Hazardous Waste Industry Exclusion for Limitations on Subcontracting

[Maizyblue]

FAR 52.219-14, Limitations on Subcontracting (Dev. 2021-O0008) provides an exclusion from the 50% LOS calculation where it says: 

 The following services may be excluded from the 50 percent limitation:
(i) Other direct costs, to the extent they are not the principal purpose of the
acquisition and small business concerns do not provide the service. Examples include airline travel, work performed by a transportation or disposal entity under a contract assigned the environmental remediation NAICS code 562910), cloud computing services, or mass media purchases.

Would a contractor be allowed to exclude transportation and disposal entity costs under a SBSA contract for Hazardous Waste Removal and Disposal assigned NAICS code 562211, using definition (2):

This U.S. industry comprises establishments primarily engaged in (1) operating treatment and/or disposal facilities for hazardous waste or (2) the combined activity of collecting and/or hauling of hazardous waste materials within a local area and operating treatment or disposal facilities for hazardous waste.

Various other related services, including analysis, recycling, non-RCRA waste disposal, packaging, tracking, industrial cleaning, etc., are also included in performance work statement, but the largest cost of the contract is the disposal entity. 

Additionally, 86 FR 44233, received similar question:

12a. Additional SBA Rule—Hazardous Waste Industry

Comment: Six respondents stated the hazardous waste industry should be excluded from the limitations on subcontracting as disposal facilities and transportation costs are prohibitively expensive for small businesses to own and operate. Therefore, small businesses subcontract out these services, which would cause them to exceed the limitations on subcontracting.

Two respondents stated environmental remediation requires the purchase of significant materials, which is similar to construction. The respondents requested these materials be excluded from the limitations on subcontracting.

Response: These changes are included in SBA's final rule at 13 CFR 125.6(a), published in the Federal Register on November 29, 2019 (84 FR 65647). SBA's rule updates the limitations on subcontracting. A new FAR case would have to be opened to implement the additional changes, which require public comment under 41 U.S.C. 1707 prior to implementation in the FAR. Therefore, the suggested changes are not incorporated in this final rule.

These questions can after SBA at 84 FR 65647, already said the following:

In the environmental remediation industry (NAICS 562910), a large part of the cost of the contract is tied to the transportation and disposal of hazardous, toxic, and radiological waste. According to some SBCs in this industry that have contacted SBA, given the fact that these services are highly regulated and capital intensive, these particular transportation services can generally be performed only by other than small business concerns. For example, all the disposal facilities in the United States are large businesses, and most railroads and shipping companies that transport hazardous waste are other than small business concerns. This rule proposed to exclude transportation and disposal services from the limitations on subcontracting compliance determination where small business concerns cannot provide the disposal or transportation services.

(…)

Based on the positive feedback from industry, the final rule at 125.6(a)(1) adopts the language that specifies that the above-mentioned industries are excluded from limitations on subcontracting compliance calculations. The regulatory text provides that direct costs may be excluded to the extent they are not the principal purpose of the acquisition and small business concerns do not provide the service, “such as” in the four identified industries (airline travel, work performed by a transportation or disposal entity under a contract assigned the environmental remediation NAICS code (562910), cloud computing services, or mass media purchases). The regulatory text is not meant to be inclusive. It allows a small business in another industry in a similar situation to the four identified to also demonstrate that certain direct costs should be excluded because they are not the principal purpose of the acquisition and small business concerns do not provide the services.

It appears 86 FR 44233, says the  Hazardous waste Industry was excluded, but the mention of environmental remediation NAICS is so specific, it does not seem clear if HW removal/disposal NAICS 562211, could also use it. 

[Neil Roberts]

23 hours ago, Maizyblue said:

Would a contractor be allowed to exclude transportation and disposal entity costs under a SBSA contract for Hazardous Waste Removal and Disposal assigned NAICS code 562211, using definition (2):

FAR Case 2021-020 proposes (at 89 Federal Register 2910 dated Jan 17, 2024) to change FAR 52.219-14 essentially as changed by the DOD Class Deviation with respect to exclusion from the 50% rule. Public comments are due March 18, 2024. North American Industrial Classification System (NAICS) code 562910 is just by way of example in both the DOD Class Deviation and the proposed FAR rule change. Your company may wish to obtain an opinion from an attorney/CPA experienced in the industry as to the degree to which rationale in your situation is a reasonable application of similarity to the example. This may serve to give your company more confidence or concern whichever the case may be for your company's business decision.   

 

Edited February 4 by Neil Roberts
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