Defense Federal Acquisition Regulation Supplement: Pilot Program To Incentivize Contracting With Employee-Owned Businesses (DFARS Case 2024-D004)

DEPARTMENT OF DEFENSE <SUBAGY>Defense Acquisition Regulations System</SUBAGY> <CFR>48 CFR Parts 206, 212, 252, and 270</CFR> <DEPDOC>[Docket DARS-2024-0017]</DEPDOC> <RIN>RIN 0750-AM01</RIN> <SUBJECT>Defense Federal Acquisition Regulation Supplement: Pilot Program To Incentivize Contracting With Employee-Owned Businesses (DFARS Case 2024-D004)</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Defense Acquisition Regulations System, Department of Defense (DoD). <HD SOURCE="HED">ACTION:</HD> Proposed rule. <SUM> <HD SOURCE="HED">SUMMARY:</HD> DoD is proposing to amend the Defense Federal Acquisition Regulation Supplement (DFARS) to implement sections of the National Defense Authorization Acts for Fiscal Year 2022 and Fiscal Year 2024 that authorize DoD to establish a pilot program that allows for the noncompetitive award of certain follow-on contracts to certain employee-owned businesses. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> Comments on the proposed rule should be submitted in writing to the address shown below on or before July 29, 2024, to be considered in the formation of a final rule. </EFFDATE> <HD SOURCE="HED">ADDRESSES:</HD> Submit comments identified by DFARS Case 2024-D004, using either of the following methods: ○ <E T="03">Federal eRulemaking Portal: https://www.regulations.gov.</E> Search for DFARS Case 2024-D004. Select “Comment” and follow the instructions to submit a comment. Please include “DFARS Case 2024-D004” on any attached documents. ○ <E T="03">Email: osd.dfars@mail.mil.</E> Include DFARS Case 2024-D004 in the subject line of the message. Comments received generally will be posted without change to <E T="03">https://www.regulations.gov,</E> including any personal information provided. To confirm receipt of your comment(s), please check <E T="03">https://www.regulations.gov,</E> approximately two to three days after submission to verify posting. <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> Ms. Jeanette Snyder, telephone 703-508-7524. </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">I. Background</HD> DoD is proposing to revise the DFARS to implement section 874 of the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2022 (Pub. L. 117-81; 10 U.S.C. 3204 note) as amended by section 872 of the NDAA for FY 2024 (Pub. L. 118-31; 10 U.S.C. 3204 note). Sections 874 and 872 authorize DoD to establish a pilot program that allows for the noncompetitive award of certain follow-on contracts to employee-owned businesses that meet the definition of a qualified business. The Office of the Under Secretary of Defense (Acquisition and Sustainment), Defense Pricing and Contracting implemented section 874 via a contract policy memorandum dated November 8, 2022. <HD SOURCE="HD1">II. Discussion and Analysis</HD> This rule proposes to add new DFARS part 270, Defense Contracting Programs, to include new subpart 270.X, Pilot Program to Incentivize Contracting with Employee-Owned Businesses, to implement section 874 of the NDAA for FY 2022 and section 872 of the NDAA for FY 2024. This proposed new part 270 will contain contracting programs that are unique to DoD but are not socioeconomic programs such as those located in DFARS part 226, Other Socioeconomic Programs. The proposed subpart 270.X provides the scope, definition, policy, limitations, procedures, solicitation provisions, and contract clause associated with the pilot program. This proposed rule, at DFARS 270.X02, Policy, authorizes contracting officers to award one sole-source, follow-on contract for the continued development, production, or provision of products or services that are the same or substantially similar to those procured under previous contracts awarded by or for DoD to contractors that meet the definition of a qualified business. Although section 874 allows for noncompetitive awards, the proposed rule requires such awards to be supported by written justifications and approvals as required at Federal Acquisition Regulation (FAR) 6.303 and FAR 6.304. Under the pilot program, contracts are awarded to qualified businesses. Therefore, a definition of “qualified business” is added to DFARS 270.X01, Definition, as follows: An S corporation as defined in 26 U.S.C. 1361(a)(1) for which 100 percent of the outstanding stock is held through an employee stock ownership plan as defined in 26 U.S.C. 4975(e)(7). The proposed rule, at 270.X03, Limitations, specifies that— • Only a contracting officer may submit an application to participate in the pilot program; • Contracting officers may only award contracts to contractors that meet the definition of a qualified business; • Contracting officers may only award one sole-source, follow-on contract to a qualified business for each predecessor contract, unless a waiver is obtained; and • Unless waived, a qualified business shall not pay more than 50 percent of the amount paid by the Government for contract performance to subcontractors that are not qualified businesses, except when the contract is for a product and subcontracts for materials are not available from another qualified business. Proposed section 270.X00, Scope of subpart, provides references to the NDAA sections implemented by the subpart. In addition, this section also advises contracting officers the authority to award contracts under the pilot program expires on December 27, 2029. The proposed solicitation provision, 252.270-70WW, Pilot Program to Incentivize Contracting with Employee-Owned Businesses—Representation, requires offerors to represent that they are a qualified business. The proposed solicitation provision, 252.270-70XX, Pilot Program to Incentivize Contracting with Employee-Owned Businesses—Subcontracting Certification, requires offerors to certify that they will comply with the limitations on subcontracting. The proposed contract clause, 252.270-70YY, Pilot Program to Incentivize Contracting with Employee-Owned Businesses, requires contractors to comply with the limitations on subcontracting. In addition, the clause specifies the information contractors are required to report to contracting officers not later than 30 days after the end of the period of performance of the contract. Changes are proposed at DFARS 206.302-5 to add the pilot program to the list of authorities agencies may utilize to justify the use of other than full and open competitive procedures. Changes are also proposed at DFARS 212.301 to add the proposed solicitation provisions and contract clause to the list of provisions and clauses that apply to DoD solicitations and contracts using FAR part 12 procedures for the acquisition of commercial products and commercial services. <HD SOURCE="HD1">III. Applicability to Contracts at or Below the Simplified Acquisition Threshold (SAT), for Commercial Products (Including Commercially Available Off-the-Shelf (COTS) Items), and for Commercial Services</HD> This proposed rule proposes two new provisions and a new clause to implement the requirements of section 874 of the NDAA for FY 2022 (Pub. L. 117-81; 10 U.S.C. 3204 note) as amended by section 872 of the NDAA for FY 2024 (Pub. L. 118-31; 10 U.S.C. 3204 note): (1) DFARS clause 252.270-70WW, Pilot Program to Incentivize Contracting with Employee-Owned Businesses—Representation; (2) DFARS 252.270-70XX, Pilot Program to Incentivize Contracting with Employee-Owned Businesses—Certification; and (3) DFARS 252.270-70YY, Pilot Program to Incentivize Contracting with Employee-Owned Businesses. The provisions and clause at DFARS 252.270-70WW, 252.270-70XX and 252.270-70YY are prescribed at DFARS 270.X05 for use in solicitations and contracts for approved acquisitions under the Pilot Program to Incentivize Contracting with Employee-Owned Businesses. DoD does not intend to apply the proposed rule to contracts at or below the SAT. DoD does intend to apply the proposed rule to contracts for the acquisition of commercial products, excluding COTS items, and commercial services. <HD SOURCE="HD2">A. Applicability to Contracts at or Below the Simplified Acquisition Threshold</HD> 41 U.S.C. 1905 governs the applicability of laws to contracts or subcontracts in amounts not greater than the simplified acquisition threshold. It is intended to limit the applicability of laws to such contracts or subcontracts. 41 U.S.C. 1905 provides that if a provision of law contains criminal or civil penalties, or if the Federal Acquisition Regulatory Council makes a written determination that it is not in the best interest of the Federal Government to exempt contracts or subcontracts at or below the SAT, the law will apply to them. The Principal Director, Defense Pricing and Contracting (DPC), is the appropriate authority to make comparable determinations for regulations to be published in the DFARS, which is part of the Federal Acquisition Regulation system of regulations. DoD does not intend to make that determination. Therefore, this proposed rule will not apply at or below the simplified acquisition threshold. <HD SOURCE="HD2">B. Applicability to Contracts for the Acquisition of Commercial Products Including COTS Items and for the Acquisition of Commercial Services</HD> 10 U.S.C. 3452 exempts contracts and subcontracts for the acquisition of commercial products, including COTS items, and commercial services from provisions of law enacted after October 13, 1994, unless the Under Secretary of Defense (Acquisition and Sustainment) (USD(A&S)) makes a written determination that it would not be in the best interest of DoD to exempt contracts for the procurement of commercial products and commercial services from the applicability of the provision or contract requirement, except for a provision of law that— • Provides for criminal or civil penalties; • Requires that certain articles be bought from American sources pursuant to 10 ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 35k characters. 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