performance bond on Standard Form 25, Performance Bond, and a payment bond on Standard Form 25A, Payment Bond, as required by the Miller Act (40 U.S.C. 270a-270e). Applicable policies and procedures regarding the use of these bonds appear in §§ 1-10.104-1 and 1-10.105-1. In addition to incorporating the terms and conditions (including price) which have been agreed upon and incorporated in the contract between SBA and the procuring agency, and which, in turn, have been agreed upon during the negotiations between SBA and its subcontractor, the following shall also be incorporated in the subcontract: Standard Form 19-A, if the subcontract is in excess of $2,000, (ii) Standard Form 23-A. General Provisions (Construction Contract), or the General Provisions on Standard Form 19, as appropriate, and (iii) such other procuring agency forms and special conditions as may be required. Unless otherwise agreed to by the SBA and the procuring agency, the following clause (or a similar clause) shall be included in the subcontract:

SPECIAL 8(a) SUBCONTRACT CONDITIONS

(i)

(1) The subcontractor shall, for and on behalf of the SBA, fulfill and perform all of the requirements of Contract No. (insert contract number) for the consideration stated therein. The subcontractor acknowledges that it has read and is familiar with each and every part of said contract.

(2) The SBA has delegated responsibility for the administrattion of this subcontract to the (insert name of procuring agency) with complete authority to take any action on behalf of the Government under the terms and conditions of this subcontract.

as

(3) The term "Contracting Officer" used in the General Provisions (Standard Form 19 or Standard Form 23-A, whichever applies) means the person designated by the (insert name of procuring agency) as Contracting Officer. The Contracting Officer designated for this subcontract shall be (name), (address), (insert name of procuring activity and the name of the procuring agency) or his duly appointed successor or authorized representative.

(4) The term "Contractor" as used in the General Provisions (Standard Form 19 or Standard Form 23-A, whichever applies)

means the "subcontractor" who has entered into this subcontract with SBA for the performance of all of the work under this subcontract.

(5) The reference to the "head of the Federal agency" and to "his duly authorized representative" in the "Disputes" clause of this subcontract (General Provisions, Article 3 of Standard Form 19 or Article 6 of Standard Form 23-A, whichever applies) shall be deemed to mean, respectively, the (insert Secretary or Administrator) of the (insert name of procuring agency) and the Board of Contract Appeals of the (insert name of procuring agency).

(6) The subcontractor will not subcontract the performance of any of the requirements of this subcontract to a lower tier subcontractor without the prior written approval of the SBA and the designated Contracting Officer of the (insert name of procuring agency), or his duly appointed successor or authorized representative.

(7) Nothing contained in this contract shall be construed as creating any contractual relationship between the Government and any second or lower tier subcontractor which may be authorized by the SBA and the Contracting Officer. The divisions or sections of the specifications are not intended to control the subcontractor in dividing the work among any duly authorized second tier subcontractors, or to limit the work of any

trade.

or

(8) The subcontractor shall be responsible to the Government for the acts omissions of his own employees and of any duly authorized lower tier subcontractors and their employees. He shall also be responsible for the coordination of the work of the trades, any duly authorized lower tier subcontractors, and suppliers.

(9) Any progress payments to be made under this subcontract will be made directly to the subcontractor by the (insert name of procuring agency). However, the final payment under the subcontract will be made only upon the written authorization of the SBA and after receipt of an executed release of claims from the subcontractor.

(2) The original and two duplicate original copies of the subcontract shall be executed by the subcontractor and an authorized official of the SBA. The original executed subcontract (and such additional authenticated, conformed, or reproduced copies as may be required by SBA) shall be retained by SBA for internal distribution in accordance with its regulations and procedures. One duplicate original copy of the executed subcontract (and such additional authenticated, conformed, or reproduced copies as may be required by the procuring agency) shall be furnished to the procuring agency for internal distribution in accordance with its regulations and

This subpart sets forth policies and procedures with respect to aiding sections classified as having concentrated unemployment or underemployment and areas of persistent or substantial labor surplus hereinafter referred to as labor surplus areas, in the United States, its possessions, Puerto Rico, and the Trust Territory of the Pacific Islands. This subpart implements Defense Manpower Policy 4 (Revised), October 16, 1967 (32A CFR ch. 1), and U.S. Department of Labor regulations, as amended, February 3, 1970 (29 CFR Part 8).

[35 F.R. 8483, June 2, 1970] § 1-1.801 Definitions.

[35 F.R. 8483, June 2, 1970]

§ 1-1.801-1 Labor surplus area concern.

The term "labor surplus area concern" includes certified-eligible concerns with a first preference, certified-eligible concerns with a second preference, and persistent or substantial labor surplus concerns as defined in this

area

§ 1-1.801-1.

(a) "Certified-eligible concern with a first preference" means a concern (located in or near a section of concentrated unemployment 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 certified concerns with first preferences, a 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 first preferences 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.

(b) "Certified-eligible concern with a 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 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 which, though not so certified, agrees to have a 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 first or second preferences acting as first-tier subcontractors) amount to more than 25 percent of the contract price.

(c) "Persistent or substantial labor surplus area concern" means a concern which will 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 first-tier subcontractors) or in any areas (by itself if a certified concern or its firsttier certified subcontractors) amount to more than 50 percent of the contract price.

[35 F.R. 8483, June 2, 1970]

§ 1-1.801-2 Labor surplus area.

The term "labor surplus area" means a geographical area which at the time of award is either a section of concentrated unemployment or underemployment, a persistent labor surplus area, or a substantial labor surplus area, as defined in this § 1-1.801-2.

(a) "Section of concentrated unemployment or underemployment" means appropriate sections of States or labor

areas so classified by the Secretary of Labor.

(b) "Persistent labor surplus area" means an area which (1) 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 Trends in Employment and Unemployment" or (2) is certified as an area of substantial and persistent labor surplus by the appropriate State Employment Security Agency or the Department of Labor pursuant to a request by a prospective contractor.

(c) "Substantial labor surplus area" means an area which (1) 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 (2) is certified as an area of substantial labor surplus by the appropriate State Employment Security Agency or the Department of Labor pursuant to a request by a prospective contractor.

[35 F.R. 8483, June 2, 1970]

§ 1-1.801-3 Small business concern. For definition of small business concern, see Subpart 1-1.7.

[32 F.R. 18047, Dec. 16, 1967]

§ 1-1.802 Labor surplus area policies. § 1-1.802-1 General policy.

It is the policy of the Government to encourage the placing of contracts in sections of concentrated unemployment and underemployment and in areas of persistent and substantial labor surplus, 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 a substantial proportion of the production in such sections and in labor surplus areas. [32 FR. 18047, Dec. 16, 1967] § 1-1.802-2 Specific policies.

To further the general policy, the following specific policies shall be applied to procurements which are estimated to exceed $10,000 and may, if deemed prac

ticable by the contracting officer, be applied to procurements between $2,500 and $10,000:

(a) Best efforts shall be used to award negotiated contracts to labor surplus area concerns. However, in no case may price differentials be paid for the purpose of carrying out this policy.

(b) Procurements shall be set aside for award to labor surplus area concerns in accordance with § 1-1.804.

(1) Where either a partial labor surplus area set-aside or a partial small business set-aside can be appropriately made for any given procurement, the setaside shall be made for labor surplus area

concerns.

(2) In order to accommodate both labor surplus area and small business policies, labor surplus area set-aside awards shall be made in accordance with the following order of priority: (i) Certified-eligible concerns with a first preference which are also small business concerns; (ii) other certified-eligible concerns with a first preference; (iii) certified-eligible concerns with a second preference which are also small business concerns; (iv) other certified-eligible concerns with a second preference; (v) persistent or substantial labor surplus area concerns which are also small business concerns; (vi) other persistent or substantial labor surplus area concerns; and (vii) small business concerns which are not labor surplus area concerns.

(c) Procurement agencies shall disseminate promptly to appropriate procurement personnel available publications and other information identifying certified concerns and sections of concentrated unemployment and underemployment and other labor surplus areas and the production capabilities therein.

(d) The classification and certification of labor surplus areas and concerns by the Department of Labor shall be considered conclusive with respect to the particular procurement concerned.

(e) Concerns located in labor surplus areas, which are on appropriate bidders lists, shall be given the opportunity to submit bids or proposals on all procurements for which they are qualified, except where the procurement has been set aside in its entirety for a specific class of firms, such as small business concerns. Where less than a complete bidders list is to be used, pursuant to § 1-2.205-4, all prospective contractors in labor surplus areas shall be solicited, except that only a pro rata number of pro

(h) Depressed industries shall be assisted in accordance with § 1-1.806.

(1) Procurement agencies shall cooperate with the Departments of Labor and Commerce, the Small Business Administration, and the Office of Emergency Planning to achieve the objectives of this subpart.

(j) Procurement placed in labor surplus areas as a result of preference procedures shall be reported in accordance with § 1-1.807.

[29 F.R. 10104, July 24, 1964, as amended at 32 F.R. 18047, Dec. 16, 1967; 35 F.R. 8483, June 2, 1970]

§ 1-1.802-3 Buy American Act.

Any preference under the "Buy American Act" due to performance in labor surplus areas (see section 3(c) of Executive Order No. 10582 of December 17, 1954, which prescribes uniform procedures for certain determinations under the Buy American Act) shall be in addition to the assistance accorded pursuant to this subpart.

§ 1-1.803

§ 1-1.804

[Reserved]

Partial set-asides for labor surplus area concerns.

§ 1-1.804-1 General.

(a) In accordance with the policies set forth in § 1-1.802, a portion of each procurement shall be set aside by the contracting officer for labor surplus area concerns if:

(1) The procurement is severable into two or more economic production runs or reasonable lots; and

(2) One or more labor surplus area concerns are expected to have the technical competency and productive capacity to furnish a severable portion of the procurement at a reasonable price.

(b) 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: (1) Price and procurement history of the items, (2) open industry capacity, (3) startup cost including special tooling requirements, (4) delivery schedule, and (5) 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 that the action proposed will not result in the payment of a price differential.

(c) In furtherance of the policy to assure that a fair proportion of the total purchases and contracts are 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 award of any set-aside quantities not awarded to labor surplus area concerns (see § 1-1.804-2).

(d) None of the following is, in itself, sufficient cause for not making a labor surplus area set-aside:

(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; or

(5) The procurement is classified.

(e) Where it is determined that a portion of a procurement is to be set aside for labor surplus areas, the procurement shall be divided into a non-set-aside portion and a set-aside portion. Insofar as practical, the set-aside 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 set-aside portion of an item and those applicable to the non-set-aside portion of that item shall be comparable.

§ 1-1.804-2 Notice to bidders or offer

ors.

(a) Invitations for bids or requests for proposals involving set-asides, pursuant to this subpart, shall contain a notice substantially as set forth in paragraph

(b) of this section. The notice may be modified to include the applicable specific small business definition. The notice used shall be made a part of each contract under the set-aside portion of the procurement.

(b) Notice:

NOTICE OF LABOR SURPLUS AREA 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 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) which have submitted responsive bids or proposals on the non-setaside portion at a unit price no greater than 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-set-aside portion to a foreign bidder or the supplier of a foreign product shall be the evaluated unit price established under applicable Buy American Act procedures. See 41 CFR 1-6.104-4.) Negotiations for the set-aside portion will be conducted with such bidders in the following order of priority:

Group 1. Certified-eligible concerns with a first preference which are also small busi

ness concerns.

Group 2. Other certified-eligible concerns with a first preference.

Group 3. Certified-eligible concerns with a second preference which are also small busi

ness concerns.

Group 4. Other certified-eligible concerns with a second preference.

Group 5. Persistent or substantial labor surplus area concerns which are also small business concerns.

Group 6. Other persistent or substantial labor surplus area concerns.

Group 7. 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 nonset-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.

(b) Definitions. (1) The term "labor surplus area" means a 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 so 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 Unemployment") and 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 and persistent labor surplus by the appropriate State Employment Security Agency or the Department of Labor pursuant to a request by a prospective contractor.

"

(iii) "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 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 a request by a prospective contractor.

(2) The term "labor surplus area concern" includes certified-eligible concerns with a 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 a section of concentrated unemployment 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 certified concerns with first preferences, a 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 first preferences 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 first preferences acting as first-tier subcontractors) amount to more than 25 percent of the contract price.

(11) "Certified-eligible concern with a second preference" means a concern (located in any area) which has been certified by the