerns, and by encouraging prime contractors to place subcontracts with concerns which will perform substantially in labor surplus areas. In carrying out this policy, to accommodate the small business policies of Subpart G of this part, preference shall be given in the following order of priority to (a) persistent labor surplus area concerns which are also small business concerns, (b) other persistent labor surplus area concerns, (c) substantial labor surplus area concerns which are also small business concerns, (d) other substantial labor surplus area concerns and (e) small business concerns which are not labor surplus area concerns. But in no case will price differentials be paid for the purpose of carrying out this policy. [25 F.R. 14097, Dec. 31, 1960]

§ 1.803 Application of policy.

(a) Within the policy set forth in § 1.802, the following shall be applied to procurements which are estimated to exceed $10,000:

(1) Negotiated procurements shall, where procurement objectives permit, be awarded to labor surplus area concerns: Provided, That in no case shall price differentials be paid for the purpose of carrying out this policy;

(2) Where appropriate, procurements shall be made from labor surplus area concerns by partial set-aside procedures, in accordance with § 1.804, and such set

asides shall be given preference over any small business set-aside (but no total setaside shall be made for labor surplus area concerns);

(3) Each Department shall assure that information identifying labor surplus areas is disseminated promptly to procurement personnel;

(4) Department of Labor certification (see 1.801-2(b) shall be considered conclusive with respect to the particular procurement concerned.

(5) even though less than a complete bidders list is to be used pursuant to § 2.205-4 of this subchapter, all prospective contractors in labor surplus areas shall be solicited, except that only a pro rata number of prospective labor surplus area concerns may be solicited when the bidders list is composed predominantly of labor surplus area concerns and the estimated award is not expected to be more than $25,000;

(6) Subcontracting with concerns in labor surplus areas shall be encouraged in accordance with § 1.805.

(b) Records of the total value of all contracts in excess of $10,000 placed with labor surplus area concerns during each fiscal year, and reports based thereon, are maintained by each Department through the Department of Defense Reporting Sytem described in §§ 1.110. Accordingly, each Department in soliciting bids and proposals for any procurement estimated to exceed $10,000 shall request from any bidder or offeror, or other source, any information needed to determine whether the bidder or offeror is a labor surplus area concern. Contract files shall be documented to indicate the extent to which labor surplus area concerns were considered and the action taken with respect thereto. [25 F.R. 14098, Dec. 31, 1960, as amended at 26 F.R. 5300, June 14, 1961]

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to furnish a severable portion of the procurement at a reasonable price.

(2) In determining whether a proposed procurement is susceptible to division into two or more economic production runs or reasonable lots, consideration should be given to the following factors and any others deemed appropriate:

(i) Price and procurement history of the items,

(ii) Open industry capacity, (iii) Startup cost including special tooling requirements,

(iv) Delivery schedule, and

(v) Nature of item and quantity being procured.

Before a portion or portions constituting more than 50 percent of the total requirement may be set aside, a determination must be made that there is a reasonable expectation the action proposed will not result in the payment of a price differential. The determination and supporting information will be made part of the contract file.

(3) In furtherance of the policy to assure that a fair proportion of procurements is placed with small business concerns, each labor surplus area set-aside shall provide that, in addition to labor surplus area concerns, small business concerns not performing in such areas are also eligible for participation in the set-aside for such quantities thereof as are not awarded to labor surplus area concerns. In this respect, see applicable provisions of § 1.804-2 (b) and (c) for notices to bidders or offerors, and § 1.8042(d) for conduct of set-aside negotiations.

(b) None of the following is, in itself, sufficient cause for not making a setaside:

(1) A large part of previous procurements of the item in question has been placed with labor surplus area concerns;

(2) The item to be purchased is on an established planning list under the Industrial Readiness Planning Program;

(3) The item to be purchased is on a Qualified Products List;

(4) A period of less than thirty days from the date of issuance of invitations for bids or requests for proposals is prescribed for the submission of bids or proposals;

(5) The procurement is classified; or (6) Labor surplus area concerns are receiving a fair proportion of contracts.

(c) Procurement of supplies which were developed and financed in whole or in part by Canadian sources under the

U.S.-Canadian

Defense Development Sharing Program shall not be set aside for labor surplus areas. Identification of the supplies covered by the Program will be in accordance with Departmental procedures.

[25 F.R. 14098, Dec. 31, 1960, as amended at 26 F.R. 9633, Oct. 12, 1961; 29 F.R. 2818, Feb. 29, 1964]

§ 1.804-2 Set-aside procedures.

(a) Where a portion of a procurement is to be set aside pursuant to § 1.804-1, the procurement shall be divided into a non-set-aside portion and set-aside portion, each of which shall be not less than an economic production run or reasonable lot. Insofar as practical, the setaside portion will be such as to make the maximum use of the capacity of labor surplus area concerns. Delivery terms and other terms applicable to the setaside portion of an item and those applicable to the non-set-aside portion of that item shall be comparable.

(b) In advertised procurements involving set-asides pursuant to this part, each invitation for bids shall contain either substantially the following notice or the notice set forth in paragraph (c) of this section. In negotiated procurements, whichever notice is used will be appropriately modified for use with requests for proposals. The appropriate notice shall be made a part of each contract under the set-aside portion of the procurement.

NOTICE OF LABOR SURPLUS AREA SET-ASIDE
(Nov. 1963)

(a) General. A portion of this procurement, as identified elsewhere in the Schedule, has been set aside for award only to one or more labor surplus area concerns, and, to a limited extent, to small business concerns which do not qualify as labor surplus area concerns. Negotiations for award of the setaside portion will be conducted only with responsible labor surplus area concerns (and small business concerns to the extent indicated below) 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 on the nonset-aside portion. Negotiations for the setaside portion will be conducted with such bidders in the following order of priority:

Group 1. Persistent labor surplus area concerns which are also small business concerns. Group 2. Other persistent labor surplus

area concerns.

Group 3. Substantial labor surplus area concerns which are also small business con

cerns.

Group 4. Other substantial labor surplus

area concerns.

Group 5. Small business concerns which are not labor surplus area concerns.

Within each of the above groups, negotiations with such concerns will be in the order of their bids on the non-set-aside portion, beginning with the lowest responsive bid. The set-aside portion shall be awarded at the highest unit price awarded on the non-setaside portion, adjusted to reflect transportation and other cost factors which were considered in evaluating bids on the non-setaside portion. However, the Government reserves the right not to consider token bids or other devices designed to secure an unfair advantage over other bidders eligible for the set-aside portion.

(b) Definitions. (1) 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:

(i) "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 Substantial 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.

(2) 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.

(11) "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 and persistent labor surplus areas (by itself or its first-tier subcontractors) amount to more than 50 percent of the contract price.

(3) 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.

(c) Identification of areas of performance. Each bidder desiring to be considered for award as a 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.

(d) Agreement. The bidder agrees that, if awarded a contract as a 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 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.

(c) Where it is anticipated that bids may be received which appear designed to take unfair advantage of bona fide bidders, by devices such as unrealistically low bids on mere token quantities, the notice set forth below may be used instead of that in paragraph (b) of this section.

NOTICE OF LABOR SURPLUS AREA SET-ASIDE
(Nov. 1963)

(a) General. This procurement has been divided into two parts. All concerns whether labor surplus area concerns or not, may participate in accordance with customary procedures in that portion of this procurement herein called the "non-set-aside" portion. The quantities of the non-set-aside portion are set forth elsewhere in this Schedule. The other portion of the items to be procured has been set aside for participation (1) by labor surplus area concerns, and (ii) to a limited extent, by small business concerns which do not qualify as labor surplus area concerns. This is called the "set-aside portion" and awards therefor are made in accordance with special procedures set forth in paragraph (c) of this Notice. Definitions of the following terms are set forth in paragraph (d) of this Notice.

(1) Labor Surplus Area

(2) Labor Surplus Area Concern

(3) Small Business Concern

(b) Non-set-aside portion and award procedure. (1) A bidder which is not a labor surplus area concern or a small business concern shall submit a bid only for the non-setaside portion of the procurement. Award thereof will be made in accordance with customary procedures.

(2) A bidder which is a labor surplus area concern or a small business concern and is interested in receiving an award for a quantity of an Item not exceeding the quantity set forth in the non-set-aside portion of procurement, should submit a bid in the same manner as other concerns bidding only on the non-set-aside portion. If such a bidder is interested in receiving an award for a quantity of an Item in addition to the quantity set forth in the non-set-aside portion, he must bid the entire quantity of the non-setaside portion of the Item, and indicate such additional quantity of the Item as he desires by so specifying on the Bidder's Statement of Set-Aside Quantity Desired. Thus, the Bidder's Statement of Set-Aside Quantity Desired is not to be used unless the bidder has bid the entire quantity of an Item under the non-set-aside portion. However, a labor surplus area or small business concern which receives no award, or receives an award for less than the total quantity of an Item for which it submitted a bid under the non-setaside portion, may be eligible for an award of the quantity it bid, or the unawarded quantity thereof, under the following procedure governing the set-aside portion.

(c) Set-aside portion and award procedure. Award of the set-aside portion of this procurement will be made after award has been completed on the non-set-aside portion. It will be made only to labor surplus area or small business concerns which are found to be eligible in accordance with (1) below; on the basis of priorities for award set forth in (2) below; for quantities as provided in (3) below; and at prices determined in accordance with (4) below.

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