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 F.R. 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 practicable 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 prospective labor surplus area concerns need 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. (f) Subcontracting with concerns in labor surplus areas shall be encouraged in accordance with § 1-1.805.

(g) In the event of equal low bids, preference shall be given to labor surplus area concerns in accordance with § 1-2.407-6.

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

(i) Procurement agencies shall cooperate with the Departments of Labor and Commerce, the Small Business Ad

(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 sur

plus 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.

sponsive 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:

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

(ii) "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.

(ii) "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.

(iii) "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 first-tier subcontractors) or in any areas (by itself if a certified concern or its first-tier certified 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 the regulations of the Small Business Administration (13 CFR 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 territories and possessions, Puerto Rico, the Trust Territory of the Pacific Islands, and the District of Columbia 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) 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) If awarded a contract as a certifiedeligible 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, a proportionate number of disadvantaged individuals residing within such sections or areas

in accordance with plans approved by the Secretary of Labor.

(2) If awarded a contract as a certifiedeligible 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 a contract as a 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 (i) 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 (ii) in any area (by himself if certified or by first-tier certified subcontractors).

[End of Notice]

[29 F.R. 10104, July 24, 1964, as amended at 30 F.R. 16110, Dec. 28, 1965; 35 F.R. 8483, June 2, 1970]

§ 1-1.804-3 Award procedures.

(a) Awarding the non-set-aside portion. Awards on the non-set-aside portion shall be made in accordance with normal procurement procedures.

(b) Awarding the set-aside portion. (1) After all awards have been made on the non-set-aside portion, award of the set-aside portion shall be effected by negotiation with eligible concerns as provided in the notice. To determine whether a concern is eligible for preferential consideration as a labor surplus area concern the area classification of the Department of Labor in effect at the time of the award, as well as any applicable evidence of a Department of Labor certification, shall be used. Contracts for the set-aside portion shall specify the preferential status of the bidder or offeror on which the award was based.

(2) If equal low bids were received on the non-set-aside portion from concerns which are eligible for the set-aside portion, the concern which is awarded the non-set-aside portion (under the equal low bid procedures of § 1-2.407-6 shall have the first priority with respect to negotiations for the set-aside portion.

(c) Nonawarded set-aside portion. If any part of the set-aside quantity cannot be awarded by the method described in this § 1-1.804, any unawarded portion may be procured by advertising or negotiation, as appropriate, in accordance

with existing regulations. A record of the reasons for failure to award the setaside portion to labor surplus area concerns shall be included in the contract file.

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

§ 1-1.804-4 Withdrawal of set-asides.

If, prior to the award of a contract involving a labor surplus set-aside, the contracting officer considers that the setaside is detrimental to the public interest, e.g., because of unreasonable prices, the contracting officer shall withdraw the set-aside and complete the procurement by advertising or negotiation, as appropriate, in accordance with existing regulations. A record of the reasons for the withdrawal of any set-aside shall be made and included in the contract file. § 1-1.804-5 Contract authority.

Contracts for set-asides made under this subpart shall cite as legal authority for negotiation section 302(c) (1) of the Federal Property and Administrative Services Act of 1949 (41 U.S.C. 252(c) (1)), the revised Armed Services Procurement Act of 1947 (10 U.S.C. 2304(a) (1)), or other applicable proper authority (see § 1-3.201).

§ 1-1.805 Subcontracting with labor surplus area concerns.

§ 1-1.805-1 General.

(a) In furtherance of the general policy stated in § 1-1.802, procuring agencies shall encourage prime contractors to place subcontracts with concerns which will perform a substantial proportion of the production in areas of labor surplus, where this can be done consistent with efficient performance of contracts and at prices no higher than are obtainable elsewhere. (See § 1-1.710 for subcontracting policies with respect to small business concerns.)

(b) As used in this Subpart 1-1.8, the term subcontractor includes a supplier and applies at any level of performance of the contract; and the term subcontract includes a purchase order.

§ 1-1.805-2 Labor surplus area subcontracting program.

The Government's labor surplus area subcontracting program requires Government prime contractors to assume an affirmative obligation with respect to subcontracting with labor surplus area concerns. In contracts which range from $5,000 to $500,000, the contractor undertakes the obligation of using his