paragraph, the data prescribed in paragraph (d) of this section. The activity that refers the matter to the SBA shall maintain close liaison with the SBA to assure compliance with paragraph (e) of this section. If such activity does not hear from the cognizant SBA Regional Office within 5 working days after the matter has been referred, the activity will contact the SBA Office to which the matter was referred to determine whether a certificate of competency is being processed. When, in accordance with subparagraph (2) of this paragraph, the procuring contracting officer has requested the pre-award survey activity to refer the matter to SBA, that activity shall keep the procuring contracting officer advised of significant developments, including the results of any inquiry to the SBA at the end of the 5 working day period, and any new or additional facts, learned from the SBA, that warrant reversal of the pre-award survey activity's negative finding.

(4) A referral need not be made to the SBA if the contracting officer certifies in writing that the award must be made without delay, includes such certificate and supporting documentation in the contract file, and promptly furnishes a copy to the SBA representative.

(5) A referral need not be made to the SBA if a contracting officer determines a small business concern nonresponsible for a reason other than lack of capacity or credit, i.e., if a concern does not satisfy the criteria of § 1.9031 (d) or (e). If a contracting officer determines that a concern does not meet the requirements of § 1.903-1(c) as to a satisfactory record of performance, the matter must be referred to the SBA only if the unsatisfactory record of performance was due solely to inadequate capacity or credit. If a contracting officer has any doubts as to whether the unsatisfactory record of performance can reasonably be attributed to lack of capacity or credit, he shall forward the matter to the higher authority of his department identified in § 1.704-3 (a), or his designee. The decision of such higher authority shall be final.

(6) A determination by a 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 perseverance to do an acceptable

job) must be supported by substantial evidence documented in the contract file.

(d) It is the policy of the Department of Defense to endeavor to reach agreement with the SBA regarding the lack of capacity or credit of a small business concern. To assist the SBA and to assure that it has the benefit of the views of the Military Department, the SBA shall be furnished three copies of the solicitation, one copy of the pertinent drawings and specifications, the preaward survey findings, pertinent technical and financial information, and, if available, the abstract of bids.

(e) If the activity that refers the matter of a negative determination to the SBA learns that an SBA Regional Office is planning to issue a certificate of competency, or to refer the application therefor to Headquarters, SBA, it will inquire of the SBA whether there are new or additional facts in the case. If new or additional facts warrant, the negative determination as to capacity or credit should be reversed. Every effort should be made to resolve any differences between the SBA and the Military Department through a complete exchange of pre-award survey information. Personnel from a purchasing office or surveying activity who participated in a preaward survey, or other personnel having cognizance of such survey shall be prepared to discuss with the SBA the basis for the pre-award findings in their area of cognizance or responsibility.

(f) If a certificate of competency is issued and the contracting officer has substantial doubt as to the ability of the contractor to perform, the case shall be forwarded through channels on an expedited basis with complete documentation as to the element of substantial doubt to, as appropriate, the Director of Procurement, Office of the Assistant Secretary of the Army (I&L); Director of Procurement, Office of the Assistant Secretary of the Navy (I&L); Director of Procurement Policy (AFSPP), Headquarters USAF; or the Executive Director, Procurement and Production, Headquarters DSA, for review. The contracting officer shall withhold procurement action pending receipt of instructions from departmental headquarters. [30 F.R. 14702, Nov. 9, 1965]

§ 1.705-5 Performance of contract by SBA.

In accordance with section 8a of the Small Business Act, in any case in which

the Administrator of SBA certifies to the Secretary concerned that SBA is competent to perform any specific contract, the contracting officer is authorized, in his discretion, to award the contract to SBA upon such terms and conditions, consistent with this subchapter, as may be agreed upon between SBA and the contracting officer.

[29 F.R. 11812, Aug. 29, 1964]

§ 1.706 Set-asides.

[29 F.R. 11812, Aug. 19, 1964] § 1.706-1 General.

(a) Subject to any applicable preference for labor surplus area set-asides as provided in § 1.803 (a) (2) and the following criteria, any individual procurement or class of procurements or an appropriate part thereof, shall be set aside for the exclusive participation of small business concerns when such action is determined by the Small Business Specialist and the contracting officer (upon the initiation of either) to be in the interest of (1) maintaining or mobilizing the Nation's full productive capacity, (2) war or national defense programs, or (3) assuring that a fair proportion of Government procurement is placed with small business concerns. If the Small Business Specialist is not available, the foregoing determination may be made by the contracting officer.

(b) In class set-asides, the Small Business Specialist may recommend that current and future procurements, or portions thereof, of selected items or services or groups of like items or services shall be set aside for exclusive small business participation. Such set-asides, when agreed to by the contracting officer, shall be known as class set-asides. Concurrence in a class set-aside shall not depend on the existence of a current procurement if future procurements can be clearly foreseen. Class set-asides shall apply only to the purchasing activity making the agreement, and shall not apply to an individual procurement for which small purchase procedures are to be used. A class set-aside agreement should specifically identify the items or services subject thereto, and provide for annual joint review by the Small Business Specialist and the contracting officer, to determine whether it should be withdrawn (see § 1.706-3). Any class of procurements proposed to be totally set aside shall satisfy the requirements of § 1.706-5. The set-aside determination

for any class of procurements proposed to be partially set aside shall specify that it does not apply to any individual procurement not severable into two or more economic production runs or reasonable lots. Records of individual procurements under each class set-aside shall be maintained by individual purchasing activities and shall include the solicitation number and date, item or service, estimated dollar amount of the procurement, and estimated dollar amount of the set-aside. Such record shall be made available to the Small Business Specialist.

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

(1) A large percentage of previous procurements of the item has been placed with small business concerns;

(2) The item is on an established planning list under the Industrial Readiness Planning Program, except that a total set-aside shall not be authorized when

one

or more large business Planned Emergency Producers of the item desire to participate in the procurement (but see § 1.706-6 as to partial set-asides);

(3) The item is on a Qualified Products List, except that a total set-aside shall not be authorized when the products of one or more large businesses are on the Qualified Products List unless it has been confirmed that none of such large businesses desires to participate in the procurement (but see § 1.706-6 as to partial set-asides).

(4) A period of less than 30 days from date of issuance of solicitations is prescribed for the submission of the bids or proposals;

(5) The procurement is classified;

(6) Small business concerns are considered to be receiving a fair proportion of total contracts for supplies or services;

(7) A class set-aside of the item or service concerned has been made at some other purchasing activity; or

(8) The item will be described by "brand name or equal."

(d) 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 small business. Supplies covered by the Program shall be identified by the cognizant Military Department.

[30 F.R. 14073, Nov. 9, 1965]

§ 1.706-2 Contract authority.

Contracts for total or partial set-asides entered into by conventional negotiation (see §§ 1.706-5(b) and 1.706-6(d)) or by "Small Business Restricted Advertising" (see 1.706-5(b)) are negotiated procurements and shall cite as authority 10 U.S.C. 2304(a) (1) (see § 3.201-2(b) (2)). [30 F.R. 14074, Nov. 9, 1965]

§ 1.706-3 Review, withdrawal, or modification of set-asides or set-aside proposals.

(a) Prior to issuing solicitations each individual procurement governed by a class set-aside shall be carefully reviewed to ensure that any changes in the magnitude of anticipated requirements, specifications, delivery requirements, or competitive market conditions, since the initial approval of the class set-aside are not of such material nature as to result in the probable payment of an unreasonable price by the Government or in a change in small business capability. If, prior to award of a contract involving an individual or class set-aside, the contracting officer considers that procurement of the set-aside from a small business concern would be detrimental to the public interest (e.g., because of unreasonable price), he may withdraw a setside determination by giving written notice to the Small Business Specialist (if one is assigned) stating the reasons for the withdrawal. Similarly, a class set-aside may be modified with the concurrence of the Small Business Specialist (if one is assigned) to withdraw one or more individual procurements.

(b) Upon a recommendation of the Small Business Specialist that an individual procurement or class of procurements, or portion thereof, be set aside, the contracting officer shall promptly either:

(1) Concur in the recommendation, or (2) Disapprove, stating in writing his reasons for disapproval.

(c) If the contracting officer disagrees with the recommendation of the Small Business Specialist regarding a small business set-aside for an individual procurement or class of procurements or a portion thereof and so notifies the Small Business Specialist in writing, or if the Small Business Specialist disagrees with the contracting officer regarding a withdrawal or modification of a set-aside

determination, the Small Business Specialist may appeal in writing to the appointing authority (see § 1.704-3 (a)) for decision. A memorandum of the decision by the appointing authority shall be placd in the contract file. After receipt of a decision from the appointing authority, which shall be final, and if the decision approves the action of the contracting officer, the Small Business Specialist shall forward for information and management purposes complete documentation of the case to the appropriate Departmental Small Business Advisor as identified in § 1.704-2.

[30 F.R. 14074, Nov. 9, 1965]

§ 1.706-4 Reporting for Department of Commerce Procurement Synopsis.

See § 1.1003-8.

[28 F.R. 12547, Nov. 28, 1963] § 1.706-5

Total set-asides.

(a) (1) Subject to any applicable preference for labor surplus area set-asides as provided in § 1.803 (a)(2), the entire amount of an individual procurement or a class of procurements, including but not limited to contracts for maintenance, repair, and construction, shall be set aside for exclusive small business participation (see § 1.701-1) if the contracting officer determines that there is reasonable expectation that bids for proposals will be obtained from a sufficient number of responsible small business concerns so that awards will be made at reasonable prices. Total set-asides shall not be made unless such a reasonable expectation exists. (But see § 1.706-6 as to partial set-asides.) Although past procurement history of the item or similar items is always important, it is not the only factor which should be considered in determining whether a reasonable expectation exists.

(2) Every proposed procurement for construction, including maintenance and repairs, in excess of $2,500 and under $500,000 shall be considered individually as though the Small Business Specialist had initiated a set-aside request, and the procedures of § 1.706-3 shall apply.

(3) Proposed procurements of $500,000 or more for construction shall not be set aside for exclusive small business participation.

(b) Contracts for total small business set-asides may be entered into by conventional negotiation or by a special method of procurement known as "Small Business Restricted Advertising." The

latter method shall be used wherever possible. Where multi-year procurement procedures are appropriate (see § 1.322). total set-asides may be made in connection therewith. Invitations for bids and requests for proposals shall be restricted to small business concerns. Small business restricted advertising, including awards thereunder, shall be conducted in the same way as prescribed for formal advertising in Part 2 of this chapter except that bids and awards shall be restricted to small business concerns. Bids received from firms which do not qualify as small business concerns shall be considered as nonresponsive and shall be rejected.

(c) In procurements involving total set-asides for small business, each invitation for bids or requests for proposals shall contain substantially the following notice. The applicable size standard shall be set forth in the Schedule. NOTICE OF TOTAL SMALL BUSINESS SET-ASIDE (JULY 1965)

(a) Restriction. Bids or proposals under this procurement are solicited from small business concerns only and this procurement is to be awarded only to one or more small business concerns. This action is based on a determination by the Contracting Officer that it is in the interest of maintaining or mobilizing the Nation's full productive capacity, in the interest of war or national defense programs, or in the interest of assuring that a fair proportion of Government procurement is placed with small business concerns. Bids or proposals received from firms which are not small business concerns shall be considered nonresponsive and shall be rejected.

(b) Definition. 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, § 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.

[29 FR. 2815, Feb. 29, 1964 and 29 F.R. 11812, Aug. 19, 1964, as amended at 30 F.R. 5967, Apr. 29, 1965; 30 F.R. 14074, Nov. 9, 1965]

(a) Subject to any applicable preference for labor surplus area set-asides as provided in § 1.803 (a) (2), a portion of a procurement, not including construction, shall be set aside for exclusive small business participation (see § 1.706-1) where:

(1) The procurement is not appropriate for total set-aside pursuant to § 1.706-5;

(2) The procurement is severable into two or more economic production runs or reasonable lots (see § 1.804-1 (a) (2) (i) through (v)); and

(3) One or more small business concerns are expected to have the technical competency and productive capacity to furnish a severable portion of the procurement at a reasonable price, except that a partial set-aside shall not be made if there is a reasonable expectation that only two concerns (one large and one small) with technical competency and productive capacity will respond with bids or proposals. Before reaching this conclusion, the contracting officer shall consult with the small business specialist and may make advanced inquiries to determine the number of interested concerns. Any deviation from this partial set-aside procedure must be approved by the Head of the Procuring Activity on a case-by-case basis.

Similarly, a class of procurements, not including construction, may be partially set aside in accordance with §1.706-1(b).

(b) Where a portion of a procurement is to be set aside for small business pursuant to paragraph (a) of this section, the procurement shall be divided into a set-aside portion and a non-setaside portion, each of which shall be not less than an economic production run or reasonable lot. Insofar as practical, the set-aside portion will be such as to make the maximum use of small business capacity. Delivery and other terms applicable to the set-aside portion of an item and those applicable to the nonset-aside portion of that item shall be comparable.

(c) In advertised procurements involving partial set-asides for small business, each invitation for bids shall contain substantially the following notice. The applicable size standard shall be set forth in the Schedule. In negotiated procurements, the notice shall be appro

priately modified for use with request for proposals.

NOTICE OF PARTIAL SMALL BUSINESS SET-ASIDE (JULY 1965)

(a) General. A portion of this procureement, 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 120 percent of the highest unit price at which an award is made on the non-set-aside portion. Negotiations shall be conducted with such small business concerns in the following order of priority:

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

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

Group 3. 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 are considered in evaluating bids on the non-set-aside portion, except where a responsive bid has been submitted on the non-set-aside portion at a unit price which when so adjusted is lower than the adjusted highest unit price awarded on the non-set-aside portion but could not be accepted because of quantity limitations or other consideration (such as the bidder's responsibility). In the latter case if the quantity limitation or other considerations do not preclude consideration of the unit price of such unaccepted bid at the time of negotiation for the set-aside portion, a quantity of the set-aside portion equal to the quantity of such unaccepted bid shall be offered to eligible concerns in their order of priority at the adjusted unit price of such unaccepted bid. If no eligible bidder will take the entire quantity so offered at the adjusted unit price of the unaccepted bid, then all eligible concerns in their order of priority shall be offered any lesser portion at the same price. (In the event more than one such unaccepted bid is involved, the same procedure shall be applied successively to each such bid on negotiation for the setaside portion.) Subject to the conditions - set forth below any remaining quantity of the set-aside portion shall be offered to e eligible concerns in their order of priority at the adjusted highest unit price awarded on the non-set-aside portion. If such an unaccepted bid is submitted by a concern

eligible to participate in the set-aside, such concern must accept a quantity of the setaside portion equal to the quantity of the unaccepted bid at the adjusted unit price of the unaccepted bid before any portion of the set-aside may be awarded to that concern at a higher price. If such an unaccepted bid is submitted by a concern not eligible to participate in the set-aside, a quantity of the set-aside portion equal to the unaccepted bid must be awarded at the adjusted unit price of such unaccepted bid before any portion of the set-aside is awarded to any eligible concern at a higher price. 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 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 assuring that a fair portion 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 (Code of Federal Regulations, Title 13, sec. 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 preformance 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) A "labor surplus area" is a geographical area which is:

(1) classified by the Department of Labor as an "Area of Substantial Labor Surplus" or as an "Area of Substantial and Persistent Labor Surplus" (also called "Area of Substantial and Persistent Unemployment") and listed as such by that Department in conjunction with its publication “Area Labor Market Trends"; or

(ii) not classified as in (1) above, but which is individually certified as an area of persistent or substantial labor surplus by the Department of Labor at the request of any prospective contractor.

(3) Labor surplus area concern includes(1) persistent labor surplus area concerns which agree to perform or cause to be performed any contracts awarded to them as labor surplus area concerns substantially in "Areas of Substantial and Persistent Labor

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