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production run or reasonable lot. Insofar as practicable, the set-aside portion will be such as to make maximum use of small business capacity. Delivery and other terms applicable to the set-aside portion of an item and those applicable to the non-set-aside portion of that item shall be comparable.

(c) Notice. Invitations for bids or requests for proposals involving partial set-asides pursuant to this subpart shall contain a notice substantially as set forth in this paragraph. The applicable small business size standard shall be set forth in the schedule. NOTICE OF PARTIAL SMALL BUSINESS SET-ASIDE

(a) General. A portion of this procurement, as identified elsewhere in the Schedule, has been set aside for award only to one or more small business concerns. Negotiations for award of this set-aside portion will be conducted only with responsible small business concerns who have submitted responsive bids on the non-set-aside portion at a unit price within 130 percent of the highest award made on the non-set-aside portion. (For the purpose of this paragraph (a), such "unit price" in the case of award of the non-setaside portion to a foreign bidder or the supplier of a foreign product shall be the evalu. ated unit price established under applicable Buy American Act procedures. See 41 CFR 1-6.104 4.) Negotiations shall be conducted with such small business concerns in the following order of priority:

Group 1. Small business concerns which are also certified-eligible concerns with a first preference.

Group 2. Small business concerns which are also certified-eligible concerns with a second preference.

Group 3. Small business concerns which are also persistent or substantial labor surplus area concerns.

Group 4. 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 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, 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. The partial set-aside of this procurement for small business concerns is based on a determination by the Contracting Officer, alone or in conjunction with a representative of the Small Business Administration, that it is in the interest of maintaining or mobilizing the Nation's full productive capacity, or in the interest of war or national

defense programs, or in the interest of en. suring that a fair proportion of Government procurement is placed with small business concerns.

(b) 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 (13 CFR 121.3-8). In addi. tion 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 territories and possessions, Puerto Rico, the Trust Territory of the Pacific Islands, or the District of Columbia, 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 & geographical area which is either a section of concentrated unemployment or underemployment, a persistent labor surplus area, or a substantial labor surplus area, as defined below:

(1) "Section of concentrated unemployment or underemployment' means appropriate sections of States or "labor areas" 60 classified by the Secretary of Labor.

(11) "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 Unem. ployment”) and is listed as such by that Department in conjunction with its publicetion “Area Trends in Employment and Unemployment," or (B) is certified as an area of substantial and persistent labor surplus by the appropriate State Employment Se. curity Agency or the Department of Labor pursuant to a request by a prospective contractor.

(ill) "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 Trends in Employment and Unemployment," or (B) is certified as an area of substantial labor surplus by the appropriate State Employment Security Agency or the Department of Labor pursuant to & request by a prospective contractor.

(3) The term "labor surplus area concern" includes certified-eligible concerns with & first preference, certified-eligible concerns with a second preference, and persistent or substantial labor surplus area concerns as defined below:

(1) “Certified-eligible concern with a first preference" means a concern (located in or near & section of concentrated unemploy

ment or underemployment or in an area of persistent or substantial labor surplus) which has been certified by the Secretary of Labor in accordance with 29 CFR 8.7(b) and 8.9(C) with respect to the employment of disadvantaged individuals residing within such sections or areas, and which will agree to perform, or cause to be performed by certined concerns with a first preference, & substantial proportion of a contract in or near such sections or in such areas; it includes a concern which, though not so certified, agrees to have a substantial proportion of a contract performed by certified concerns with a first preference in or near such sections or in such areas. A concern shall be deemed to perform a substantial proportion of a contract in or near such sections or in such areas if the costs that the concern will incur on account of manufacturing or production in or near such sections or in such areas (by itself, if a certified concern, or by certified concerns with a first preference acting as first-tier subcontractors) amount to more than 25 percent of the contract price.

(11) "Certified-eligible concern with & second preference" means a concern (located in any area) which has been certified by the Secretary of Labor in accordance with 29 CFR 8.7(c) and 8.9(d) with respect to the employment of disadvantaged individuals and which will agree to perform, or cause to be performed by certified concerns with first or second preferences, a substantial proportion of a contract; it includes a concern

h, though not so certified, agrees to have & substantial proportion of a contract performed by such certified concerns. A concern shall be deemed to perform a substantial proportion of a contract if the costs that the concern will incur on account of manufacturing or production (by itself, if a certified concern, or by certified concerns with a first or second preference acting as first-tier subcontractors) amount to more than 25 percent of the contract price.

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

(c) 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 notines the Contracting Officer before award of the setaside 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) Eligibility Based on Certification. Where eligibility for preference is based upon the status of the bidder, or bidder's subcontractors, as a "certified-eligible concern,” the bidder shall furnish with his bid evidence of certification by the Secretary of Labor.

(e) Agreement. The bidder agrees that: (1) II awarded a contract as a certifiedeligible small business concern with a first preference under the set-aside portion of this procurement, he will perform, or cause to be performed, a substantial proportion of the contract in or near sections of concentrated unemployment or underemployment or in persistent or substantial labor surplus areas; and in the performance of such contract will employ, or require certified first-tier subcontractors with first preferences to employ, & proportionate number of disadvantaged Individuals, as defined by the Department of Labor in 29 CFR 8.2(d), residing within such sections or areas in accordance with plans approved by the Secretary of Labor.

(2) If awarded a contract as a certifiedeligible small business concern with a second preference under the set-aside portion of this procurement, he will perform, or cause to be performed, a substantial proportion of the contract in certified facilities, and in the performance of such contract will employ, or require certified first-tier subcontractors with first or second preferences to employ disadvantaged individuals in accordance with plans approved by the Secretary of Labor.

(3) If awarded & contract as a small business persistent or 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 contract (1) in areas classified at the time of the award, or at the time of performance of the contract, as persistent or substantial labor surplus areas or (11) in any area (by himself if certified or by first-tier certified subcontractors).

(End of Notice) (d) (Reserved]

(e) Award procedures (1) Awarding the non-set-aside portion. Awards of the non-sct-aside portion shall be made in accordance with normal procurement procedures.

(2) Awarding the set-aside portion. After all awards have been made on the non-set-aside portion, aware of the setaside portion shall be effected by negotiation with eligible concerns as provided

in the applicable Notice used. If equal low bids were received on the non-setaside portion from concerns which are equally eligible for the set-aside portion, the concern which is awarded the nonset-aside portion (under the equal low bid procedures of $ 1–2.407-6) shall have first priority with respect to negotiations for the set-aside portion. (29 F.R. 10104, July 24, 1964, as amended at 30 F.R. 16110, Dec. 28, 1965; 35 F.R. 8482, June 2, 1970) § 1-1.706–7 Automatic dissolution of

set-asides. If the entire set-aside portion is not procured by the method set forth in § 1-1.706–5, as to total set-asides, or § 1-1.706–6, as to partial set-asides, the determination referred to in § 1-1.706-1 is automatically dissolved as to the unawarded portion of the set-aside, and such unawarded portion may be procured by advertising or negotiation, as appropriate, in accordance with applicable regulations. However, prior to issuing an invitation to bid or a request for proposals following the dissolution of a small business set-aside, the contracting officer shall review the required delivery schedule for the supplies or services to be resolicited to insure that the delivery schedule is realistic in the light of all relevant factors, including the capabilities of small business concerns. 134 F.R. 19075, Dec. 2, 1969) 81–1.706-8 Contract authority.

(a) Joint small business set-asides. Contracts resulting from either total or partial joint small business set-asides (see § 1-3.215), whether entered into by conventional negotiation or by Small Business Restricted Advertising. shall cite as legal authority for negotiation section 302(C) (15) of the Federal Property and Administrative Services Act of 1949 (41 U.S.C. 252(c) (15)), the revised Armed Services Procurement Act of 1947 (10 U.S.C. 2304(a) (17)), or other applicable proper authority, together with section 15 of the Small Business Act.

(b) Unilateral small business setasides. Contracts resulting from unilateral small business set-asides shall cite the applicable legal authority for negotiation (see $1–3.201). 81–1.707 [Reserved) $ 1-1.708 Certificate of competency

program.

§ 1-1.708-1 General.

Pursuant to authority of the Small Business Act (15 U.S.C. 637(b) (7)), SBA is empowered to certify to Government procurement officers the competency as to capacity and credit of any small business concern or group of such concerns to perform a specific Government contract. As used in this section, “capacity" means the overall ablity of a prospective small business contractor to meet quality, quantity, and time requirements of a proposed contract and includes ability to perform, organization, experience, technical knowledge, skills, “know. how," technical equipment, and facilities. § 1-1.708-2 Applicability and proce

dure. (a) If a small business concern bas submitted an otherwise acceptable bid or proposal but has been found by the contracting officer not to be responsible as to capacity or credit, and if the bid or proposal is to be rejected for this reason alone, SBA shall be notified of the circumstances so as to permit it to issue a certificate of competency. I & partial set-aside is involved and the bid of a small business concern on the unreserved portion is to be rejected for lack of capacity or credit and the same small business concern is entitled to consideration on the reserved portion of the set-aside if a certificate of competency is issued by SBA, the entire quantity of the procurement (reserved and unreserved) for which that small business concem may be entitled, if competent, shall be referred to SBA and the referral papers so noted, in which event SBA may certify the small business concern for the maximum in quantity for which it is eligible under the procurement. The award shall be withheld pending either SBA issuance of a certificate of competency or the expiration of 15 working days after SBA is so notified, whichever is earlier, subject to the following:

(1) This procedure is not mandatory if the contracting officer certifies in writing, and such certificate is approved by higher authority within his agency, that the award must be made without delay, includes such certificate and supporting documentation in the contract file, and promptly furnishes a copy to SBA. Referral of a case to SBA or execution of a certificate of urgency shall not be deferred pending investigation and deter

mination of the responsibility of other offerors.

(2) This procedure does not apply to proposed awards of less than $2,500.

(3) This procedure is optional, within the discretion of the contracting officer, as to proposed awards of more than $2,500, but less than $10,000.

(4) This procedure does not apply where the contracting officer has found a small business concern not to be responsible for a reason other than lack of capacity or credit.

(5) A determination by the contracting officer that a small business concern is not responsible for reasons other than deficiencies in capacity or credit (e.g., lack of integrity, business ethics, or persistent failure to apply necessary tenacity or perseverence to do an acceptable jobnot whether the bidder can perform but whether he will perform) must be supported by substantial evidence documented in the contract file. These factors of responsibility are not covered by the certificate of competency procedure, but are for determination by the contracting officer and approval by the head. of the procuring activity or his designee.

(i) Prior to submission of the contracting officer's determination of nonresponsibility to the head of the procuring activity or his designee for approval, the contracting officer shall transmit a copy of the documentation supporting the determination that a small business concern is not responsible, for reasons other than deficiencies in capacity or credit, to the assigned SBA representative or to the nearest SBA regional office, as appropriate.

(ii) The SBA office receiving the documentation will, within 5 workdays after receipt of the documentation, notify the contracting officer in writing whether SBA desires to submit contrary views concerning the determination.

(iii) If the contracting officer is not so notified, he may conclude that SBA has no objection to the determination. and he may then submit it for approval to the head of the procuring activity or his designee.

(iv) If SBA notifies the contracting officer of an intent to submit contrary views, SBA will, within 10 workdays from the date of notification to the contracting officer, furnish the contracting officer with such contrary views and the reasons therefor, together with any additional factors considered which were not included in the contracting officer's

determination. If the SBA response is not received at the expiration of the 10day period, the contracting oficer may forward the determination for approval with advice that such was the case.

(v) If, after consideration of SBA views, the contracting officer agrees with the SBA position, the determination shall be rescinded. If the contracting officerdoes not agree with the SBA position, he shall then forward the determination to the head of the procuring activity or his designee for resolution, with an explicit indication of his views and the contrary SBA position. The decision of such higher authority shall be final.

(vi) The provisions of $ 1-1.7082(a) (1) apply if the award must be made without delay. In such instance, if the procedures of § 1-1.708-2(a) (5) (1) through (v) are not followed due to considerations of urgency, the requirements of $ 1-1.708-2(a) (1) shall be complied with and the determination that a small business concern is not responsible for reasons other than deficiencies in capacity or credit shall be submitted immediately to the head of the procuring activity or his designee for approval.

(b) To assist SBA in determining the capacity and credit of small business concerns involved in a particular procurement, the procurement agency shall at the time of notification make available to SBA all pertinent technical and financial information with respect to the small business concern involved, including but not limited to copies of the invi. tation for bids or request for proposals, drawings, specifications, preaward surveys, and abstracts of bids.

(c) Nothing in this section shall be construed to prevent a contracting officer from selecting, in the first instance, the source of supply offering the highest competence obtainable or the best scientific approach where such source is needed in certain negotiated procurements of research and development, highly complex equipment, or personal or professional services. However, if a small business concern has been selected on the basis of the highest competence obtainable or best scientific approach and, prior to award, the contracting officer determines that the concern is not responsible because of lack of capacity or credit, the certificate of competency procedure in paragraph (a) of this $ 1-1.708–2 is applicable.

(d) After a contracting officer refers a negative finding regarding the capacity

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or credit of a small business concern to the SBA regional office, the SBA office shall notify the contracting officer if it plans to issue a certificate of competency or to refer the application to the SBA Central Office, Washington, D.C. The contracting officer shall also be inforined of any new or additional facts in the case which have been developed. If these facts warrant, the contracting officer should consider a reversal of his negative finding. Every effort should be made to resolve the differences between SBA and the contracting agency through a complete exchange of preaward information.

(e) If agreement cannot be reached between the SBA regional office and the contracting officer, the contracting officer shall request the SBA regional office to suspend action and to forward the case to the SBA Central Office, Washington, D.C., for review. The SBA Central Office may decline to issue a certificate of competency and inform the contracting officer of this decision, or it may inform the contracting officer and higher authority within the procuring agency of the reasons for SBA's proposed affirmative action. The procuring agency shall notify the SBA Central Office within 10 workdays after receipt of written notification of SBA's proposed affirmative action whether a formal appeal will be made at the Central Office level. The appeal shall be presented within 10 workdays after the SBA Central Office is notified that an appeal will be made or at such later date as may be agreed upon by SBA and the procuring agency. Following the appeal, the SBA Associate Administrator shall make a determination relative to the certificate of competency action and his determination will be considered final. 130 FR 9591, July 31, 1965, as amended at 34 FR 19675, Dec. 2, 1969; 35 FR 3283, Feb. 21, 1970; 38 FR 26913, Sept. 27, 1973) fl-1.708–3 Conclusiveness of certifi.

cate of competency. As provided in the Small Business Act (15 U.S.C. 637(b) (7)), procurement agencies are required to accept SBA certificates of competency as conclusive of a prospective contractor's responsibility as to capacity and credit. (38 FR 26913, Sept. 27, 1973] 8 1-1.709 Records and reports.

Executive agencies shall maintain records of the value of procurement contracts placed with small business con

cerns. Accordingly, each procuring activity shall, in soliciting bids, or proposals, request from any bidder or offeror any information needed to determine whether the bidder or offeror is a small business concern (when Standard Forms 18, 19-B, and 33 are used, this information is available from the small business representation included on these forms). Agencies shall summarize and report such procurement data on Standard Form 37 (Report on Procurement by Civilian Executive Agencies) in accordance with $ 1-16.804. (31 F.R. 5880, Apr. 16, 1966) § 1-1.710 Subcontracting with small

business concerns. § 1-1.710–1 General.

(a) It is the policy of the Government to enable small business concerns to be considered fairly as subcontractors and suppliers 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 appropriate procuring agency with the Small Business Administration when requested by SBA. However, the Small Business Administration is not authorized to prescribe the extent to which any contractor or subcontractor shall subcontract or specify the concerns to which subcontracts shall be granted, and is not vested with authority respecting the administration of individual prime contracts or subcontracts. (See § 1-1.805 for subcontracting policies with respect to labor surplus area concerns.)

(b) This § 1-1.710 sets forth the program for furtherance of this policy and, together with Subpart 1-3.9, prescribes the contract clauses and procedures for use in carrying out the small business subcontracting program.

(c) As used in this Subpart 1-1.7, the term subcontractor includes a supplier and applies at any level of performance of the contract; and the term subcon. tract includes a purchase order.

(d) To carry out more effectively the Government's policy objectives stated in paragraph (a) of this section, prime contractors and subcontractors having small business subcontracting programs must be informed of (1) the Government's evaluation of their efforts in car

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