Proposed Rule2022-18068
Ownership and Control and Contractual Assistance Requirements for the 8(a) Business Development Program
Primary source
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Published
September 9, 2022
Issuing agencies
Small Business Administration
Abstract
This proposed rule would make several changes to the ownership and control requirements for the 8(a) Business Development (BD) program, including recognizing a process for allowing a change of ownership for a former Participant that is still performing one or more 8(a) contracts and permitting an individual to own an applicant or Participant where the individual can demonstrate that financial obligations have been settled and discharged by the Federal Government. The rule also proposes to make several changes relating to 8(a) contracts, including clarifying that a contracting officer cannot limit an 8(a) competition to Participants having more than one certification and clarifying the rules pertaining to issuing sole source 8(a) orders under an 8(a) multiple award contract. The proposed rule would also make several other revisions to incorporate changes to SBA's other government contracting programs, including changes to implement a statutory amendment from the National Defense Authorization Act for Fiscal Year 2022, include blanket purchase agreements in the list of contracting vehicles that are covered by the definitions of consolidation and bundling, and more clearly specify the requirements relating to waivers of the nonmanufacturer rule.
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[Federal Register Volume 87, Number 174 (Friday, September 9, 2022)]
[Proposed Rules]
[Pages 55642-55678]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-18068]
[[Page 55641]]
Vol. 87
Friday,
No. 174
September 9, 2022
Part III
Small Business Administration
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13 CFR Parts 121, 124, 125, Et al.
Ownership and Control and Contractual Assistance Requirements for the
8(a) Business Development Program; Proposed Rule
Federal Register / Vol. 87 , No. 174 / Friday, September 9, 2022 /
Proposed Rules
[[Page 55642]]
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SMALL BUSINESS ADMINISTRATION
13 CFR Parts 121, 124, 125, 126, and 127
RIN 3245-AH70
Ownership and Control and Contractual Assistance Requirements for
the 8(a) Business Development Program
AGENCY: U.S. Small Business Administration.
ACTION: Proposed rule.
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SUMMARY: This proposed rule would make several changes to the ownership
and control requirements for the 8(a) Business Development (BD)
program, including recognizing a process for allowing a change of
ownership for a former Participant that is still performing one or more
8(a) contracts and permitting an individual to own an applicant or
Participant where the individual can demonstrate that financial
obligations have been settled and discharged by the Federal Government.
The rule also proposes to make several changes relating to 8(a)
contracts, including clarifying that a contracting officer cannot limit
an 8(a) competition to Participants having more than one certification
and clarifying the rules pertaining to issuing sole source 8(a) orders
under an 8(a) multiple award contract. The proposed rule would also
make several other revisions to incorporate changes to SBA's other
government contracting programs, including changes to implement a
statutory amendment from the National Defense Authorization Act for
Fiscal Year 2022, include blanket purchase agreements in the list of
contracting vehicles that are covered by the definitions of
consolidation and bundling, and more clearly specify the requirements
relating to waivers of the nonmanufacturer rule.
DATES: Comments must be received on or before November 8, 2022.
ADDRESSES: You may submit comments, identified by RIN 3245-AH70, by any
of the following methods:
<bullet> Federal eRulemaking Portal: <a href="https://www.regulations.gov">https://www.regulations.gov</a>
and follow the instructions for submitting comments.
<bullet> Mail (for paper, disk, or CD-ROM submissions): Mark
Hagedorn, Attorney Advisor, Office of General Counsel, U.S. Small
Business Administration, 409 Third Street SW, Washington, DC 20416.
Instructions: All submissions received must include the agency name
and docket number or Regulatory Information Number (RIN) for this
rulemaking. All comments received will be posted on <a href="https://www.regulations.gov">https://www.regulations.gov</a>. If you wish to submit confidential business
information (CBI) as defined in the User Notice at <a href="https://www.regulations.gov">https://www.regulations.gov</a>, please submit the comments to Mark Hagedorn and
highlight the information that you consider to be CBI and explain why
you believe this information should be held confidential.
FOR FURTHER INFORMATION CONTACT: Mark Hagedorn, U.S. Small Business
Administration, Office of General Counsel, 409 Third Street SW,
Washington, DC 20416; (202) 205-7625; <a href="/cdn-cgi/l/email-protection#e984889b82c781888e8c8d869b87a99a8b88c78e869f"><span class="__cf_email__" data-cfemail="422f2330296c2a232527262d302c023120236c252d34">[email protected]</span></a>.
SUPPLEMENTARY INFORMATION: SBA proposes to make several changes to the
ownership and control requirements for the 8(a) Business Development
(BD) program, including recognizing a process for allowing a change of
ownership for a former Participant that is still performing one or more
8(a) contracts and permitting an individual to own an applicant or
Participant where the individual can demonstrate that financial
obligations have been settled and discharged by the Federal Government.
SBA also proposes to make several changes relating to 8(a) contracts,
including clarifying that a contracting officer cannot limit an 8(a)
competition to Participants having more than one certification and
clarifying the rules pertaining to issuing sole source 8(a) orders
under an 8(a) multiple award contract. The proposed rule would also
make several other revisions to incorporate changes to SBA's other
government contracting programs to implement a statutory amendment from
the National Defense Authorization Act for Fiscal Year 2022.
Section-by-Section Analysis
Section 121.103(h)
Section 121.103(h) sets forth the rules pertaining to affiliation
through joint ventures. This rule first proposes to take some of the
language currently contained in the introductory text and add it to a
new Sec. 121.103(h)(1) for ease of use. SBA believes that the current
introductory text is overly complex and separating some of the
requirements into a separate paragraphs will be easier to understand
and use. In adding a new Sec. 121.103(h)(1), the proposed rule would
redesignate paragraphs (h)(1), (2), (3), and (4) as paragraphs (h)(2),
(3), (4), and (5), respectively, and would adjust cross references
contained in Sec. 121.103(h) in Sec. Sec. 121.404(d) and (g)(5),
125.6(c), 125.8(a), 125.18(f)(1), 126.601(d)(1), and 126.618(c)(2).
SBA's regulations currently provide that a specific joint venture
generally may not be awarded contracts beyond a two-year period,
starting from the date of the award of the first contract, without the
partners to the joint venture being deemed affiliated for the joint
venture. Although SBA's current policy is to allow orders to be issued
under previously awarded contracts beyond the two-year period (since
the restriction is on additional contracts, not continued performance
on contracts already awarded), SBA continues to receive questions as to
whether orders beyond the two-year period are permissible. To clear up
any confusion, the proposed rule would add a sentence to the
introductory text of Sec. 121.103(h) to capture SBA's current policy.
SBA notes that current policy also allows for award of contracts beyond
the two-year period if the offer, including price, was submitted prior
to the end of the two-year period. Because there does not appear to be
any confusion regarding that policy, this proposed rule does not change
or amend that policy in any way.
The proposed rule would also revise Example 2 to paragraph (h)
introductory text. SBA's joint venture rule previously prohibited a
joint venture from receiving more than three contracts over a two-year
period. SBA amended that rule to allow a joint venture to seek and be
awarded an unlimited number of contracts over the two-year period. See
85 FR 66146, 66179 (Oct. 16, 2020). Unfortunately, when SBA amended the
regulatory text to paragraph (h) it did not also amend the language in
Example 2 to paragraph (h). Example 2 to paragraph (h) introductory
text gave an illustration of a joint venture receiving two contracts
during a two-year period and not submitting offers for any additional
contracts. Because the example illustrated a situation with only two
contracts, some were confused as to whether the example was applying
the old three contracts over two years rule instead of the amended
unlimited contracts over two years. That was not SBA's intent. This
proposed rule would adjust the language in the example to specifically
recognize that a joint venture can receive more than three contracts
over a two-year period.
The proposed rule would also clarify SBA's distinct treatment of
populated and unpopulated joint ventures. The current regulation
provides that if a joint venture exists as a formal separate legal
entity, it may not be populated with individuals intended to perform
contracts awarded to the joint venture. The proposed rule would clarify
that this requirement was meant to apply only to contracts set aside or
reserved
[[Page 55643]]
for small business (i.e., small business set-aside, 8(a), women-owned
small business (WOSB), HUBZone, and service-disabled veteran owned
small business (SDVOSB) contracts). The reason for this requirement is
to allow SBA and procuring agencies to track the work done by each
partner to the joint venture and to ensure that the lead small business
partner upon whom eligibility for the contract is based (e.g., the 8(a)
partner in a joint venture for an 8(a) contract between an 8(a)
prot[eacute]g[eacute] and its large business mentor) is actually
performing a significant portion of the contract and benefitting from
that performance. As SBA has previously explained, if a joint venture
were permitted to be populated, employees from a large business mentor
could be hired by the joint venture, perform the contract, return to
the large business after contract performance, and leave the small
prot[eacute]g[eacute] firm with few or no benefits or business
development from that contract. The proposed rule would clarify,
however, that a populated joint venture could be awarded a contract set
aside or reserved for small business where each of the partners to the
joint venture were similarly situated (e.g., both partners to a joint
venture seeking a HUBZone contract were certified HUBZone small
business concerns). Any time the size of a populated joint venture is
questioned, the proposed rule also clarifies that SBA will aggregate
the revenues or employees of all partners to the joint venture.
In addition, this proposed rule would revise the ostensible
subcontractor rule in redesignated Sec. 121.103(h)(3). The proposed
rule would first divide the current text contained in Sec.
121.103(h)(2) into Sec. 121.103(h)(3) introductory text and Sec.
121.103(h)(3)(i) for ease of use. SBA also proposes to clarify how the
ostensible subcontractor rule should apply to general construction
contracts. General construction types of contracts regularly involve
subcontractors with specialized experience in the specialty
construction trades. The primary role of a prime contractor in a
general construction project is to superintend, manage, and schedule
the work, including coordinating the work of various subcontractors.
Those are the functions that are the primary and vital requirements of
a general construction contract and ones that a prime contractor must
perform. Although the prime contractor for a general construction
contract must meet the limitation on subcontracting requirement set
forth in Sec. 125.6(a)(3), SBA recognizes that subcontractors often
perform the majority of the actual construction work because the prime
contractor frequently must engage multiple subcontractors specializing
in a variety of trades and disciplines. As such, SBA believes that the
ostensible subcontractor rule for general construction contracts should
be applied to the management and oversight of the project, not to the
actual construction or specialty trade construction work performed. The
prime contractor must retain management of the contract but may
delegate a large portion of the actual construction work to its
subcontractors.
SBA further proposes to revise the ostensible subcontractor rule to
comport with recent decisions of SBA's Office of Hearings and Appeals
(OHA). In Size Appeal of DoverStaffing, Inc., SBA No. SIZ-5300 (2011),
OHA created a four-factor test to indicate when a prime contractor's
relationship with a subcontractor is suggestive of unusual reliance
under the ostensible subcontractor rule. The four factors are (1) the
proposed subcontractor is the incumbent contractor and ineligible to
compete for the procurement, (2) the prime contractor plans to hire the
large majority of its workforce from the subcontractor, (3) the prime
contractor's proposed management previously served with the
subcontractor on the incumbent contract, and (4) the prime contractor
lacks relevant experience and must rely upon its more experienced
subcontractor to win the contract. Under OHA's decisions, when these
factors are present, violation of the ostensible subcontractor rule is
more likely to be found if the subcontractor will perform 40% or more
of the contract. SBA proposes to add two of these four factors to the
ostensible subcontractor rule: the reliance on incumbent management and
the reliance on the subcontractor's experience. As with the existing
rule, SBA still would consider all aspects of the prime contractor's
relationship with the subcontractor and would not limit its inquiry to
the enumerated DoverStaffing factors. SBA continues to believe that the
SBA Area Offices should be given discretion to consider and weigh all
factors in rendering a formal size determination, and that unique
circumstances could lead to a result that does not fully align with the
DoverStaffing analysis. SBA seeks comment on these proposed changes to
the ostensible subcontracting rule.
Finally, the proposed rule would revise redesignated Sec.
121.103(h)(4) to clarify how receipts are to be counted where a joint
venture hires individuals to perform one or more specific contracts
(i.e., where the joint venture is populated). Although SBA requires
joint ventures to be unpopulated for purposes of performing set-aside
contracts in order to properly track work performed and benefits
derived by the lead small/8(a)/HUBZone/WOSB/SDVOSB entity to the joint
venture, some joint ventures are nevertheless populated for other
purposes. Generally, the appropriate share of a joint venture's
revenues that a partner to the joint venture must include in its own
revenues is the same percentage as the joint venture partner's share of
the work performed by the joint venture. However, that general rule
cannot apply to populated joint ventures. Where a joint venture is
populated, each individual partner to the joint venture does not
perform any percentage of the contract--the joint venture entity itself
performs the work. As such, revenues cannot be divided according to the
same percentage as work performed because to do so would give each
partner $0 corresponding to the 0% of the work performed by the
individual partner. In such a case, SBA believes that revenues must be
divided according to the same percentage as the joint venture partner's
percentage ownership share in the joint venture. Although SBA believes
that is the intent of the current regulation, the proposed rule
specifically incorporates that intent into redesignated Sec.
121.103(h)(4).
Section 121.103(i)
The proposed rule would put back into the regulations a paragraph
pertaining to affiliation based on franchise and license agreements.
This provision was inadvertently deleted from Sec. 121.103 when SBA
deleted other provisions of Sec. 121.103 in its October 2020
rulemaking (85 FR 66146 (Oct. 16, 2020)). The proposed rule merely adds
back into the regulations the provision that was inadvertently removed.
Section 121.404
SBA proposes to clarify Sec. 121.404(a)(1)(iv), which provides
that size is determined for a multiple award contract at the time of
initial offer on the contract even if the initial offer might not
include price. As stated in the existing regulation, this size
determination applies to the contract. However, SBA never intended that
orders issued pursuant to that contract follow the same rule. SBA is
aware of some confusion on that point. Accordingly, the proposed
clarification would make clear that orders issued pursuant to such a
multiple award contract that do not include price are treated similarly
to orders under multiple award contracts generally. SBA believes there
is no justification for exempting orders issued on these
[[Page 55644]]
contracts differently, simply because the contract did not require
price with initial offer. Thus, the proposed rule would specifically
add that size for set-aside orders will be determined in accordance
with paragraph (a)(1)(i)(A) or (B) or (a)(1)(ii)(A) or (B), as
appropriate.
SBA also proposes to clarify when size recertification is required
in connection with a sale or acquisition. In 2016, SBA amended its
regulation regarding recertification of size to add the word ``sale''
in addition to mergers and acquisitions as an instance when
recertification is required. See 81 FR 34243, 34259 (May 31, 2016).
Since that time, some have questioned whether recertification of size
status may be required whenever any sale of stock occurs, even de
minimis amounts. That was not SBA's intent. Recertification is required
whenever there is a merger. However, recertification in connection with
a ``sale'' or ``acquisition'' is required only where the sale or
acquisition results in a change in control or negative control of the
concern. Recertification is not required where small sales or
acquisitions of stock that do not appear to affect the control of the
selling or acquiring firm occur. The proposed rule would add language
to clarify SBA's current intent.
The proposed rule would also clarify the recertification
requirements set forth in Sec. 121.404(g) for joint ventures.
Specifically, the proposed rule would add a new Sec. 121.404(g)(6)
which would set forth the general rule that a joint venture can
recertify its status as a small business where all parties to the joint
venture qualify as small at the time of recertification, or the
prot[eacute]g[eacute] small business in a still active mentor-
prot[eacute]g[eacute] joint venture qualifies as small at the time of
recertification. The proposed rule would also clarify that the two-year
limitation on contract awards to joint ventures set forth in Sec.
121.103(h) does not apply to recertification. In other words,
recertification is not a new contract award, and thus can occur even if
its timing is more than two years after the joint venture received its
first contract.
Sections 121.404(a)(1)(i)(B) and (a)(1)(ii)(B), 124.501(h), and
124.502(a)
Section 121.404(a)(1)(i)(B) and (a)(1)(ii)(B) provide generally
that a business concern that qualifies as small at the time of an offer
for a multiple award contract that is set aside or reserved for the
8(a) BD program will be deemed a small business for each order issued
against the contract, unless a contracting officer requests a size
recertification for a specific order. However, for sole source 8(a)
orders issued under a multiple award contract set-aside for exclusive
competition among 8(a) Participants, Sec. 124.503(i)(1)(iv) requires
an agency to offer and SBA to accept the order into the 8(a) program on
behalf of the identified 8(a) contract holder. As part of the offer and
acceptance process, SBA must determine that a concern is currently an
eligible Participant in the 8(a) BD program at the time of award. See
Sec. 124.501(h). There has been some confusion as to whether a concern
must qualify as small at the time of the offer of the order or whether
size relates back to the award of the underlying 8(a) multiple award
contract. Because size is something SBA looks at in making an
eligibility determination in accepting a sole source offering, SBA
intended that a Participant must currently qualify as a small business
for any sole source award in addition to currently being a Participant
in the program (i.e., firms that have graduated from or otherwise left
the 8(a) BD program are not eligible for any 8(a) sole source award).
SBA believes that the regulations are not clear on this point, and as
such this proposed rule would amend Sec. Sec. 121.404(a)(1)(i)(B) and
(a)(1)(ii)(B), 124.501(h), and 124.502(a) to clarify that position.
Section 121.411(c)
The proposed rule would correct an inconsistency between Sec. Sec.
121.411(c) and 125.3(c)(1)(viii). In requiring a prime contractor to
notify unsuccessful small business offerors of the apparent successful
offeror on subcontracts, Sec. 125.3(c)(1)(viii) provides that a prime
contractor must provide pre-award written notification to unsuccessful
small business offerors on all subcontracts over the simplified
acquisition threshold, while Sec. 121.411(c) requires a prime
contractor to inform each unsuccessful subcontract offeror in
connection with any competitive subcontract. The proposed rule would
add the over the simplified acquisition threshold condition to Sec.
121.411(c) and adjust the language in Sec. 125.3(c)(1)(viii) to make
the two provisions consistent.
Section 121.507
SBA is seeking comments on a proposed amendment to its Small
Business Timber Set-Aside Program regulations. The Small Business
Timber Set-Aside Program establishes small business set-aside sales of
sawtimber from the federal forests managed by the U.S. Department of
Agriculture's Forest Service and the U.S. Department of the Interior's
Bureau of Land Management. Current regulations require that a small
business concern cannot resell or exchange more than 30% of the
sawtimber volume to ``other than small'' businesses. SBA regulations do
not address situations where a small business concern is unable to meet
the 30% requirement due to circumstances outside of their control.
Several timber industry stakeholders have petitioned SBA to allow a
waiver of the 30% requirement in limited circumstances such as natural
disasters, national emergencies, or other attenuating circumstances.
SBA is proposing an amendment to Sec. 121.507 to add paragraph (d),
which would allow the Director of Government Contracting to grant a
waiver in limited circumstances when a small business is unable to meet
the 30% requirement due to circumstances out of its control. SBA seeks
comments on the following: whether a waiver is needed; if it is needed,
under what circumstances should a waiver be granted; whether SBA should
allow partial waivers (i.e., for some but not all of the 30/70
requirement); and how SBA should evaluate a waiver request.
Section 121.702
Section 121.702 sets forth the size and eligibility standards that
apply to the Small Business Innovation Research (SBIR) and Small
Business Technology Transfer (STTR) programs. Paragraph (c)(7) provides
guidance relating to the ostensible subcontractor rule in the SBIR/STTR
programs. That rule treats a prime contractor and its subcontractor or
subgrantee as joint venturers when a subcontractor or subgrantee
performs primary and vital requirements of an SBIR or STTR funding
agreement. The proposed rule would clarify that when an SBIR/STTR
offeror is determined to be a joint venturer with its ostensible
subcontractor, all rules applicable to joint ventures would apply. This
means that SBA will apply Sec. 121.702(a)(1)(iii) or (b)(1)(ii), which
contains the ownership and control requirements for SBIR/STTR joint
ventures. This clarification is consistent with how SBA treats entities
that are determined to be joint venturers with an ostensible
subcontractor for other small business program set-asides.
Section 121.1001
Section 121.1001 identifies who may initiate a size protest or
request a formal size determination in any circumstances. Currently,
the language identifying who may protest the size of an apparent
successful offeror is not identical for all of SBA's programs. For
small business set-aside contracts and
[[Page 55645]]
competitive 8(a) contracts, any offeror that the contracting officer
has not eliminated from consideration for any procurement-related
reason may initiate a size protest. For contracts set aside for WOSBs
or SDVOSBs, any concern that submits an offer may initiate a size
protest. For contracts set aside for certified HUBZone small business
concerns, any concern that submits an offer and has not been eliminated
for reasons unrelated to size may submit a size protest. SBA believes
that making the language for all programs identical would remove any
confusion and provide more consistent implementation of the size
protest procedures. As such, this rule proposes to adopt the language
currently pertaining to small business set-asides and competitive 8(a)
contracts to all of SBA's programs. Thus, any offeror that the
contracting officer has not eliminated from consideration for any
procurement-related reason could initiate a size protest in each of
those programs. The proposed rule would make these changes in Sec.
121.1001(a)(6)(i) for the HUBZone program, in Sec. 121.1001(a)(8)(i)
for the SDVO program, and in Sec. 121.1001(a)(9)(i) for the WOSB
program.
With respect to 8(a) contracts, Sec. 121.1001(a)(2) identifies
interested parties who may protest the size status of an apparent
successful offeror for an 8(a) competitive contract, and Sec.
121.1001(b)(2)(ii) identifies those who can request a formal size
determination with respect to a sole source 8(a) contract award.
Pursuant to Sec. 124.501(g), before a Participant may be awarded
either a sole source or competitive 8(a) contract, SBA must determine
that the Participant is eligible for award. SBA will determine
eligibility at the time of its acceptance of the underlying requirement
into the 8(a) BD program for a sole source 8(a) contract, and after the
apparent successful offeror is identified for a competitive 8(a)
contract. For a sole source contract, if SBA determines a Participant
to be ineligible because SBA believes the concern to be other than
small, Sec. 121.1001(b)(2)(ii) authorizes the Participant determined
to be ineligible to request a formal size determination. However, Sec.
121.1001(b)(2)(ii) does not currently authorize a Participant
determined to be ineligible based on size to request a formal size
determination in connection with a competitive 8(a) contract award. SBA
does not believe that the protest authority of Sec. 121.1001(a)(2) was
meant to apply to this situation since protests normally relate to
another firm challenging the small business status of the apparent
successful offeror, not the apparent successful offeror challenging its
own size status. This rule proposes to provide specific authority to
allow a firm determined to be ineligible for a competitive 8(a) award
based on size to request a formal size determination. It would also
authorize the contracting officer, the SBA District Director in the
district office that services the Participant, the Associate
Administrator for Business Development, and the SBA's Associate General
Counsel for Procurement Law to do so as well.
Sections 121.1004(a)(ii), 125.28(d)(2), 126.801(d)(2)(i), and
127.603(c)(2)
In the context of a sealed bid procurement, SBA's regulations
provide that an interested party must protest the size or socioeconomic
status (i.e., service-disabled veteran-owned small business (SDVOSB),
HUBZone or women-owned small business (WOSB)/economically-disadvantaged
women-owned small business (EDWOSB)) of the low bidder prior to the
close of business on the fifth business day after bid opening. However,
the regulations do not specifically take into account the situation
where a low bidder is timely protested and found to be ineligible, the
procuring agency identifies another low bidder, and an interested party
seeks to challenge the size or socioeconomic status of the newly
identified low bidder. In such a situation, the new low bidder is
identified well beyond five days of bid opening. As such, it is
impossible for an interested party to file a timely protest (i.e., one
within five days of bid opening). It was not SBA's intent to disallow
size protests in these circumstances. SBA believes that a protest in
these circumstances should be deemed timely if it is received within
five days of notification of the new low bidder. A few firms have
questioned whether such a protest should be deemed timely because the
regulations speak only to filing a protest within five days of bid
opening. Because a protest by SBA is always timely, when timeliness has
been questioned in these circumstances, and the protest is sufficiently
specific, SBA has adopted the protest as its own and processed it
accordingly. To eliminate this needless additional step where
timeliness is questioned, the proposed rule would specifically provide
that where the identified low bidder is determined to be ineligible for
award, a protest of any other identified low bidder would be deemed
timely if received within five business days after the contracting
officer has notified the protestor of the identity of that new low
bidder.
SBA proposes to make this change in Sec. 121.1004(a)(ii) for size
protests, in Sec. 125.28(d)(2) for protests relating to SDVO status,
in Sec. 126.801(d)(2)(i) for protests relating to HUBZone status, and
in Sec. 127.603(c)(2) for protests relating to WOSB or EDWOSB status.
Section 121.1004
The proposed rule would add a new Sec. 121.1004(f) to specify that
size protests may be filed only against an apparent successful offeror
(or offerors) or an offeror in line to receive an award. SBA will not
consider size protests relating to offerors who are not in line for
award. This is the current SBA policy and the proposed rule merely
provides additional clarity to Sec. 121.1004(e), which specifies that
premature protests will be dismissed.
Where an agency decides to reevaluate offers as a corrective action
in response to a GAO protest, the proposed rule would add a new Sec.
121.1004(g) providing that SBA would dismiss any size protest relating
to the initial apparent successful offeror. When offerors are made
aware of the new or same apparent successful offeror after
reevaluation, they will again have the opportunity to protest the size
of the apparent successful offeror within five business days after such
notification.
Section 121.1009
Section 121.1009 details the procedures SBA's Government
Contracting Area Offices use in making formal size determinations.
Section 121.1009(a)(1) provides that the Area Office will generally
issue a formal size determination within 15 business days after receipt
of a protest or a request for a formal size determination. With respect
to a specific contract, SBA will generally process size protests
relating only to the apparent successful offeror. SBA sometimes
receives a size protest where the award is simultaneously being
protested at the Government Accountability Office (GAO). Where this
happens, SBA suspends processing the size protest pending the outcome
of the GAO decision since that decision may require corrective action
which could affect the apparent successful offeror. Although that has
been SBA's policy in practice, it is not specifically set forth in
SBA's regulations. The proposed rule would incorporate that policy,
providing that if a protest is pending before GAO, the SBA Area Office
will suspend the size determination case. Once GAO issues a decision,
the Area Office will recommence the size determination process and
issue a
[[Page 55646]]
formal size determination within 15 business days of the GAO decision,
if possible.
Sections 121.1009(g)(5), 125.30(g)(4), 126.503(a)(2), and 127.405(d)
Section 863 of the National Defense Authorization Act for Fiscal
Year 2022 (NDAA FY22), Public Law 117-81, amended section 5 of the
Small Business Act, 15 U.S.C. 634, to add three requirements related to
size and socioeconomic status determinations. First, section 863
mandates that a business concern or SBA, as applicable, ``shall''
update the concern's status in <a href="http://SAM.gov">SAM.gov</a> not later than two days after a
final determination by SBA that the concern does not meet the size or
socioeconomic status requirements that it certified to be. SBA believes
that the statue intends that a business concern be required to update
<a href="http://SAM.gov">SAM.gov</a> in all instances in which it is capable of doing so. Only where
a business concern is unable to change a particular status (e.g., only
SBA can identify a concern as a certified HUBZone small business) will
the business concern not be required to change that status in <a href="http://SAM.gov">SAM.gov</a>.
Second, section 863 requires that, in the event that the business does
not update its status within this timeframe, SBA ``shall'' make the
update within two days of the business's failure to do so. Third,
section 863 requires that, where the business is required to make an
update, it also must notify the contracting officer for each contract
with which the business has a pending bid or offer, if the business
finds, in good faith, that the determination affects the eligibility of
the concern to be awarded the contract. The proposed rule would
implement these provisions by amending SBA's regulations in Sec. Sec.
121.1009(g)(5) (for size determinations), 125.30(g)(4) (for SDVO status
determinations), 126.503(a)(2) (for HUBZone status determinations), and
127.405(c) (for WOSB/EDWOSB status determinations). Because only SBA
can change a firm's status as a certified HUBZone small business
concern in <a href="http://SAM.gov">SAM.gov</a>, it is not ``applicable'' under the statute for the
business concern to do so. As such, the proposed rule would not add
language requiring a HUBZone concern to change its status in <a href="http://SAM.gov">SAM.gov</a>
within two business days of an adverse status determination. Instead,
it would require SBA to make such a change within four business days.
Sections 121.1203 and 121.1204
Section 46(a)(4)(A) of the Small Business Act, 15 U.S.C.
657s(a)(4)(A), provides that in a contract mainly for supplies a small
business concern shall supply the product of a domestic small business
manufacturer or processor unless a waiver is granted after SBA reviews
a determination by the applicable contracting officer that no small
business manufacturer or processor can reasonably be expected to offer
a product meeting the specifications (including the period of
performance) required by the contract. Section 121.1203 of SBA's
regulations provides guidance as to when SBA will grant a waiver to the
nonmanufacturer rule in connection with an individual contract, and
Sec. 121.1204 identifies the procedures for requesting and granting
waivers.
The proposed rule seeks to clarify perceived ambiguities relating
to the effect of a waiver in a multiple item procurement. For a
multiple item set-aside contract, in order to qualify as a small
business nonmanufacturer, at least 50 percent of the value of the
contract must come from either small business manufacturers or from any
businesses for items which have been granted a waiver to the
nonmanufacturer rule (or small business manufacturers plus waiver must
equal at least 50 percent). See 13 CFR 125.6(a)(2)(ii)(B). In seeking a
contract-specific waiver to the nonmanufacturer rule, SBA's regulations
provide that a contracting officer's waiver request must include a
definitive statement of the specific item to be waived. The proposed
rule would clarify that for a multiple item procurement, a contracting
officer must specifically identify each item for which a waiver is
sought. The proposed rule would also provide that once SBA reviews and
concurs with an agency's request, SBA's waiver applies only to the
specific item(s) identified, not to the entire contract.
This rule also proposes to add a provision that would prohibit
contract-specific waivers for contracts with a duration of longer than
five years, including options. When SBA grants an individual waiver
with respect to a particular item, it does not necessarily mean that
there are no small business manufacturers of that item. Instead, it
could merely relate to the lack of availability of small business
manufacturers for the specific contract at issue due to timing (e.g.,
small business manufacturers are currently tied up with other
commitments) or capacity (e.g., there are small business manufacturers,
but those manufacturers cannot provide the item in the quantity that is
required). The circumstances surrounding the availability of a specific
item from small business manufacturers can greatly change in five
years. Beyond five years, new small business manufacturers of a
particular item could come into the market, or those previously
committed to other projects or who were unable to previously supply the
product in the quantity or time constraints required by the contract
could become available to meet the agency's requirements. After a five-
year contract is completed and an agency seeks to award a follow-on
contract for the same requirements, an agency would be required to
again conduct market research and determine that no small business
manufacturer or processor reasonably can be expected to offer one or
more specific products required by the new solicitation. As an
alternative, SBA is considering limiting waivers to five years for long
term contracts, but allowing a procuring agency to seek a new waiver
for an additional five years if, after conducting market research, it
demonstrates that there are no available small business manufacturers
and that a waiver remains appropriate. SBA seeks comments on both
approaches.
When an agency seeks an individual waiver to the nonmanufacturer
rule in connection with a specific acquisition, SBA believes that the
agency is ready to move forward with the acquisition process as soon as
SBA makes a wavier decision and expects the solicitation to be issued
shortly after such a decision is made. That is why SBA's waiver
decision letters provide that the waiver will expire in one year from
the date of the waiver decision. SBA expects award to be made within
one year. If it is not, SBA believes that the agency should come back
to SBA with revised market research requesting that the waiver (or
waivers in the case of a multiple item procurement) be extended.
Similar to the rationale for not allowing individual waivers to apply
to long-term contracts, the circumstances surrounding whether there are
any small business manufacturers who are capable and available to
supply products for a specific procurement may change in one year.
Where an agency demonstrates that small business manufacturers continue
to be unavailable to fulfill the requirement, SBA will extend the
waiver(s). The proposed rule would specifically incorporate this policy
into a new Sec. 121.1204(b)(5).
Although SBA believes that there is no current ambiguity, the
proposed rule would also add language specifying that an individual
waiver applies only to the contract for which it is granted and does
not apply to modifications outside the scope of the contract or other
procurement actions. A waiver granted
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for one contract does not and was never intended to apply to another
contract (whether that separate contract was a follow-on contract,
bridge contract, or some other contract or order under another
contract), but the proposed rule would add this language nevertheless
to dispel any possible misunderstanding.
Finally, the proposed rule would clarify that where an agency
requests a waiver for multiple items, SBA may grant the request in
full, deny it in full, or grant a waiver for some but not all of the
items for which a waiver was sought. SBA's decision letter would
identify the specific items that SBA identifies as waived for the
procurement.
Section 121.1205
Section 121.1205 refers to the list of classes of products for
which SBA has granted waivers to the Nonmanufacturer Rule. The
reference in the current version of the regulation provides a link to a
website that no longer exists. The proposed rule would update the
reference to the correct website, which is <a href="https://www.sba.gov/document/support-non-manufacturer-rule-class-waiver-list">https://www.sba.gov/document/support-non-manufacturer-rule-class-waiver-list</a>.
Section 124.102
Section 124.102(c) provides that a concern whose application is
denied due to size by 8(a) BD program officials may request a formal
size determination with the SBA Government Contracting Area Office
serving the geographic area in which the principal office of the
business is located. SBA notes that during the processing of an
application SBA itself can request a formal size determination pursuant
to Sec. 121.1001(b)(2)(i). The Sec. 124.102(c) process applies only
where SBA has not requested a formal size determination with respect to
a specific applicant. Under Sec. 124.102(c), if the concern requests a
formal size determination and the Area Office finds it to be small
under the size standard corresponding to its primary North American
Classification System (NAICS) code, the concern can immediately reapply
to the 8(a) BD program. SBA believes that a concern should not need to
reapply to the 8(a) BD program if size was the only reason for decline.
In such a case, SBA believes that the Associate Administrator for
Business Development (AA/BD) should immediately certify the firm as
eligible for the 8(a) BD program. The proposed rule would make a
distinction for applications denied solely based on size and those
where size is one of several reasons for decline. Where size is not the
only reason for decline, the proposed rule would provide that the
concern could reapply for participation in the 8(a) BD program at any
point after 90 days from the AA/BD's decline. The AA/BD would then
accept the size determination as conclusive of the concern's small
business status, provided the applicant concern has not completed an
additional fiscal year in the intervening period and SBA believes that
the additional fiscal year changes the applicant's size.
Section 124.103
Section 124.103 describes the rules pertaining to social
disadvantage status. Section 124.103(c) details how an individual who
is not a member of one of the groups presumed to be socially
disadvantaged may establish his or her individual social disadvantage.
It provides that an individual must identify an objective
distinguishing feature that has contributed to his or her social
disadvantage, and lists physical handicap as one such possible
identifiable feature. In order to be consistent with recent changes in
terms made by the General Services Administration (GSA), 87 FR 6044, as
well as with the Americans with Disabilities Act, the proposed rule
would change the words physical handicap to identifiable disability.
Section 124.104
Section 124.104 specifies the rules pertaining to whether an
individual may be considered economically disadvantaged. Section
124.104(c)(2)(ii) provides that funds invested in an Individual
Retirement Account (IRA) or other official retirement account will not
be considered in determining an individual's net worth. The paragraph
then requires the individual to provide information about the terms and
restrictions of the account to SBA in order for SBA to determine
whether the funds invested in the account should be excluded from the
individual's net worth. SBA does not believe that it is necessary for
an individual to provide information about the terms and restrictions
of a retirement account to SBA in every instance. As such, the proposed
rule would change this provision to requiring an individual to provide
information about the terms and restrictions of an IRA or other
retirement account only when requested to do so by SBA.
The proposed rule would also delete current Sec.
124.104(c)(2)(iii). That provision provides that income received from
an applicant or Participant that is an S corporation, limited liability
company (LLC) or partnership will be excluded from an individual's net
worth where the applicant or Participant provides documentary evidence
demonstrating that the income was reinvested in the firm or used to pay
taxes arising in the normal course of operations of the firm. SBA does
not believe that this provision is necessary because the exact
provision is contained in Sec. 124.104(c)(3)(ii) in discussing how SBA
treats personal income.
Section 124.105
Section 124.105 describes the ownership requirements pertaining to
applicants and Participants for the 8(a) BD program. Section 124.105(h)
sets forth ownership restrictions for non-disadvantaged individuals and
concerns, and Sec. 124.105(h)(2) specifies ownership restrictions for
non-Participant concerns in the same or similar line of business and
for principals of such concerns. Current Sec. 124.105(h)(2) recognizes
a limited exception to the general ownership restriction for a former
Participant in the same or similar line of business or a principal of
such a former Participant. This paragraph does not, however, refer to
or recognize another exception set forth elsewhere in SBA's
regulations, and that is the exception set forth in Sec. 125.9(d)(2)
which allows an SBA-approved mentor to own up to 40 percent of its
prot[eacute]g[eacute]. This proposed rule adds language clarifying that
the Sec. 125.9(d)(2) authority applies equally to mentors in the same
line of business as its prot[eacute]g[eacute] that is also a current
8(a) BD Program Participant.
Section 124.105(i) provides guidance with respect to changes of
ownership, and Sec. 124.105(i)(1) specifies that any Participant that
was awarded one or more 8(a) contracts may substitute one disadvantaged
individual for another disadvantaged individual without requiring the
termination of those contracts or a request for waiver under Sec.
124.515. There has been some confusion as to whether there can be a
change of ownership for a former Participant that is still performing
one or more 8(a) contracts. This would generally not occur with one
disadvantaged individual seeking to buy out a disadvantaged principal
of a former 8(a) Participant. That is because of the one-time
eligibility restriction. In order for any change of ownership to be
approved by SBA, SBA must determine that the individual seeking to
replace a former principal does in fact qualify as socially and
economically disadvantaged under SBA's regulations. An individual who
has previously participated in the 8(a) BD program and has used his or
her individual disadvantaged status to qualify one 8(a)
[[Page 55648]]
Participant would not be deemed disadvantaged if the individual sought
to replace a principal of a second 8(a) Participant. Thus, the only
individuals who could seek to replace the principal of a former 8(a)
Participant would be those who have never participated in the 8(a) BD
program before. To do so, such individuals would have to use their one-
time eligibility to complete performance on previously awarded 8(a)
contracts. The business concern could not be awarded any additional
contracts because it is no longer an eligible Participant. If an
individual thought the opportunity was sufficient to entice him or her
to forego his/her one-time eligibility, he or she might proceed with
such a transaction, but SBA does not believe that would often happen.
The more likely scenario would be where an entity (tribe, ANC), Native
Hawaiian Organization (NHO), or Community Development Corporation
(CDC)) seeks to replace the principal of a former 8(a) Participant. The
one-time eligibility restriction does not apply to entities. A tribe,
ANC, NHO or CDC can own more than one business concern that
participates in the 8(a) BD program. As such, an entity could purchase
a former Participant and complete performance of any remaining 8(a)
contracts. If the tribe, ANC, NHO, or CDC seeking to replace the
principal of a former 8(a) Participant has or has had a Participant in
the 8(a) BD program, its general eligibility has already been
established. However, if this would be the first time that a specific
entity would own a business seeking 8(a) BD benefits, the entity must
establish its overall eligibility. In the case of an Indian tribe or
NHO, it must, among other things, demonstrate that it is economically
disadvantaged. The proposed rule would clarify that a change of
ownership could apply to a former Participant as well as to a current
Participant.
Section 124.105(i)(2) permits a change of ownership to occur
without receiving prior SBA approval in certain specified
circumstances, including where all non-disadvantaged individual owners
involved in the change of ownership own no more than a 20 percent
interest in the concern both before and after the transaction. In order
to ensure that ownership interests are not divided up among two or more
immediate family members to avoid SBA's immediate review of a change of
ownership, the proposed rule would provide that SBA will aggregate the
interests of all immediate family members in determining whether a non-
disadvantaged individual involved in a change of ownership has more
than a 20 percent interest in the concern.
Section 124.107
Section 124.107 describes the policies relating to potential for
success. In order to be eligible for the 8(a) BD program an applicant
concern must possess reasonable prospects for success in competing in
the private sector. This requirement stems from the language contained
in section 8(a)(7)(A) of the Small Business Act, 15 U.S.C.
637(a)(7)(A), which provides that no small business concern shall be
deemed eligible for the 8(a) BD program unless SBA determines that with
contract, financial, technical, and management support the concern will
be able to perform 8(a) contracts and has reasonable prospects for
success in competing in the private sector. There has been some
confusion as to whether an applicant must demonstrate that it has
specifically performed work in the private sector prior to applying to
participate in the 8(a) BD program. That is not the case. The statutory
requirement is that SBA must determine that with assistance from the
8(a) BD program a business concern will have reasonable prospects for
success in competing in the private sector in the future. The
regulation requires an applicant to demonstrate that it has been in
business and received revenues in its primary industry classification
for at least two full years immediately prior to the date of its 8(a)
BD application, but it does not say that those revenues must have come
from the private sector. A business concern that has performed no
private sector work but has demonstrated successful performance of
state, local or federal government contracts is eligible to participate
in the 8(a) BD program. The proposed rule would add language clarifying
that intent.
Section 124.108
Section 124.108 establishes other eligibility requirements that
pertain to firms applying to and participating in the 8(a) BD program.
Section 124.108(e) provides that an applicant will be ineligible for
the 8(a) BD program where the firm or any of its principals has failed
to pay significant financial obligations owed to the Federal
Government. This proposed rule would clarify that where the firm or the
affected principals can demonstrate that the financial obligations have
been settled and discharged/forgiven by the Federal Government, the
applicant would be eligible for the program.
Section 124.109
Section 124.109 provides specific rules applicable to Indian tribes
and Alaska Native Corporations for applying to and remaining eligible
for the 8(a) BD program. SBA's regulations currently provide that the
articles of incorporation, partnership agreement or limited liability
company articles of organization of a tribally-owned applicant or
Participant must contain express sovereign immunity waiver language, or
a ``sue and be sued'' clause which designates United States Federal
Courts to be among the courts of competent jurisdiction for all matters
relating to SBA's programs. This rule proposes two changes with respect
to that provision. First, the waiver of sovereign immunity should apply
only to concerns owned by Federally recognized Indian tribes. State
recognized tribes are not deemed sovereign and, thus, do not need to
waive sovereign immunity because they are already subject to suit. As
such, SBA proposes to amend this provision to clarify that it is
intended to apply only to concerns owned by Federally recognized
tribes. Second, concerns that are organized under tribal law may not
have articles of incorporation, partnership agreements or limited
liability company articles of organization and may be unable to
strictly comply with the regulatory language. In response, SBA proposes
to add language allowing tribally-owned concerns organized under tribal
law to waive sovereign immunity in any similar documents authorized
under tribal law.
One of the ways a tribally-owned business can demonstrate potential
for success needed to be eligible for the program is to demonstrate
that it has been in business for at least two years, as evidenced by
income tax returns for each of the two previous tax years showing
operating revenues in the primary industry in which the applicant is
seeking 8(a) BD certification. Not all tribally-owned concerns file
federal income tax returns. The tax return requirement is intended to
be an objective means by which a tribally-owned concern can show that
it has been in business for at least two years with operating revenues.
SBA believes that tax returns are not the only way for a tribally-owned
concern to demonstrate its business history. The proposed rule would
add a provision allowing a tribally-owned applicant to submit financial
statements demonstrating that it has been in business for at least two
years with operating revenues in the
[[Page 55649]]
primary industry in which it seeks 8(a) BD certification.
Section 124.110
The proposed rule would add a new Sec. 124.110(d)(3) to allow the
individuals responsible for the management and daily operations of an
NHO-owned concern to manage two Program Participants. This would make
the control requirements relating to NHO-owned applicants/Participants
consistent with those applying to applicants/Participants owned by
tribes and Alaska Native Corporations (ANCs). Although this is a
statutory exemption for firms owned by tribes and ANCs, and is not for
firms owned by NHOs, SBA believes that the policies relating to all
three entity-owned applicants/Participants should be consistent
whenever possible. SBA does not believe that this change for NHO-owned
firms in any way contradicts any statutory requirement and would merely
allow more flexibility for NHO-owned firms.
In addition, the proposed rule would clarify the current policy
regarding NHO ownership of an applicant or Participant small business
concern. Although SBA currently requires an NHO to unconditionally own
at least 51 percent of the applicant or Participant, the proposed rule
merely makes that requirement explicit in the regulations.
Section 124.204
Section 124.204 details how SBA processes applications for 8(a) BD
program admission. It identifies that only the AA/BD can approve or
decline an application for participation in the 8(a) BD program. There
are, however, certain threshold issues that must be addressed before an
application will be fully processed. Specifically, in SBA's electronic
8(a) application system, there are four fundamental eligibility
questions that must be answered before an application will be reviewed:
an applicant must be a for-profit business (see Sec. Sec. 121.105 and
124.101); every individual claiming disadvantaged status must be a
United States citizen (see Sec. 124.101); neither the applicant firm
nor any of the individuals upon whom eligibility is based could have
previously participated in the 8(a) BD program (see Sec. 124.108(b));
and any individually-owned applicant must have generated some revenues
(see Sec. 124.107(a) and (b)(1)(iv)). If an applicant answers that it
is not a for-profit business entity, that one or more of the
individuals upon whom eligibility is based is not a United States
citizen (see Sec. 124.104), that the applicant or one or more of the
individuals upon whom eligibility is based has previously participated
in the 8(a) BD program (see Sec. 124.108(b)), or that the applicant is
not an entity-owned business and has generated no revenues (see Sec.
124.107(a) and (b)(1)(iv)), its application will be closed and it will
be prevented from completing a full electronic application. Each of
those four bases automatically renders the applicant ineligible for the
program and further review would not be warranted. The proposed rule
would identify these four threshold issues that must be addressed
before an application will be reviewed.
Section 124.302
Section 124.302 addresses graduation and early graduation from the
8(a) BD program. In determining whether an applicant or Participant
should be deemed economically disadvantaged, SBA previously required a
concern to compare its financial condition to non-8(a) BD business
concerns in the same or similar line of business. SBA eliminated that
requirement as not being consistent with the statutory authority which
requires only that an applicant or concern be owned and controlled by
one or more individuals who are economically disadvantaged, not that
the concern itself be economically disadvantaged. In addressing
graduation, Sec. 124.302(b) retained some of that same language
requiring a comparison of an 8(a) BD Participant to non-8(a)
businesses. SBA believes that too is inconsistent with the statutory
language, which defines the term ``graduated'' or ``graduation'' to
mean that a Program Participant is recognized as successfully
completing the 8(a) BD program by substantially achieving the targets,
objectives, and goals contained in its business plan, and demonstrating
its ability to compete in the marketplace without assistance from the
8(a) BD program. 15 U.S.C. 636(j)(10)(H). As such, the proposed rule
would remove Sec. 124.302(b)(5), as not consistent with the statutory
oversight responsibilities. SBA also believes that the requirements for
graduation are adequately set forth in Sec. 124.302(a)(1) of SBA's
regulations and requests comments on whether the entire Sec.
124.302(b) can be eliminated as unnecessary.
Section 124.402
Section 124.402 requires each firm admitted to the 8(a) BD program
to develop a comprehensive business plan and to submit that business
plan to SBA as soon as possible after program admission. Currently,
Sec. 124.402(b) provides that SBA will suspend a Participant from
receiving 8(a) BD program benefits if it has not submitted its business
plan to its servicing district office within 60 days after program
admission. There is a concern that Sec. 124.402(b) does not clearly
provide that a Participant's business plan must be approved by SBA
before the concern is eligible for 8(a) contracts, as required by
section 7(j)(10)(D)(i) of the Small Business Act, 15 U.S.C.
636(j)(10)(D)(i). This proposed rule would clarify that SBA must
approve a Participant's business plan before the firm is eligible to
receive 8(a) contracts. However, SBA recognizes that some firms are
admitted to the 8(a) BD program with self-marketed procurement
commitments from one or more procuring agencies. SBA also understands
that several newly admitted Participants have missed 8(a) contract
opportunities in the past because SBA did not approve their business
plans before the procuring agencies sought to award such procurement
commitments as 8(a) contracts. SBA does not wish to discourage self-
marketing activities or prevent a newly admitted Participant from
receiving critical business development assistance. At the same time,
SBA is constrained by the statutory language requiring business plan
approval prior to the award of 8(a) contracts. The proposed rule would
merely prioritize business plan approval for any firm that is offered a
sole source 8(a) requirement or is the apparent successful offeror for
a competitive 8(a) requirement. Specifically, the proposed rule would
provide that where a sole source 8(a) requirement is offered to SBA on
behalf of a Participant or a Participant is the apparent successful
offeror for a competitive 8(a) requirement and SBA has not yet approved
the Participant's business plan, SBA will approve the Participant's
business plan as part of its eligibility determination prior to
contract award.
Section 124.403
Section 124.403 sets forth the requirements relating to business
plans. Section 124.403(a) provides that Each Participant must annually
review its business plan with its assigned Business Opportunity
Specialist (BOS) and modify the plan as appropriate. The wording of
this paragraph caused some to believe that a Participant needed to
submit a business plan to SBA every year even where nothing had changed
from the previous year. That was not SBA's intent. The ``as
appropriate'' language was meant to infer that a Participant need not
submit a business plan if nothing had changed from the previous year.
The proposed rule clarifies that a Participant must submit
[[Page 55650]]
a new or modified business plan only if its business plan has changed
from the previous year.
Sections 124.501, 125.22(d), 126.609, and 127.503(e)
There has been some confusion as to whether a contracting officer
can limit an 8(a) competition (whether for an 8(a) contract or an order
set-aside for 8(a) competition under an unrestricted contract) to
Participants having more than one certification (e.g., 8(a) and
HUBZone). SBA believes that section 8(a)(1)(D)(i) of the Small Business
Act, 15 U.S.C. 637(a)(1)(D)(i), requires any 8(a) competition to be
available to all eligible Program Participants. SBA has consistently
interpreted this provision as prohibiting SBA from accepting a
requirement for the 8(a) BD program that seeks to limit an 8(a)
competition only to certain types of 8(a) Participants, rather than
allowing competition among all eligible Participants. In other words,
SBA has interpreted this authority to prohibit an agency from requiring
one or more other certifications in addition to its 8(a) certification.
This interpretation is currently contained in Sec. 125.2(e)(6)(i), but
is not specifically contained in the 8(a) BD regulations. Likewise, the
statutory authority for HUBZone set asides, 15 U.S.C. 657a(c)(2)(B),
provides authority for competition restricted to certified HUBZone
small business concerns and does not permit a ``dual'' set-aside for
firms that are both HUBZone-certified and 8(a) Participants. The
proposed rule would merely add a sentence to Sec. 124.501(b) to
clarify SBA's current position that would prohibit a contracting
activity from restricting an 8(a) competition to Participants that are
also certified HUBZone small businesses, certified WOSBs or eligible
SDVO small businesses. SBA also proposes to make similar clarifications
to the regulations for the SDVO (in Sec. 125.22(d)), HUBZone (in new
Sec. 126.609), and WOSB (in Sec. 127.503(e)) programs.
SBA also proposes to clarify Sec. 124.501(b) by noting that an
agency may award an 8(a) sole source order against a multiple award
contract that was not set aside for competition only among 8(a)
Participants. SBA believes that such awards are consistent with SBA's
statutory authority at section 8(a)(16) of the Small Business Act, 15
U.S.C. 637(a)(16), to enter 8(a) sole source awards. Furthermore, this
type of 8(a) sole source order is beneficial to both 8(a) Participants,
who benefit from increased contracting opportunities, and to procuring
agencies, that can take advantage of pre-negotiated terms and pricing.
The proposed rule would also revise the introductory text to Sec.
124.501(g). The revised language would first require SBA to notify an
8(a) Participant any time SBA determines the Participant to be
ineligible for a specific sole source or competitive 8(a) award. SBA
notes that this is currently required in section 19.805-2 of the
Federal Acquisition Regulation (FAR), title 48 of the Code of Federal
Regulations, and is something that should occur routinely, but believes
that highlighting this in SBA's regulations would be helpful. SBA also
proposes to clarify that where a joint venture is the apparent
successful offeror in connection with a competitive 8(a) procurement,
SBA will determine whether the 8(a) partner to the joint venture is
eligible for award, but will not review the joint venture agreement to
determine compliance with Sec. 124.513. SBA believes that there was
some confusion as to what an eligibility determination entailed in the
context of a competitive 8(a) joint venture apparent successful
offeror. The proposed rule seeks to make clear that SBA's determination
of eligibility relates solely to the 8(a) partner to the joint venture
and does not represent a full review of the 8(a) joint venture under
Sec. 124.513.
Finally, the proposed rule would also make several clarifications
to the bona fide place of business requirement contained in Sec.
124.501(k). Section 8(a)(11) of the Small Business Act, 15 U.S.C.
637(a)(11), requires that to the maximum extent practicable 8(a)
construction contracts ``shall be awarded within the county or State
where the work is to be performed.'' SBA has implemented this statutory
provision by requiring a Participant to have a bona fide place of
business within a specific geographic location. In the October 2020
rulemaking, supra, SBA clarified that the Small Business Act does not
differentiate between sole source 8(a) construction contracts and
competitive 8(a) construction contracts. As such, the statutory
``maximum extent practicable'' requirement applies equally to sole
source and competitive 8(a) contracts. SBA understands that some have
expressed the view that the ``to the maximum extent practicable''
statutory language should be read in a way that affords procuring
agencies the discretion to broaden or do away with the bona fide place
of business requirement where they deem it to be appropriate. SBA
disagrees that the statutory language affords such flexibility. In
SBA's view, ``to the maximum extent practicable'' denotes Congress's
intent that something be followed whenever possible, not merely when a
procuring agency thinks it is the best option or appropriate in
particular circumstances. Thus, SBA will continue to apply the bona
fide place of business requirement to both sole source and competitive
8(a) construction procurements unless SBA determines that it is not
``practicable'' to do so. In this regard, with employees expected to
telework on a significant basis due to the COVID-19 pandemic, SBA
issued a Policy Notice temporarily placing a moratorium on the bona
fide place of business requirement with respect to all 8(a)
construction contracts offered to the 8(a) BD program prior to
September 30, 2022, based on SBA's determination that it was not
``practicable'' to impose that requirement at this time. SBA Policy
Notice 6000-819056 (August 25, 2021). Due to the lingering effects of
the COVID-19 pandemic, the SBA Administrator has determined that
requiring a bona fide place of business in a particular location
continues to be impracticable and has extended the moratorium on the
requirement through September 30, 2023. Once SBA determines that it is
no longer impracticable to require a bona fide place of business, SBA
will again require a Participant to have a bona fide place of business
in a particular geographic location with respect to all construction
requirements offered to the 8(a) program. As such, SBA seeks to clarify
several components of the bona fide place of business requirement in
this proposed rule.
When SBA revised the bona fide place of business rule in October
2020, it intended that a Participant with a bona fide place of business
anywhere in a particular state should be deemed eligible for a
construction contract throughout that entire state (even if the state
is serviced by more than one SBA district office). However, because the
regulatory text used the word ``may'', several Participants have sought
clarification of SBA's intent. The proposed rule clarifies SBA's
intent.
The proposed rule would also clarify that where a Participant is
currently performing a contract in a specific state, it would qualify
as having a bona fide place of business in that state for one or more
additional contracts. This clarification is specifically intended to
apply to the situation where a business concern is performing a
construction contract in a specific location, the procuring activity
likes the work done by the business concern and seeks to award an 8(a)
construction contract to the same business concern in the same location
as the previous contract. SBA believes that it does not make sense to
[[Page 55651]]
say that a business concern is not eligible for such award because it
has not officially sought and approved to have a bona fide place of
business in that location. The proposed clarification would also
provide that the Participant could not use contract performance in one
state to allow it to be eligible for an 8(a) contract in a contiguous
state unless it officially establishes a bona fide place of business in
the location in which it is currently performing a contract. The
proposed rule would also clarify that a Participant could establish a
bona fide place of business through a full-time employee in a home
office. In addition, an individual designated as the full-time employee
of the Participant seeking to establish a bona fide place of business
in a specific geographic location need not be a resident of the state
where he/she is conducting business. In the past, some SBA district
offices have required the designated employee to possess a driver's
license issued by the state corresponding to the location of the
office. SBA believes that is not appropriate. There is no requirement
that a specific employee must permanently reside in a specific
location. A Participant merely needs to demonstrate that one or more
employees are operating in an office within the identified geographic
location. A Participant should be able to rotate employees in and out
of a specific location as it sees fit, and as long as one individual
(but not necessarily the same individual) remains at that location,
that location can be considered a bona fide place of business. Finally,
the proposed rule would provide guidance on how SBA interprets the bona
fide place of business requirement where a contract requires work to be
performed in more than one location and those different locations may
not be within the boundaries of the bona fide place of business.
Although this is SBA's current interpretation of the bona fide place of
business requirement, SBA believes putting it in the regulations would
clarify any confusion that currently exists. For a single award 8(a)
construction contract requiring work in multiple locations, the
proposed rule would provide that a Participant is eligible if it has a
bona fide place of business where a majority of the work is to be
performed. For a multiple award 8(a) construction contract, the
proposed rule would require a Participant to have a bona fide place of
business in any location where work is to be performed.
Section 124.503(a)
Section 124.503(a) provides that SBA will decide whether to accept
a requirement offered to the 8(a) BD program within ten working days of
receipt of a written offering letter if the contract value exceeds the
Simplified Acquisition Threshold (SAT). In consideration of mutual
responsibilities under SBA's 8(a) Partnership Agreements with federal
procuring agencies, SBA has agreed to issue an acceptance letter or
rejection letter for such offers within five working days unless the
agency grants an extension. This proposed rule would clarify that the
ten-day acceptance timeframe under Sec. 124.503(a) applies only to
8(a) offers made outside the 8(a) Partnership Agreement authority.
Section 124.503(a)(4)(ii) authorizes a procuring activity to award
an 8(a) contract without requiring an offer and acceptance where the
requirement is valued at or below the SAT and SBA has delegated its
8(a) contract execution functions to the agency. The paragraph goes on
to provide that in such a case, the procuring activity must notify SBA
of all 8(a) awards made under this authority. Some agencies have relied
on this language to justify proceeding to award an 8(a) contract under
the SAT without first requesting an eligibility determination from SBA
of the apparent successful 8(a) contractor (which is required by Sec.
124.501(g)). It was not SBA's intent to allow an award without a
determination of eligibility being made. To do otherwise could result
in agencies awarding 8(a) contracts to ineligible firms. Although it
authorizes an expedited review, the partnership agreement between SBA
and procuring agencies identifies that an eligibility determination
must still be made in these cases. The proposed rule would merely
clarify that requirement in SBA's regulations.
Section 124.503(a)(5) authorizes a procuring agency to seek
acceptance of an 8(a) offering letter with the AA/BD where SBA does not
respond to an offering letter within the ten-day period set forth under
Sec. 124.503(a). The proposed rule clarifies that this ten-day time
period is intended to be ten business days.
Section 124.503(i)(1)(ii)
SBA's current regulations require a procuring agency to notify SBA
where it seeks to reprocure a follow-on requirement through a pre-
existing limited contracting vehicle which is not available to all 8(a)
BD Program Participants and the previous/current 8(a) award was not so
limited. See 13 CFR 124.504(d)(1). There has been some confusion as to
whether this conflicts with Sec. 124.503(i)(1)(ii), which provides
that an agency need not offer or receive acceptance of individual
orders into the 8(a) BD program if the underlying multiple award
contract was awarded through the 8(a) BD program. These provisions were
not meant to conflict. Although formal offer and acceptance is not
required, it is important for SBA to be notified of any work that is
intended to be moved to an 8(a) multiple award contract that was
previously performed under an 8(a) contract that was not limited to
specific 8(a) Participants (i.e., either a sole source award to a
specific Participant or an 8(a) competitive award that was open to all
eligible Program Participants). As SBA noted in the supplementary
information to the final rule implementing the notification requirement
contained in Sec. 124.504(d)(1), an 8(a) incumbent contractor may be
seriously hurt by moving a procurement from an 8(a) sole source or
competitive procurement to an 8(a) multiple award contract to which the
incumbent is not a contract holder. See 85 FR 66146, 66163 (Oct. 16,
2020). In such a case, the incumbent would have no opportunity to win
the award for the follow-on contract and would have no opportunity to
demonstrate that it would be adversely impacted by the loss of the
opportunity to compete for the follow-on procurement. SBA believes that
not allowing an incumbent 8(a) contractor to compete for a follow-on
contract where that contract accounts for a significant portion of its
revenues contradicts the business development purposes of the 8(a) BD
program.
In order to eliminate any confusion and ensure that notification
occurs where a procuring agency seeks to issue an order under an 8(a)
multiple award contract and some or all of the work contemplated in
that order was previously performed through one or more other 8(a)
contracts, the proposed rule would amend Sec. 124.503(i)(1)(ii) to
clarify that an agency must notify SBA where it seeks to issue an order
under an 8(a) multiple award contract that contains work that was
previously performed through another 8(a) contract. Where that work is
critical to the business development of a current Participant that
previously performed the work through another 8(a) contract and that
Participant is not a contract holder of the 8(a) multiple award
contract, SBA may request that the procuring agency fulfill the
requirement through a competition available to all 8(a) BD Program
Participants.
Section 124.503(i)(1)(iv)
SBA's current regulations authorize a sole source 8(a) order to be
awarded under a multiple award contract to a multiple award contract
holder where the multiple award contract was set-
[[Page 55652]]
aside or reserved for exclusive competition among 8(a) Participants.
The procuring agency must offer and SBA must accept the order into the
8(a) BD program on behalf of the identified 8(a) contract holder. To be
eligible for the award of a sole source order, SBA's regulations
currently specify that a concern must be a current Participant in the
8(a) BD program at the time of award of the order. There has been some
confusion as to whether the business activity target requirements set
forth in Sec. 124.509 apply to the award of such an order. In other
words, it was not clear whether a Participant seeking a sole source
8(a) order under a multiple award contract set-aside or reserved for
eligible 8(a) Participants needed to be in compliance with any
applicable competitive business mix target established or remedial
measure imposed by Sec. 124.509 at the time of the offer/acceptance of
the order. Because SBA is determining eligibility anew at the time of a
new sole source order, it was always SBA's intent to not only require a
firm to still be a current 8(a) Participant at the time of offer/
acceptance of a sole source order, but to also require the firm to be
in compliance with any applicable competitive business mix target
established or remedial measure imposed by Sec. 124.509. As such, this
proposed rule clarifies that compliance with the Sec. 124.509 business
activity target requirements will be considered before SBA will accept
a sole source 8(a) order on behalf of a specific 8(a) Participant
multiple award contract holder. Where an agency seeks to issue a sole
source order to a joint venture, the proposed rule clarifies that SBA
will review and determine whether the lead 8(a) partner to the joint
venture is currently an eligible Program Participant and in compliance
with any applicable competitive business mix target established or
remedial measure imposed by Sec. 124.509.
In addition, the proposed rule further clarifies the rules
pertaining to issuing sole source orders to joint ventures under an
8(a) multiple award contract. There has been some confusion as to
whether the requirement set forth in Sec. 121.103(h) that a joint
venture may not be awarded contracts beyond a two-year period, starting
from the date of the award of the first contract, applies to such sole
source orders and whether SBA must approve the joint venture in
connection with the sole source order as generally required by Sec.
124.513(e)(1). The restriction in Sec. 121.103(h) stems from SBA's
belief that a joint venture should not be an on-going entity, but
something with limited scope and limited duration. Thus, SBA has
limited the duration that a joint venture can submit offers for the
award of contracts to two years from the date of its first contract
award. However, that two-year restriction does not apply to orders
issued under an already awarded contract. The proposed rule would
specifically clarify that the two-year restriction does not apply to a
sole source 8(a) order under an 8(a) multiple award contract. In other
words, the sole source order can be issued more than two years after
the date the joint venture received its first contract award. In
addition, the proposed rule would provide that SBA would not review and
approve a joint venture where the joint venture had already been
awarded a competitive 8(a) multiple award contract and is seeking a
sole source 8(a) order under that multiple award contract at some point
during the performance period of the contract. SBA believes that the
general requirement set forth in Sec. 124.513(e)(1) that SBA review a
joint venture in connection with a sole source 8(a) award should not
apply to sole source orders issued under a competitively awarded 8(a)
multiple award contract because the joint venture's eligibility for the
contract was already established at the award of the underlying
contract. The procuring agency and other interested parties had the
opportunity to challenge whether the joint venture was properly formed
at that time.
Finally, in making this clarification to Sec. 124.509, SBA noticed
two instances in SBA's rules where SBA intended to cross reference
Sec. 124.509, but instead cited to Sec. 124.507. This proposed rule
would amend Sec. Sec. 124.303(a)(15) and 124.403(c)(1) to change the
cross reference to Sec. 124.509.
Section 124.503(i)(2)(ii)
SBA has received inquiries as to whether an agency can issue an
order under the Federal Supply Schedule (FSS) as an 8(a) award, and if
so, what procedures must be used. As with any unrestricted multiple
award contract, SBA believes that an order can be issued under the FSS
as an 8(a) award if the procedures set forth in Sec. 124.503(i)(2) are
followed. This means that the following requirements must be met: the
order must be offered to and accepted into the 8(a) BD program; the
order must require the concern to comply with applicable limitations on
subcontracting provisions and the nonmanufacturer rule, if applicable,
in the performance of the individual order; before award, SBA must
verify that the identified apparent successful offeror is an eligible
8(a) Participant as of the initial date specified for the receipt of
proposals contained in the order solicitation, or at the date of award
of the order if there is no solicitation; and the order must be
competed exclusively among only the 8(a) awardees of the underlying
multiple award contract. There is some confusion as to what that last
requirement means. In the case of a multiple award contract awarded
under full and open competition, SBA believes that the current
regulatory language is clear. All contract holders that have certified
as 8(a) eligible must be able to submit an offer for the order if they
choose. An agency cannot limit competition to a subset of contract
holders that have claimed to be 8(a) eligible. Of course, the apparent
successful offeror's eligibility must be verified by SBA prior to award
to ensure that the concern was in fact an eligible Participant as of
the initial date specified for the receipt of offers contained in the
order solicitation, or at the date of award of the order if there is no
solicitation. For an order under the FSS that an agency seeks to issue
through the 8(a) BD program, there has been some confusion as to what
procedures must be used to issue the order. Specifically, agencies have
told SBA that it is not clear whether an agency can merely follow the
FAR 8.4 requirements or must allow all FSS holders who claim 8(a)
status the opportunity to compete. SBA believes that orders issued
under the FSS are unique from orders issued under multiple award
contracts competed using full and open competition. GSA has established
procedures for issuing orders under the FSS. SBA believes that those
procedures should be used when an agency seeks to issue an 8(a) award
under the FSS. This proposed rule would clarify that distinction. An
agency need not open the order up to competition among all FSS contract
holders claiming 8(a) status. However, an agency must consider the
quote from any FSS contract holder claiming 8(a) status who submits
one. As with 8(a) orders issued under unrestricted multiple award
contracts, however, the apparent successful offeror for an 8(a) order
under the FSS must be an eligible Participant as of the initial date
specified for the receipt of offers contained in the request for quote,
or at the date of award of the order if there is no solicitation.
SBA proposes to clarify Sec. 124.503(i)(2)(ii) by noting that an
agency may award an 8(a) sole source order under a multiple award
contract that was awarded under full and open competition or as a small
business set-
[[Page 55653]]
aside where the identified 8(a) Participant is a contract holder of the
multiple award contract. It was not SBA's intent to prohibit agencies
from entering 8(a) sole source orders in this context. Such orders are
consistent with SBA's statutory authority at section 8(a)(16) of the
Small Business Act, 15 U.S.C. 637(a)(16), to enter 8(a) sole source
awards. Additionally, clarification of this flexibility is beneficial
to both 8(a) Participants, who benefit from increased contracting
opportunities, and to procuring agencies that can take advantage of
pre-negotiated terms and pricing. Of course, a procuring agency must
offer and SBA must accept the requirement sought to be fulfilled as an
8(a) sole source order before the order can be issued.
Section 124.504
Section 124.504(d) sets forth the procedures authorizing release of
a follow-on requirement from the 8(a) BD program. Paragraph (d)(3)
provides that SBA will release a requirement where the procuring
activity agrees to procure the requirement as a small business,
HUBZone, SDVO small business, or WOSB set-aside. Some procuring
activities have read this to mean that SBA will always release a
requirement from the 8(a) BD program if the procuring activity agrees
to procure the requirement as a small business, HUBZone, SDVO small
business, or WOSB set-aside. That was not SBA's intent. The 8(a) BD
program is a business development program. SBA takes that purpose
seriously and will always consider whether an incumbent 8(a) contractor
would be adversely affected by the release of a follow-on procurement
from the 8(a) BD program. Accordingly, the proposed rule would amend
Sec. 124.504(d)(3) by changing the words ``SBA will release'' to ``SBA
may release'' to clarify that SBA has discretion in any release
decision. The fact that a procuring activity agrees to procure the
requirement as a small business, HUBZone, SDVO small business, or WOSB
set-aside is a positive for release, but SBA must still consider any
adverse consequences to an incumbent 8(a) Participant. The release
process has also caused some confusion regarding how a follow-on
requirement may be procured if SBA agrees to release. Again, the
current rule provides that release may occur only where a procuring
activity agrees to procure the requirement as a small business,
HUBZone, SDVO small business, or WOSB set-aside. In other words, a
strict reading of the rule would not allow release where an agency
seeks to award a follow-on requirement as a set-aside order under a
multiple award contract that is not itself a set-aside contract. Thus,
even if an agency sought to procure a follow-on requirement as an 8(a)
order under an unrestricted multiple award contract, the current
regulatory language could be read to preclude that approach. That was
not SBA's intent. As long as an agency identifies a procurement
strategy that would target small businesses for a follow-on
procurement, release may occur. In fact, release to such a contract
vehicle may be appropriate where the incumbent 8(a) contractor has
graduated from the program but still qualifies as a small business, the
requirement is critical to the incumbent contractor's overall business
development, the incumbent contractor is a contract holder on an
unrestricted multiple award contract, and the procuring agency has
evidenced its intent to set-aside an order for small business under the
multiple award contract for which the incumbent contractor is a
contract holder. This would give the incumbent contractor the
opportunity to compete for the follow-on procurement and ensure that
award would be made to a small business. The proposed rule would
clarify that release may occur whenever a procuring agency identifies a
procurement strategy that would emphasize or target small business
participation.
Section 124.506(b)(3)
In explaining SBA's ability to accept a sole source 8(a)
requirement on behalf of a tribally-owned, ANC-owned or NHO-owned
Participant above the general competitive threshold amounts, Sec.
124.506(b)(2) currently provides that a procurement may not be removed
from competition to award it to a Tribally-owned, ANC-owned or NHO-
owned concern on a sole source basis. There has been some confusion as
to what the phrase ``may not be removed from competition'' means. Some
have misinterpreted this provision to believe that a follow-on
requirement to one that was previously awarded as a competitive 8(a)
procurement cannot be awarded to an entity-owned firm on a sole source
basis above the applicable competitive threshold. That is not SBA's
intent. The provision prohibiting a procurement from being removed from
competition and awarded to an entity-owned Participant on a sole source
basis was meant to apply only to a current procurement, not the
predecessor to a current procurement. A procuring agency may not
evidence its intent to fulfill a requirement as a competitive 8(a)
procurement, through the issuance of a competitive 8(a) solicitation or
otherwise, cancel the solicitation or change its public intent, and
then procure the requirement as a sole source 8(a) procurement to an
entity-owned Participant. A follow-on procurement is a new contracting
action for the same underlying requirement, and if the procuring agency
has not evidenced a public intent to fulfill it as a competitive 8(a)
procurement it can be fulfilled on a sole source basis to an entity-
owned Participant. The proposed rule adds language clarifying that
intent.
However, as identified above, SBA is concerned about the business
development aspects of the program for an incumbent Participant. In
other words, where a Participant was previously awarded a competitive
8(a) contract, is still an eligible Participant at the completion of
the contract, and is hoping to compete again for the follow-on
procurement to the contract it previously performed, SBA may take that
into account in its decision whether to accept a follow-on procurement
on a sole source basis on behalf of an entity-owned Participant if the
contract is critical to the incumbent Participant's overall business
development. SBA requests comments as to whether a specific provision
should be added to the regulations requiring SBA to consider the effect
that losing an opportunity to compete for a follow-on contract would
have on an incumbent Participant's business development.
Section 124.506(d)
The proposed rule clarifies SBA's rules pertaining to the award of
sole source 8(a) contracts to individually-owned 8(a) Participants. The
proposed rule would add a provision to Sec. 124.506(d) to clarify that
an individually-owned 8(a) Participant could receive a sole source
award in excess of the $4.5M and $7M competitive threshold amounts set
forth in Sec. 124.506(a)(2) where a procuring agency has determined
that a FAR 6.302 exception to full and open competition exists. For
example, if a procuring agency has determined that there exists an
unusual and compelling urgency and has identified an individually-owned
8(a) Participant that is capable of fulfilling its needs, it can offer
that requirement to SBA as a sole source award on behalf of the
identified Participant even if the requirement exceeds the applicable
competitive threshold. The Agency would be free to use its FAR 6.302
authority to award a sole source contract outside the 8(a) BD program.
SBA believes that it only makes sense to allow the agency to make an
award as a sole source contract
[[Page 55654]]
within the 8(a) BD program if it chooses to do so.
In addition, if such an award exceeds $25M, or $100M for a
Department of Defense (DoD) agency, the proposed rule would also
clarify that the agency would be required to justify the use of a sole
source contract under FAR 19.808-1 or Defense Federal Acquisition
Regulation Supplement (DFARS) 219.808-1(a) before SBA could accept the
requirement as a sole source 8(a) award. Although those justifications
and approvals generally apply to sole source 8(a) contracts offered to
SBA on behalf of entity-owned Program Participants, the FAR and DFARS
justification and approval provisions are not restricted to entity-
owned Participants. Instead, those provisions apply to any 8(a) sole
source contract that exceeds the $25M or $100M threshold. As such the
proposed rule merely adds language to clarify what SBA believes the
current requirement is and does so in order to avoid any confusion.
Section 124.509
Section 124.509 establishes non-8(a) business activity targets to
ensure that Participants do not develop an unreasonable reliance on
8(a) awards. SBA amended this section as part of a comprehensive final
rule in October 2020. See 85 FR 66146, 66189 (Oct. 16, 2020). In that
final rule, SBA recognized that a strict prohibition on a Participant
receiving new sole source 8(a) contracts should be imposed only where
the Participant has not made good faith efforts to meet its applicable
non-8(a) business activity target. Since that rule became effective in
November 2020, Participants have sought guidance as to what ``good
faith efforts'' means in this context. This proposed rule seeks to
provide guidance. The proposed regulatory language is how SBA has been
interpreting good faith efforts since the good faith efforts change was
effective. The proposed rule would provide two ways by which a
Participant could establish that it has made good faith efforts.
Specifically, a Participant could demonstrate to SBA either that it
submitted offers for one or more non-8(a) procurements which, if
awarded, would have given the Participant sufficient revenues to
achieve the applicable non-8(a) business activity target during its
just completed program year, or explain that there were extenuating
circumstances that adversely impacted its efforts to obtain non-8(a)
revenues. This proposed rule would also identify possible extenuating
circumstances, which would include but not be limited to a reduction in
government funding, continuing resolutions and budget uncertainties,
increased competition driving prices down, or having one or more prime
contractors award less work to the Participant than originally
contemplated.
There has also been some confusion as to how SBA should best track
business activity targets. The statutory requirement for such targets
relates to program years, meaning a Participant should receive a
certain percentage of non-8(a) business during certain years in the
program. In the October 2020 final rule, SBA changed all references to
looking at business activity compliance from fiscal year to program
year to align with the statutory authority. A program year lines up
with the date that a Participant was certified as eligible to
participate in the 8(a) BD program. That date generally is not the same
as a Participant's fiscal year. Participants have financial statements
relating to their fiscal year activities, but most do not have
financial statements relating to program year. To capture program year
data, SBA has asked Participants to estimate as best they can program
year revenues for both 8(a) and non-8(a) activities. Although this rule
proposes no specific changes as to the revenue information provided to
SBA, SBA specifically requests comments as to how firms believe it
would be easiest for them to meet the program year information
requirements. One approach that SBA is considering is to capture
program year data based on the Participant's interim financial
statements. This would require a Participant to submit monthly,
quarterly, or semi-annual financial statements, as appropriate, to SBA
where the close of its fiscal year and its program anniversary date are
separated by more than 90 calendar days. SBA could then assess the
Participant's compliance with the business activity target based on the
breakdown of 8(a) and non-8(a) sales set forth in the applicable
interim financial statements. For example, Participant A's fiscal year
closes on December 31, and its program anniversary date is May 9. In
connection with its annual review, Participant A would submit quarterly
financial statements for the periods of April 1-June 30, July 1-
September 30, and October 1-December 31, from its most recently
completed fiscal year, and the period of January 1-March 31 in its
current fiscal year. SBA could then determine Participant A's
compliance with the applicable business activity target based on the
breakdown of 8(a) and non-8(a) sales during the 12-month period covered
by these quarterly financial statements. SBA recognizes that this
approach would exclude revenues derived during the final weeks or
months leading up to a Participant's program anniversary date. However,
SBA believes that this approach would most closely capture a
Participant's program year activities without placing an undue burden
on the Participant to estimate its 8(a) and non-8(a) revenues on a
program year basis.
Sections 124.513(a), 125.18(b), 126.616(a)(2), and 127.506(a)(3)
The proposed rule would add a new Sec. 124.513(a)(3) to provide
that a Program Participant cannot be a joint venture partner on more
than one joint venture that submits an offer for a specific 8(a)
contract. Although the proposed rule would apply this requirement to
all contracts, procuring agencies and small businesses have raised
concerns to SBA in the context of multiple award contracts where it is
possible that one firm could be a member of several joint ventures that
receive contracts. In such a situation, several agencies were troubled
that orders under the multiple award contract may not be fairly
competed if one firm was part of two, three or more quotes. They
believed that one firm having access to pricing information for several
quotes could skew the pricing received for the order.
To ensure that the HUBZone, WOSB and SDVOSB programs have rules as
consistent as possible to those for the 8(a) BD program, the proposed
rule adds similar language as that added to Sec. 124.513(a)(3) for
those programs in proposed Sec. Sec. 125.18(b) (for SDVOSB),
126.616(a)(2) (for HUBZone), and 127.506(a)(3) (for WOSB).
SBA specifically requests comments as to whether this provision
should be limited only to 8(a)/HUBZone/WOSB/SDVOSB multiple award
contracts or whether it should apply to all contracts set-aside or
reserved for 8(a)/HUBZone/WOSB/SDVOSB, and to all orders set-aside for
such businesses under unrestricted multiple award contracts.
Section 124.515
Section 124.515 implements section 8(a)(21) of the Small Business
Act, 15 U.S.C. 637(a)(21), which generally requires an 8(a) contract to
be performed by the concern that initially received it. In addition,
the statute and Sec. 124.515 provide that where the owner or owners
upon whom eligibility was based relinquish ownership or control of such
concern, any 8(a) contract that the concern is performing shall be
terminated for the convenience of the Government unless the SBA
Administrator, on a nondelegable basis,
[[Page 55655]]
grants a waiver based on one or more of five statutorily identified
reasons. This proposed rule would revise Sec. 124.515(c) for clarity.
Specifically, it would break one longer paragraph into several smaller
paragraphs and would clarify that if a Participant seeks a waiver based
on the impairment of the agency's mission or objectives, it must
identify and provide a certification from the procuring agency relating
to each 8(a) contract for which a waiver is sought.
Currently, a Participant (or former Participant that is still
performing an 8(a) contract) must submit its request for a waiver to
the termination for convenience requirement to the Participant's (or
former Participant's) SBA servicing district office. These requests for
waivers are often complicated and can take a long time to be approved.
Processing a waiver request can take several months in an SBA district
office and then several months in SBA's Office of Business Development
in SBA's Headquarters. In order to streamline the process, SBA is also
considering changing where requests for waivers must be initiated from
the servicing district office to the AA/BD, and requests comments on
whether that would be beneficial.
Sections 124.604 and 124.108
Section 124.604 currently requires each Participant owned by a
Tribe, ANC, NHO, or CDC to submit to SBA information showing how the
Tribe, ANC, NHO, or CDC has provided benefits to the Tribal or native
members and/or the Tribal, native or other community due to the
Tribe's/ANC's/NHO's/CDC's participation in the 8(a) BD program through
one or more firms. This rule proposes to require more precise benefits
back to the Native community.
Specifically, SBA is proposing a requirement that each entity
having one or more Participants in the 8(a) BD program establish a
Community Benefits Plan that outlines the anticipated approach it
expects to deliver to strengthen its Native or underserved community
over the next three or five years. Each entity would decide how best to
serve and meet the needs of its community, though SBA would expect some
commitment in areas relating to health, education, housing,
infrastructure, cultural preservation, and economic development, as
appropriate. SBA requests comments on whether this Community Benefits
Plan should be its own, separate plan or be included in the business
plan submission and updates required as part of the annual review
process. Further, SBA requests comment on the period the Community
Benefits Plan should cover.
SBA understands the dual purposes of the entity-owned component of
the 8(a) BD program: to develop viable small business concerns while at
the same time creating opportunities to provide significant benefits to
the native or disadvantaged communities that they serve. SBA seeks to
ensure that both of those purposes are advanced and requests comments
on how best that can be accomplished. Specifically, SBA seeks comments
as to whether specific monetary targets should be established for
providing support to the native or disadvantaged communities, and if
that amount should change based upon the length of time an entity owns
business concerns participating in the 8(a) BD program and depending
upon the number of Participants an entity owns that are operating in
the program. In addition, SBA requests comments as to whether there
should be consequences to an entity or an entity-owned Participant that
does not meet or does not make good faith efforts to meet the
commitments that it made in its initial application to provide benefits
to its native or underserved community.
Section 124.604 requires each entity-owned Participant to submit
information relating to the benefits that the entity has provided to
the Native or underserved community as part of its annual review
submissions. The SBA collects this information and provides summary
level reporting as part of SBA's Annual 408 Report to the Congress as
required by section 408 of the Business Opportunity Development Reform
Act of 1988, Public Law 100-656 (codified at section 7(j)(16) of the
Small Business Act, 15 U.S.C. 636(j)(16)). For more transparent
reporting, the proposed rule would provide that each entity-owned
Participant must submit to SBA information showing how the Tribe, ANC,
NHO, or CDC has provided benefits to the Tribal or native members and/
or the Tribal, native or other community due to the Tribe's/ANC's/
NHO's/CDC's participation in the 8(a) BD program through one or more
firms, whether the benefits provided meet the benefits target set forth
in its Community Benefits Plan, and how the benefits provided directly
impacted the native or underserved community.
SBA specifically asks for comments on how best to implement
proposed changes for benefits reporting.
Section 124.1002
Section 1207 of the National Defense Authorization Act for Fiscal
Year 1987, Public Law 99-661 (100 Stat. 3816, 3973), authorized a set-
aside program at DoD for small disadvantaged businesses, separate from
the authority for contracts awarded under the 8(a) BD program. The
``Section 1207'' or Small Disadvantaged Business (SDB) Program also had
a price evaluation preference and a subcontracting component. SBA
implemented regulations establishing the eligibility requirements for
the SDB Program and authorizing a protest and appeal process to SBA
regarding the SDB status of apparent successful offerors. In 2008, the
United States Court of Appeals for the Federal Circuit ruled that
preferential treatment in the award of DoD prime defense contracts
based on race under the Section 1207 program (as implemented in 10
U.S.C. 2323) was unconstitutional. Rothe Dev. Corp. v. DoD, 545 F.3d
1023. This effectively eliminated the SDB Program.
In response, the FAR Council changed the SBA protest process for
SDBs in the FAR to a ``review'' process in a final rule effective
October 2014 (79 FR 61746). The FAR Council stated that its changes to
the SDB program were based on the Federal Circuit's decision in the
Rothe case. SBA brought its own regulations up to date in 2020 by
removing references to an SDB protest. 85 FR 27290 (May 8, 2020).
Recently, SBA's Office of Inspector General (OIG) has questioned why a
protest process no longer exists to challenge a firm's SDB status.
Despite SBA's explanation that the Section 1207 program (the basis for
SBA's previous SDB regulatory authorities) no longer exists, OIG
continues to believe that general authority to protest a firm's SDB
status should exist. SBA notes that since the FAR Council replaced the
protest process with a review process in 2014, SBA has not received any
requests for review. Although SBA believes that such authority would
not be often utilized, in response to OIG's concerns the proposed rule
would add a new Sec. 124.1002 authorizing reviews and protests of SDB
status in connection with prime contracts and subcontracts to a federal
prime contract.
The proposed rule copies similar authority contained in section
19.305 of the Federal Acquisition Regulation, title 48 of the Code of
Federal Regulations. Under proposed Sec. 124.1002, SBA could initiate
the review of the SDB status on any firm that has represented itself to
be an SDB on a prime contract (for goaling purposes or otherwise) or
subcontract to a federal prime contract whenever it receives credible
information calling into question the SDB status of the firm. In
addition, as already stated in the FAR, the proposed rule would allow
the contracting officer or the SBA to protest
[[Page 55656]]
the SDB status of a proposed subcontractor or subcontract awardee.
Finally, where SBA determines that a subcontractor does not qualify as
an SDB, the proposed rule would require prime contractors to exclude
subcontracts to that subcontractor as subcontracts to an SDB in its
subcontracting reports, starting from the time that the protest was
decided. SBA believes that a prime contractor should not get SDB credit
for using a subcontractor that does not qualify as an SDB. However, in
order not to penalize a prime contractor who acted in good faith in
awarding a subcontract or to impose an additional burden of correcting
past subcontracting reports, the proposed rule would disallow SDB
subcontracting credit only prospectively from the point of an adverse
SDB determination.
Sections 125.1 and 125.3(c)(1)(i) and (x) and (c)(2)
SBA proposes to make changes to several provisions in part 125 that
reference the term commercial item. This is in response to recent
changes made to the Federal Acquisition Regulation (FAR) with regard to
the definition of ``commercial item''. 86 FR 61017. Primarily, the
changes to the FAR split the definition of commercial items into two
categories, commercial products and commercial services. SBA is
proposing to amend its regulations to adopt these changes when SBA's
regulation is referring to a commercial product, a commercial service,
or both. Specifically, SBA is amending the definition for ``cost of
materials'' in 125.1 to refer only to commercial products. Further, SBA
proposes to amend Sec. 125.3(c)(1)(i) and (x) and (c)(2) to update the
references to both commercial products and commercial services.
Section 125.1
The proposed rule would add definitions of the terms ``Small
business concerns owned and controlled by socially and economically
disadvantaged individuals'' and ``Socially and economically
disadvantaged individuals'' for purposes of both SBA's subcontracting
assistance program in 15 U.S.C. 637(d) and the goals described in 15
U.S.C. 644(g). The proposed rule seeks to implement consistency among
SBA's programs and would refer to requirements set forth in part 124
for 8(a) eligibility. SBA believes that this change is also needed to
provide clarity for small disadvantaged business eligibility
requirements contained in other statutes that refer to 15 U.S.C. 637(d)
for their eligibility.
SBA proposes to include blanket purchase agreements (BPAs) in the
list of contracting vehicles that are covered by the definitions of
consolidation and bundling. There are two kinds of BPAs: GSA's FSS BPAs
covered under FAR 8.4 and BPAs established under Simplified Acquisition
Procedures (see FAR 13.303). SBA requests comments as to whether this
should apply to both types of BPAs, FSS, and FAR 13.303, and whether it
should apply to both single-award and multiple-award BPAs. Generally, a
consolidated requirement is one that consolidates two or more previous
requirements into one action. A bundled requirement is a type of
consolidated requirement in which multiple small-business requirements
are consolidated into a single, larger requirement that is not suitable
for award to small businesses. In most cases, because of the potential
negative impact on small business contracting opportunities, the
contracting agency is required to conduct a financial analysis, execute
a determination that the action is necessary and justified, and in some
cases notify impacted small businesses and the public, before
proceeding with a bundled or consolidated requirement. The Small
Business Act, 15 U.S.C. 632(j), requires agencies to avoid unnecessary
bundling of ``contract requirements.'' SBA interprets the term
``contract requirements'' to include BPAs for the purposes of this
statutory provision on avoiding bundling. This is similar to how SBA
interprets the term ``proposed procurement'' under the Small Business
Act's requirement for agencies to coordinate with procurement center
representatives on prime contract opportunities.
SBA thus intended the consolidation and bundling provisions to
apply to BPAs. The Government Accountability Office (GAO), however,
ruled in two recent bid protests that, because SBA's regulations do not
specifically address BPAs, the consolidation and bundling procedures do
not apply when the resulting requirement is a BPA.
SBA routinely sees consolidation in BPAs. Bundling on a BPA has the
same detrimental effect on small-business incumbents as bundling on
other vehicles, such as contracts or orders. Regardless of whether the
resulting requirement is a BPA, the bundled action will convert
multiple small business contracting actions into a single action to be
awarded to a large business. If agencies are not required to follow SBA
regulations regarding notification and a written determination for
bundled BPAs, the small business incumbents may not know that work that
they are currently performing has been bundled and moved to a single
award to a large business and may not have the opportunity to challenge
such action. Awarding a requirement as a BPA does not lessen the
negative impact of bundling on small businesses, and, therefore, SBA
proposes to incorporate into the regulations its current belief that
the bundling and consolidation rules should apply with equal force
where the resulting award will be a BPA.
Additionally, several procuring agencies have asserted that the
analysis, determination, and notification requirements for
consolidation or bundling do not apply when existing requirements are
combined with new requirements. SBA disagrees. There is no basis in
statute, regulation, or case law for agencies to interpret
``requirement'' as excluding a combination of existing and new work. To
eliminate any confusion, the proposed rule clarifies SBA's current
position that agencies are required to comply with the Small Business
Act and all SBA regulations regarding consolidation or bundling
regardless of whether the requirement at issue combines both existing
and new requirements into one larger procurement that is considered to
be ``new.''
Section 125.2
Section 125.2 sets forth guidance as to SBA's and procuring
agencies' responsibilities when providing contracting assistance to
small businesses. Section 125.2(d) contains guidance on how procuring
agencies determine whether contract bundling and substantial bundling
is necessary and justified. Specifically, Sec. 125.2(d)(2)(ii) states
that a cost or price analysis may be included to support an agency's
determination of the benefits of bundling. This language combined with
the language at Sec. 125.2(d)(2)(v) is intended to mean that price
analysis is always necessary, and, if the analysis results in a price
reduction, the agency may use the price reduction to demonstrate
benefits of the bundled approach. In order to demonstrate ``measurably
substantial'' benefits as required by the Small Business Act, SBA's
regulations and the FAR (benefits equivalent to 10 percent of the
contract or order value where the contract or order value is $94
million or less, or benefits equivalent to 5 percent of the contract or
order value or $9.4 million, whichever is greater, where the contract
or order value exceeds $94 million), SBA believes that a cost or price
[[Page 55657]]
analysis must be conducted. Some have argued that the Small Business
Act does not require a cost/price analysis. They point to the language
of section 15(e)(2)(B) of the Small Business Act which provides that in
demonstrating ``measurably substantial benefits'' the identified
benefits ``may include'' cost savings, quality improvements, reduction
in acquisition cycle times, better terms and conditions, and any other
benefits. 15 U.S.C. 644(e)(2)(B). However, if a cost/price analysis is
not required, SBA does not believe that it is possible to demonstrate
benefits equivalent to 10 percent (or 5 percent/$9.4 million) of the
contract or order value--exactly what is required by SBA's regulations
and the FAR. This interpretation is even clearer in Sec.
125.2(d)(2)(v), which acknowledges that an agency will perform a price
analysis and describes a specific type of price comparison to include
in the analysis.
In order to clarify any misperceptions, SBA proposes to clarify
Sec. 125.2(d)(2)(ii) to plainly state that an analysis comparing the
cumulative total value of all separate smaller contracts with the
estimated cumulative total value of the bundled procurement is required
as part of the analysis of whether bundling is necessary and justified.
Neither a procuring agency nor SBA can have a complete view of the
small business contact dollars impacted by a bundled procurement if
this price analysis is not performed. The analysis requires that an
agency identify all impacted separate smaller contracts. An agency can
search the Federal Procurement Data System or use the agency's own
contract records to determine the complete universe of separate
contracts impacted by the bundled procurement. Identification of every
impacted firm is not only important for purposes of the price analysis
but is also necessary to comply with the statutory and regulatory
notice requirements for bundled contracts. Furthermore, if 8(a)
contracts will be subsumed in the bundled procurement, an agency must
know which 8(a) contracts are impacted in order to comply with the
required 8(a) program release or notification requirements.
Section 125.3
Section 125.3 discusses the types of subcontracting assistance that
are available to small businesses and the rules pertaining to
subcontracting generally. Section 125.3(a)(1)(i)(B) provides that
purchases from a corporation, company, or subdivision that is an
affiliate of the prime contractor or subcontractor are not included in
the subcontracting base. SBA received an inquiry as to whether this
language would allow a prime contractor to count an award to a joint
venture in which it is a partner as subcontracting credit. That was not
SBA's intent. SBA believes that exclusion is covered in the current
regulatory text, which already alludes to not counting awards to
affiliates. Nevertheless, in order to clarify that a prime contractor
cannot count an award to a joint venture in which it is a partner as
subcontracting credit, SBA has added clarifying language to that
effect.
SBA also proposes to amend Sec. 125.3(a)(1)(iii) to delete bank
fees from the list of exclusions from the subcontracting base. SBA's
current regulations provide that bank fees are excluded from the
subcontracting base. This means that when a large contractor is
calculating the percentage of work being subcontracted to small
businesses, it does not have to factor bank fees into this calculation.
This gives the contractor little incentive to work with small banks.
However, there are over 900 small businesses registered in the Dynamic
Small Business Search (DSBS) database under banking NAICS codes. Given
the number of small banks available to do work on federal prime
contracts, SBA does not believe bank fees should be excluded from the
subcontracting base.
In addition, SBA proposes to amend Sec. 125.3(c)(1)(iv) to require
that large businesses include indirect costs in their subcontracting
plans. Currently, large businesses have the option of including or
excluding indirect costs in their individual subcontracting plans. Many
large businesses opt to exclude indirect costs. As a result, small
businesses that provide services generally considered to be indirect
costs--such as legal services, accounting services, investment banking,
and asset management--are often overlooked by large contractors. SBA
believes that by requiring indirect costs to be included in their
individual subcontracting plans, large businesses will have an
incentive to give work to small businesses that provide those services.
Section 125.6
Section 125.6 sets forth the requirements pertaining to the
limitations on subcontracting applicable to prime contractors for
contracts and orders set-aside or reserved for small business. Section
125.6(d) provides that the period of time used to determine compliance
for a total or partial set-aside contract will generally be the base
term and then each subsequent option period. This makes sense when one
agency oversees and monitors a contract. However, on a multi-agency set
aside contract, where more than one agency can issue orders under the
contract, no one agency can practically monitor and track compliance.
In order to ensure that this statutory requirement is met for the
contract, SBA believes that compliance should be measured order by
order by each ordering agency. The proposed rule would clarify Sec.
125.6(d) accordingly.
SBA is proposing to add a new Sec. 125.6(e) to provide
consequences to a small business where a contracting officer determines
at the conclusion of contract performance that the business did not
meet the applicable limitation on subcontracting on any set-aside
contract (small business set-aside; 8(a); WOSB; HUBZone; or SDVOSB).
The current rules provide discretion to contracting officers to require
contractors to demonstrate compliance with the limitations on
subcontracting at any time during performance and upon completion of a
contract. SBA's current rules do not, however, address what happens if
a contracting officer determines that a firm fails to meet the
statutorily required limitation on subcontracting requirement at the
conclusion of contract performance. SBA's proposed rule would provide
that a contracting officer could not give a satisfactory/positive past
performance evaluation for the appropriate evaluation factor or
subfactor to a contractor that the contracting officer determined did
not meet the applicable limitation on subcontracting requirement at the
conclusion of contract performance. Of course, if a small business were
found to be in non-compliance during the performance of the contract
and took steps to come into compliance before completion of the
contract, the contractor's final rating for conformance to requirements
could be satisfactory. The proposed rule would not alter the
contracting officer's discretion to require contractors to demonstrate
compliance with the limitations on subcontracting where the contracting
officer deems it to be appropriate; it merely would provide
consequences (i.e., negative past performance evaluation) where the
contracting officer determined that a contractor did not meet the
limitation on subcontracting requirement at the conclusion of contract
performance. SBA believes that having negative consequences for not
meeting the applicable limitation on subcontracting would help ensure
the requirements are being met, and that set-aside contracts are being
performed in a manner consistent with SBA's regulations and
[[Page 55658]]
the Small Business Act. Some have argued that there should be
extenuating circumstances under which a contracting officer should
still be able to give a satisfactory/positive past performance
evaluation to a contractor that the contractor officer determined did
not meet the applicable limitation on subcontracting requirement. SBA
believes that any such discretion, if ultimately authorized, should be
very limited in scope. Again, SBA believes that it is important to have
consequences for small business concerns that do not meet the
applicable limitation on subcontracting. SBA wants small businesses to
take those requirements seriously and strive to achieve them.
Nevertheless, SBA requests comments as to whether the regulations
should allow a contracting officer to give a satisfactory/positive past
performance evaluation to a contractor that the contractor officer
determined did not meet the applicable limitation on subcontracting
requirement, and, if so, under what limited circumstances should that
discretion be authorized.
Section 125.9
Section 125.9 sets forth the rules governing SBA's small business
mentor-prot[eacute]g[eacute] program. SBA's regulations currently
provide that a mentor can have no more than three prot[eacute]g[eacute]
small business concerns at one time. SBA has been asked whether a
mentor that purchases another business concern that is also an SBA-
approved mentor can take on those mentor-prot[eacute]g[eacute]
relationships if the total number of prot[eacute]g[eacute]s would
exceed three. The reason SBA has limited the number of
prot[eacute]g[eacute] firms one mentor can have at any time is to
ensure that a large business mentor does not unduly benefit from
programs intended to benefit small businesses. That is also the reason
that the limit of three prot[eacute]g[eacute]s applies to the mentor
family (i.e., the parent and all of its subsidiaries in the aggregate
cannot have more than three prot[eacute]g[eacute] small business
concerns at one time). If each separate business entity could itself
have three prot[eacute]g[eacute]s, conceivably a parent with three
subsidiaries could have 12 small business prot[eacute]g[eacute] firms.
SBA believes that that would allow a large business to unduly benefit
from small business programs. The regulations implementing the mentor-
prot[eacute]g[eacute] program also provide that a small business can
have only two mentor-prot[eacute]g[eacute] relationships in total.
Thus, if SBA were to say that a mentor that purchased another business
entity which is also a mentor could not take on the selling business
entity's mentor-prot[eacute]g[eacute] relationships, the ones who would
be hurt the most would be the small business prot[eacute]g[eacute]s of
the selling business. Their mentor-prot[eacute]g[eacute] relationships
with the selling mentor would end early and would count as one of the
two mentor-prot[eacute]g[eacute] relationships that they were
authorized to have. Because SBA did not intend to adversely affect
prot[eacute]g[eacute] firms in these circumstances, SBA has informally
permitted a mentor to take on the mentor-prot[eacute]g[eacute]
relationships of a firm that it purchased even where its total number
of mentor-prot[eacute]g[eacute] relationships would exceed three. The
proposed rule would add language to Sec. 125.9(b)(3)(ii) to recognize
this exemption. Specifically, the proposed rule would add a paragraph
that where a mentor purchases another business entity that is also an
SBA-approved mentor of one or more prot[eacute]g[eacute] small business
concerns and the purchasing mentor commits to honoring the obligations
under the seller's mentor-prot[eacute]g[eacute] agreement(s), that
entity may have more than three prot[eacute]g[eacute]s. In such a case,
the entity could not add another prot[eacute]g[eacute] until it fell
below three in total.
The proposed rule would also amend Sec. 125.9(e) to add language
recognizing that a mentor that is a parent or subsidiary of a larger
family group may identify one or more subsidiary firms that it plans to
participate in the mentor-prot[eacute]g[eacute] arrangement by
providing assistance and/or participating in joint ventures with the
prot[eacute]g[eacute] firm. The proposed rule would provide that all
entities intended to participate in the mentor-prot[eacute]g[eacute]
relationship should be identified in the mentor-prot[eacute]g[eacute]
agreement itself.
Sections 126.306(b) and 127.304(c)
Sections 126.306 and 127.304 set forth the procedures by which SBA
processes applications for the HUBZone and WOSB programs, respectively.
This proposed rule would add language to both processes to provide that
where SBA is unable to determine a concern's compliance with any of the
HUBZone or WOSB/EDWOSB eligibility requirements due to inconsistent
information contained in the application, SBA will decline the
concern's application. In addition, this proposed rule would add
language providing that if, during the processing of an application,
SBA determines that an applicant has knowingly submitted false
information, regardless of whether correct information would cause SBA
to deny the application, and regardless of whether correct information
was given to SBA in accompanying documents, SBA will deny the
application. This language is consistent with that already appearing in
SBA's regulations for the 8(a) BD program, and SBA believes that all of
SBA's certification programs should have similar language on this
issue.
Sections 125.28(e), 126.801(e)(2), and 127.603(d)(2)
For purposes of SDVO, HUBZone and WOSB/EDWOSB contracts, the SDVO/
HUBZone/WOSB/EDWOSB prime contractor together with any similarly
situated entities must meet the applicable limitation on subcontracting
(or must perform a certain portion of the contract). If a subcontractor
is intended to perform primary and vital aspects of the contract, the
subcontractor may be determined to be an ostensible subcontractor under
proposed Sec. 121.103(h)(3), and the prime contractor and its
ostensible subcontractor would be treated as a joint venture. However,
if the ostensible subcontractor qualifies independently as a small
business, a size protest would not find the arrangement ineligible for
any small business contract. To address that situation, the current
regulations for the SDVO program (in Sec. Sec. 125.18(f) and
125.29(c)), the HUBZone program (in Sec. Sec. 126.601(d) and
126.801(a)(1)) and the WOSB program (in Sec. Sec. 127.504(g) and
127.602(a)) prohibit a non-similarly situated subcontractor from
performing primary and vital requirements of a contract and permit a
SDVO/HUBZone/WOSB/EDWOSB status protest where an interested party
believes that will occur. The proposed rule would add a paragraph to
each of the SDVO/HUBZone/WOSB/EDWOSB status protest provisions to
clarify that any protests relating to whether a non-similarly situated
subcontractor will perform primary and vital aspects of the contract
will be reviewed by the SBA Government Contracting Area Office serving
the geographic area in which the principal office of the SDVO/HUBZone/
WOSB/EDWOSB business is located. SBA's Government Contracting Area
Offices are the offices that decide size protests and render formal
size determinations. They are the offices with the expertise to decide
ostensible subcontractor issues. Thus, for example, if a status protest
filed in connection with a WOSB contract alleges that the apparent
successful offeror should not qualify as a WOSB because (1) the husband
of the firm's owner actually controls the business, and (2) a non-WOSB
subcontractor will perform primary and vital requirements of the
contract, SBA's WOSB staff in the Office of Government Contracting will
review
[[Page 55659]]
the control issue and refer the ostensible subcontractor issue to the
appropriate SBA Government Contracting Area Office. The SBA Government
Contracting Area Office would determine whether the proposed
subcontractor should be considered an ostensible subcontractor and send
that determination to the Director of Government Contracting, who then
would issue one WOSB status determination addressing both the
ostensible subcontractor and control issues. The same would be true for
SDVO status protests and HUBZone status protests (except that in the
HUBZone context the Director of the Office of HUBZones would issue the
HUBZone status determination). To accomplish this, the proposed rule
would add clarifying language in Sec. Sec. 125.28(e) (for SDVO),
126.801(e)(2) (for HUBZone), and 127.603(d) (for WOSB/EDWOSB).
Section 126.503(c)
The proposed rule would Sec. 126.503 by adding a new paragraph (c)
to specifically authorize SBA to initiate decertification proceedings
if after admission to the HUBZone program SBA discovers that false
information has been knowingly submitted by a certified HUBZone small
business concern. SBA believes that this is currently permitted under
the HUBZone regulations, but proposes to add this provision to
eliminate any doubt.
Section 126.601(d)
The proposed rule would amend Sec. 126.601(d) to clarify how the
ostensible subcontractor rule may affect a concern's eligibility for a
HUBZone contract. Where a subcontractor that is not a certified HUBZone
small business will perform the primary and vital requirements of a
HUBZone contract, or where a HUBZone prime contractor is unduly reliant
on one or more small businesses that are not HUBZone-certified to
perform the HUBZone contract, the prime contractor would not be
eligible for award of that HUBZone contract.
Section 126.616(a)(1)
The proposed rule would amend Sec. 126.616(a) to clarify that a
HUBZone joint venture should be registered in the System for Award
Management (SAM) (or successor system) and identified as a HUBZone
joint venture, with the HUBZone-certified joint venture partner
identified. SBA has received numerous questions from HUBZone firms and
contracting officers expressing confusion about how to determine
whether an entity qualifies as a HUBZone joint venture and thus is
eligible to submit an offer for a HUBZone contract. Part of the
confusion stems from the fact that there is no way for an entity to be
designated as a HUBZone joint venture in SBA's DSBS database; this
certification can only be made in SAM. In addition, the process for
self-certifying as a HUBZone joint venture in SAM is apparently unclear
because such certification does not appear in the same section as the
other socioeconomic self-certifications. Since it is not known when
these systems might be updated to clear up this confusion, SBA is
proposing to amend Sec. 126.616(a) by adding a new paragraph (a)(1) to
help HUBZone firms and contracting officers understand how to determine
whether an entity may be eligible to submit an offer as a HUBZone joint
venture.
Section 126.801
The proposed rule would amend Sec. 126.801(b) to clarify the bases
on which a HUBZone protest may be filed, which include: (i) the
protested concern did not meet the HUBZone eligibility requirements set
forth in Sec. 126.200 at the time the concern applied for HUBZone
certification or on the anniversary date of such certification; (ii)
the protested joint venture does not meet the requirements set forth in
Sec. 126.616; (iii) the protested concern, as a HUBZone prime
contractor, is unduly reliant on one or more small subcontractors that
are not HUBZone-certified, or subcontractors that are not HUBZone-
certified will perform the primary and vital requirements of the
contract; and/or (iv) the protested concern, on the anniversary date of
its initial HUBZone certification, failed to attempt to maintain
compliance with the 35% HUBZone residence requirement. The proposed
rule also would amend Sec. 126.801(d)(1), addressing timeliness for
HUBZone protests.
The proposed rule would add a new paragraph (d)(1)(i) to clarify
the timeliness rules for protests relating to orders or agreements that
are set-aside for certified HUBZone small business concerns where the
underlying multiple award contract was not itself set-aside or reserved
for certified HUBZone small business concerns. Specifically, a protest
challenging the HUBZone status of an apparent successful offeror for
such an order or agreement will be considered timely if it is submitted
within 5 business days of notification of the identity of the apparent
successful offeror for the order or agreement. The proposed rule also
would add a new paragraph (d)(1)(ii) to clarify that where a
contracting officer requires recertification in connection with a
specific order under a multiple award contract that itself was set-
aside or reserved for certified HUBZone small business concerns, a
protest challenging the HUBZone status of an apparent successful
offeror will be considered timely if it is submitted within five
business days of notification of the identity of the apparent
successful offeror for the order.
Section 127.102
SBA proposes to amend the definition of WOSB to clarify that the
definition applies to any certification as to a concern's status as a
WOSB, not solely to those certifications relating to a WOSB contract.
SBA has received inquiries as to whether this definition applies to a
firm that certifies as a WOSB for goaling purposes on an unrestricted
procurement. It has always been SBA's intent to apply that definition
to all instances where a concern certifies as a WOSB, and this proposed
rule merely clarifies that intent.
Section 127.200
Section 127.200 specifies the requirements a concern must meet to
qualify as an EDWOSB or WOSB. In order to qualify as an EDWOSB, an
entity must be a small business. Section 127.200(a)(1) requires a
concern to be a small business for its primary industry classification
to qualify as an EDWOSB, while Sec. 127.200(b)(1) merely states that a
concern must be a small business to qualify as a WOSB. In terms of
demonstrating that an applicant for either WOSB or EDWOSB certification
qualifies as a small business, the proposed rule would provide that the
applicant must demonstrate that it qualifies as small under the size
standard corresponding to any NAICS code under which it currently
conducts business activities. SBA believes that this standard makes
more sense than requiring an applicant to qualify as small under the
size standard corresponding to its primary industry classification. In
order to be eligible for a specific WOSB/EDWOSB contract, a firm must
qualify as small under the size standard corresponding to the NAICS
code assigned to that contract. Whether a firm qualifies as small under
its primary industry classification is not relevant to that
determination (unless the size standard for the firm's primary industry
classification is that same as that for the NAICS code assigned to the
contract, but even then, the only relevant size standard is that
corresponding to the NAICS code
[[Page 55660]]
assigned to the contract). SBA believes that a firm that does not
qualify as small under its primary industry classification should not
be precluded from seeking and being awarded WOSB/EDWOSB contracts if it
qualifies as small for those contracts. SBA believes that the
certification process should ensure that an applicant is owned and
controlled by one or more women and that it could qualify as a small
business for a WOSB/EDWOSB set-aside contract. As such, SBA believes
that requiring an applicant to demonstrate that it qualifies as small
for any industry under which it currently conducts business is more
appropriate than requiring it to demonstrate that it qualifies as small
under its primary industry classification. Finally, SBA believes that
it is important to align the WOSB/EDWOSB eligibility requirements with
the eligibility requirements for veteran-owned small business (VOSB)
concerns and service-disabled veteran-owned small business (SDVOSB)
concerns wherever possible. SBA is also proposing that a VOSB or SDVOSB
must be small under the size standard corresponding to any NAICS code
under which it currently conducts business activities in a separate
rulemaking.
Section 127.201(b)
Section 127.201 sets forth the requirements for control of a WOSB
or EDWOSB. Paragraph (b) specifies that one or more women or
economically disadvantaged women must unconditionally own the concern
seeking WOSB or EDWOSB status. The proposed rule would clarify that
this requirement was not meant to preclude a condition that can be
given effect only after the death or incapacity of the woman owner.
This change would make the WOSB unconditional ownership requirement the
same as that for eligibility for the 8(a) BD program.
Section 127.202(c)
Section 127.202 sets forth the requirements for control of a WOSB
or EDWOSB. The current regulatory language has caused confusion as to
whether a woman or economically-disadvantaged woman claiming to control
a WOSB or EDWOSB can engage in employment other than that for the WOSB
or EDWOSB. The current regulations provide that the woman or
economically-disadvantaged woman who holds the highest officer position
may not engage in outside employment that prevents her from devoting
sufficient time and attention to the daily affairs of the concern to
control its management and daily business operations. The regulations
also provide that such individual must manage the business concern on a
full-time basis and devote full-time to it during the normal working
hours of business concerns in the same or similar line of business.
Taking the two provisions together, a woman or economically-
disadvantaged woman can engage in outside employment, but only if such
employment occurs outside the normal working hours of business concerns
in the same or similar line of business and does not prevent her from
devoting sufficient time and attention to control the concern's
management and daily business operations. SBA believes that this
requirement is overly restrictive. SBA is charged with determining
whether a business concern is owned and controlled by one or more women
or economically-disadvantaged women. If a woman starts a small business
that she alone operates, SBA does not believe that it makes sense to
conclude that she does not control the business simply because she
operates it outside the normal hours of similar businesses. Whether the
business can win and perform government contracts is a different
question, and not one contemplated by SBA's regulations. Where a woman
is the sole individual involved in operating a specific business, there
is no question that she controls the business, regardless of how many
hours she devotes to the business.
This rule proposes to revise the limitations on outside activities.
Per Sec. 127.202(a), a woman or economically-disadvantaged woman must
demonstrate that she controls the long-term planning and daily
operations of the business. The proposed rule would continue to provide
that a woman or economically-disadvantaged woman cannot engage in
outside activities that prevent her from devoting sufficient time and
attention to the business concern to control its management and daily
operations. Where a woman claiming to control a business concern
devotes fewer hours to the business than its normal hours of operation,
the proposed rule would impose a rebuttable presumption that she does
not control the business concern. This is not meant to imply that a
specific individual must be present at the business premises all hours
that the business is open, particularly if the business is open more
than a normal workday (e.g., where the business is open 24 hours and
has multiple shifts). In such instances the woman would merely be
required to provide evidence that she has ultimate managerial and
supervisory control over both the long-term decision making and day-to-
day management and administration of the business.
Section 127.400
Section 127.400 describes how a concern maintains its certification
as a WOSB or EDWOSB. This rule proposes to amend Sec. 127.400 by
omitting Sec. 127.400(a), which requires a certified concern to
annually represent to SBA that it meets all program eligibility
requirements, and replacing it with Sec. 127.400(b), which states that
a certified concern must undergo a program examination at least every
three years to maintain program eligibility. SBA believes that these
program examinations, in conjunction with other eligibility assessments
like material change reviews, status protests, third-party certifier
compliance reviews, and program audits, will sufficiently capture
eligibility information. The proposed rule would also amend the
examples to Sec. 127.400 to reflect the proposed change and provide
additional clarity to small businesses.
SBA believes small businesses will further benefit from the
proposed change because it will align the WOSB Program regulations with
the continuing eligibility requirements for veteran-owned small
business concerns outlined in 13 CFR 128.306. The WOSB Program permits
veteran owned-certified small business concerns to submit evidence of
their veteran-owned certification, along with documentation
demonstrating that the firms are 51% owned and controlled by one or
more women, to support their applications for WOSB Program
certification. Going forward, the reverse will also be true. SBA
believes that when there is reciprocity between programs, small
businesses benefit from as much consistency as practicable. Regulatory
alignment reduces confusion, ambiguity, and administrative burden for
firms that are eligible for more than one program.
Compliance With Executive Orders 12866, 12988, 13132, 13563, the
Congressional Review Act (5 U.S.C. 801-808), the Paperwork Reduction
Act (44 U.S.C. Ch. 35), and the Regulatory Flexibility Act (5 U.S.C.
601-612)
Executive Order 12866
The Office of Management and Budget (OMB) anticipates that this
proposed rule will be a significant regulatory action and, therefore,
was subject to review under section 6(b) of Executive Order 12866,
Regulatory Planning and Review, dated September 30, 1993. Accordingly,
the next section contains SBA's Regulatory Impact Analysis.
[[Page 55661]]
Regulatory Impact Analysis
1. Is there a need for the regulatory action?
This action proposes to implement a statutory enactment--the NDAA
FY22--as well as codify a federal court decision into regulation, and
revise SBA guidelines on 8(a) BD program eligibility, 8(a) BD program
participation, and subcontracting plan compliance. With respect to the
8(a) BD program, this action is needed to clarify several policies that
SBA already has put in place and to apply existing regulations to new
scenarios, such as the recently created SBA mentor-
prot[eacute]g[eacute] program. This action also is needed to integrate
section 863 of NDAA FY22 into SBA regulations and to adopt the holding
of a recent federal court decision.
2. What is the baseline, and the incremental benefits and costs of this
regulatory action?
SBA has determined that this proposed rule includes eight proposals
that are associated with incremental benefits or incremental costs.
Outside of the following eight proposals, the other changes would
merely clarify existing policy, modify language to avoid confusion, or
adopt interpretations already issued by SBA's Office of Hearings and
Appeals or through SBA casework.
a. Require a firm to update SAM within two days and notify certain
contracting officers if the firm is found ineligible through size
determination, SDVO Small Business Concern (SBC) protests, HUBZone
protests, or WOSB Program protests.
SBA would amend Sec. Sec. 125.30(g)(4) and 127.405(c) to provide
that a firm found ineligible through a final program protest must
update <a href="http://SAM.gov">SAM.gov</a> within two days with its new status and notify agencies
with which it has pending offers that are affected by the status
change. This requirement already exists in SBA's regulations for size
protests.
The change extends the requirement to the SDVO SBC and WOSB
programs. SBA has determined that this proposed change would impose
costs on the business associated with its notification of contracting
agencies of the adverse decision. The number of adverse protest
decisions in the SDVOSBC and WOSB programs is less than five per year.
For each such protest, the ineligible business is estimated to be
required to notify two agencies. The notification does not take any
particular form, so SBA estimates that each notification would take 15
minutes. Thus, the total cost of this change would be 2.5 hours across
all firms. At a project-manager-equivalent level, the total cost is
less than $280 annually.\1\
---------------------------------------------------------------------------
\1\ From 2.5 hours saved valued at the median wage of $55.41 for
General and Operations Managers, according to the Bureau of Labor
Statistics (BLS) General and Operations Managers (<a href="http://bls.gov">bls.gov</a>)
(retrieved April 12, 2022), plus 100% for benefits and overhead.
---------------------------------------------------------------------------
b. Prohibit nonmanufacturer rule waivers from specifically applying
to a contract with a duration longer than five years, including
options.
SBA proposes to amend Sec. 121.1203 to restrict the grant of
individual (i.e., contract-specific) nonmanufacturer rule waivers to
contracts with durations of five years or less. In the prior fiscal
year, SBA granted 24 individual waivers each year for contracts that
exceed five years. The estimated total value for contracts covered by
these waivers was $4.6 billion.
The most probable effect of denying waivers for such contracts in
the future is that the procuring agencies will choose not to set aside
those contracts for small business resellers. Instead, the procuring
agencies would solicit many of those contracts as full-and-open
competitions. It is also possible, however, that the agencies could
limit the duration of the contracts to five years in order to promote
small-business opportunity through the use of a set-aside.
Of those two possibilities, the first (a full-and-open
solicitation) is an economic transfer of the reseller's markup from a
small business reseller to what most likely would be an other-than-
small reseller. The second (limiting the contract to five years)
creates possible benefits at the sixth year for newly established
domestic small-business manufacturers. Under the current policy, those
manufacturers might be overlooked by the agency and its contractors
(i.e., resellers) because the ongoing contract does not require the
contractor to purchase from a domestic small-business manufacturer.
SBA estimates that, in a quarter of the cases in which an agency
would otherwise seek a waiver for a contract exceeding five years, the
agencies would choose to limit the contract (and thus the effect of the
waiver) to five years. This amounts to six contracts, with a total
value of $1.2 billion. Assuming that these contracts are ten years in
length and agencies would recompete the contracts in the five final
years, the potential recompeted value is $575 million, unadjusted for
inflation. However, it is unknown whether domestic small-business
manufacturers would be available to supply the resellers at the point
of recompetition--five years after the initial award. Thus, although
this change results in potential more opportunities for small business
manufacturers in years six and beyond, the benefits of the additional
opportunities are not quantifiable because of lack of information about
the domestic small-business manufacturing base in the future.
c. Require information from 8(a) applicants about the terms and
restrictions of a retirement account only at the request of SBA,
instead of in every instance.
SBA proposes to amend Sec. 124.104(c)(2)(ii) to eliminate the
prior requirement that 8(a) applicants must provide the terms and
conditions of retirement accounts in order to have the values of those
accounts excluded from the owner's net worth. SBA would require the
applicant to submit documentation of a retirement account only upon
SBA's request.
SBA processes approximately 600 8(a) applications from individual-
owned firms per year. Based on sampling, SBA found that 70 percent of
those applications disclosed retirement accounts to SBA. Thus, this
regulatory change will reduce the documentation burden for about 420
8(a) applicants per year. SBA estimates the existing burden to be 20
minutes per applicant, and the benefit of the proposed rule's
cancellation of the documentation requirement therefore to be about
$15,500 per year.\2\
---------------------------------------------------------------------------
\2\ From 20 minutes of time saved by 420 applicants valued at
the median wage of $55.41 for General and Operations Managers,
according to the BLS General and Operations Managers (<a href="http://bls.gov">bls.gov</a>)
(retrieved April 12, 2022), plus 100% for benefits and overhead.
---------------------------------------------------------------------------
d. Permit 8(a) applications to go forward where the firm or its
affected principals can demonstrate that federal financial obligations
have been settled and discharged or forgiven by the Federal Government.
Section 124.108(e) of the proposed rule states that an applicant
will not be denied eligibility to the 8(a) program on the basis that
the applicant's prior federal financial obligations have been settled
and either discharged or forgiven by the Federal Government. In rare
cases, SBA has denied 8(a) eligibility based on prior federal financial
obligations, even though the government has discharged the obligation.
SBA internal data shows that SBA rejects approximately two applications
per year on this basis. SBA estimates that the average financial
obligation in those cases is $10,000. Therefore, this proposed change
results in an estimated annual benefit to future 8(a) applications of
$20,000, from an
[[Page 55662]]
average of two applicants annually with obligations of $10,000 each.
e. Delete bank fees from the list of exclusions in the
subcontracting base.
SBA would amend Sec. 125.3(a)(1)(iii) to delete bank fees from the
list of costs excludable from the subcontracting base when a contractor
seeks to comply with a subcontracting plan. After reviewing Federal
Deposit Insurance Corporation (FDIC) and Federal Reserve data, SBA
estimates that the average bank fee expense per account holder is $300
per year. The number of contractors that hold a subcontracting plan is
5,500. Thus, the total amount to be added to the subcontracting base
across all contractors is $1.65 million.
The benefit to small-business subcontractors of the amendment would
be additional dollars subcontracted to small business. Assuming that
the total level of small-business subcontracting stays consistent at
32%, contractors would spend $525,000 of the added amount with small
businesses. However, 18% of economy-wide spending on banking services
is spent with banks that qualify as small businesses. Assuming
contractor spending approximates economy-wide spending, this equates to
$297,000 of the current spending on bank fees through contractors with
subcontracting plans. Thus, after subtracting the amount already spent
with small-business banks, new spending with small business
subcontractors would be $228,000 annually.
The proposed rule would pose a cost to contractors to track their
spending on bank fees in order to include them in the subcontracting
base. This may require updating vendor management systems. To determine
a cost per contractor for this change, SBA reviewed the Paperwork
Reduction Act Supporting Statement for the FAR's Subcontracting Plan
forms, under OMB Control No. 9000-0007. Considering the burdens
estimated in the Supporting Statement, SBA estimates that the average
cost of this change would come to $100 per contractor annually. The
cost therefore amounts to $550,000 across all contractors with
subcontracting plans.
The total regulatory impact is therefore a net cost of $322,000
annually. The benefits accrue to small business subcontractors, whereas
the cost is borne by other-than-small prime contractors with
subcontracting plans.
f. Require businesses to include indirect costs in their
subcontracting plans.
Section 125.3(c)(1)(iv) would require contractors with individual
subcontracting plans to report indirect costs in their individual
subcontracting reports (ISRs). Contractors already are required to
report indirect costs in their summary subcontracting reports (SSRs).
Thus, the only cost associated with the proposed change would be the
cost of allocating indirect costs to the ISRs. To determine a cost per
contractor for this change, SBA reviewed the Paperwork Reduction Act
Supporting Statement for the FAR's Subcontracting Plan forms, under OMB
Control No. 9000-0007. Considering the burdens estimated in the
Supporting Statement, SBA estimates the cost to be $50 per contractor
with an ISR.\3\ In FY20, 4,389 contractors submitted an ISR. Thus, the
aggregate cost of this proposed change amounts to $220,000 annually.
---------------------------------------------------------------------------
\3\ This number is based on results from OMB's ICR Agency
Submission, available at View Information Collection Request (ICR)
Package (<a href="http://reginfo.gov">reginfo.gov</a>). Retrieved April 12, 2022.
---------------------------------------------------------------------------
There may be a benefit to the change because agencies use the ISR
to evaluate a contractor's compliance with its subcontracting plan.
Thus, by including more indirect costs in the base subcontracting
value, contractors will have the incentive to subcontract more to small
businesses in order to meet small business goals in their
subcontracting plans. This effect may be short-lived because
contractors can compensate by negotiating lower subcontracting goals.
Thus, SBA cannot quantify the potential benefit for this change.
g. Require agencies to assign a negative past performance rating to
a small-business contract awardee where the contracting officer
determined that the small business failed to meet required limitations
on subcontracting.
SBA proposes to require that, where a contracting officer
determines that at the conclusion of contract performance a small
business contractor fails to satisfy the limitations on subcontracting
for a particular contract, that contractor would receive a negative
past-performance rating for that contract for the appropriate factor or
subfactor in accordance with FAR 42.1503. SBA determines that this
change does not have any incremental cost or incremental benefit.
Agencies already are required to submit past performance ratings.
Though a negative rating might affect a firm's ability to obtain a
contract in the future, there is no way to gauge the impact on the
firm's odds, and, regardless, the end result would likely be only a
transfer in the contract award from the noncompliant firm to a firm
without a negative past-performance rating. This change therefore does
not present a net cost nor net benefit.
3. What are the alternatives to this rule?
The alternative to the proposed rule would be to keep SBA's
processes and procedures as currently stated in the Code of Federal
Regulations. However, because so much of this proposed rule codifies
practices and interpretations already in place, using the alternative
would impose an information-search cost on 8(a) BD participants in
particular and small business contractors in general. Many of the
clarifications in this proposed rule already have been applied at the
case level but are not widely known. This proposed rule makes those
clarifications known to the public.
Additionally, this proposed rule implements section 863 of NDAA
FY22, regarding changes to <a href="http://SAM.gov">SAM.gov</a> after an adverse SBA status
decision. There is no alternative to implementing this statutory
requirement.
Summary of Costs and Cost Savings
SBA calculates $262,000 in annual aggregate benefits, and
approximately $770,500 in annual aggregate costs, with many costs and
benefits uncertain. SBA calculates the net annual cost of the proposed
rule to be $500,000.
Executive Order 12988
This action meets applicable standards set forth in sections 3(a)
and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize
litigation, eliminate ambiguity, and reduce burden. The action does not
have retroactive or preemptive effect.
Executive Order 13132
For the purposes of Executive Order 13132, SBA has determined that
this proposed rule will not have substantial, direct effects on the
States, on the relationship between the National Government and the
States, or on the distribution of power and responsibilities among the
various levels of government. Therefore, for the purpose of Executive
Order 13132, Federalism, SBA has determined that this proposed rule has
no federalism implications warranting preparation of a federalism
assessment.
Executive Order 13563
Executive Order 13563, Improving Regulation and Regulatory Review,
directs agencies to, among other things: (a) afford the public a
meaningful opportunity to comment through the internet on proposed
regulations, with a comment period that should generally consist of not
less than 60 days; (b) provide for an ``open exchange'' of information
among government officials, experts, stakeholders, and the
[[Page 55663]]
public; and (c) seek the views of those who are likely to be affected
by the rulemaking, even before issuing a notice of proposed rulemaking.
As far as practicable or relevant, SBA considered these requirements in
developing this proposed rule, as discussed below.
1. Did the agency use the best available techniques to quantify
anticipated present and future costs when responding to Executive Order
12866 (e.g., identifying changing future compliance costs that might
result from technological innovation or anticipated behavioral
changes)?
To the extent possible, the agency utilized the most recent data
available in the Federal Procurement Data System--Next Generation,
DSBS, and SAM.
Public participation: Did the agency: (a) afford the public a
meaningful opportunity to comment through the internet on any proposed
regulation, with a comment period that should generally consist of not
less than 60 days; (b) provide for an ``open exchange'' of information
among government officials, experts, stakeholders, and the public; (c)
provide timely online access to the rulemaking docket on
<a href="http://Regulations.gov">Regulations.gov</a>; and (d) seek the views of those who are likely to be
affected by rulemaking, even before issuing a notice of proposed
rulemaking?
The proposed rule will have a 60-day comment period and will be
posted on <a href="http://www.regulations.gov">www.regulations.gov</a> to allow the public to comment
meaningfully on its provisions. SBA has also discussed some of the
proposals in this rule with stakeholders at various small business on-
line procurement conferences.
Flexibility: Did the agency identify and consider regulatory
approaches that reduce burdens and maintain flexibility and freedom of
choice for the public?
The proposed rule is intended to eliminate confusion in its
existing regulations and reduce unnecessary burdens on small business.
Congressional Review Act (5 U.S.C. 801-808)
The Congressional Review Act, 5 U.S.C. 801 et seq., as amended by
the Small Business Regulatory Enforcement Fairness Act of 1996,
generally provides that before a ``major rule'' may take effect, the
agency promulgating the rule must submit a rule report, which includes
a copy of the rule, to each House of the Congress and to the
Comptroller General of the United States. SBA will submit a report
containing this proposed rule and other required information to the
U.S. Senate, the U.S. House of Representatives, and the Comptroller
General of the United States. A major rule cannot take effect until 60
days after it is published in the Federal Register. This proposed rule
is not anticipated to be a ``major rule'' under 5 U.S.C. 804(2).
Paperwork Reduction Act, 44 U.S.C. Ch. 35
This rule does not impose additional reporting or recordkeeping
requirements under the Paperwork Reduction Act, 44 U.S.C. chapter 35.
In 2019, SBA revised its regulations to give contracting officers
discretion to request information demonstrating compliance with the
limitations on subcontracting requirements. See 84 FR 65647 (Nov. 29,
2019). In conjunction with this revision, SBA requested an Information
Collection Review by OMB (Limitations on Subcontracting Reporting, OMB
Control Number 3245-0400). OMB approved the Information Collection. The
proposed rule would not alter the contracting officer's discretion to
require a contractor to demonstrate its compliance with the limitations
on subcontracting at any time during performance and upon completion of
a contract. It merely provides consequences where a contracting
officer, utilizing his or her discretion, determines that a contractor
did not meet the applicable limitation of subcontracting requirement.
The estimated number of respondents, burden hours, and costs remain the
same as that identified by SBA in the previous Information Collection.
As such, SBA believes this provision is covered by its existing
Information Collection, Limitations on Subcontracting Reporting.
Regulatory Flexibility Act, 5 U.S.C. 601-612
The Regulatory Flexibility Act (RFA), 5 U.S.C. 601, requires
administrative agencies to consider the effect of their actions on
small entities, small nonprofit enterprises, and small local
governments. Pursuant to the RFA, when an agency issues a rulemaking,
the agency must prepare a regulatory flexibility analysis which
describes the impact of the rule on small entities. However, section
605 of the RFA allows an agency to certify a rule, in lieu of preparing
an analysis if the rulemaking is not expected to have a significant
economic impact on a substantial number of small entities.
The RFA defines ``small entity'' to include small businesses, small
organizations, and small governmental jurisdictions. This proposed rule
involves requirements for participation in SBA's 8(a) Business
Development (BD) Program. Some BD Participants are owned by Tribes,
ANCs, NHOs, or CDCs. As such, the proposed rule relates to various
small entities. The number of entities affected by the proposed rule
includes all Participants in SBA's 8(a) BD program. For reference, SBA
Business Opportunity Specialists assisted over 11,000 entities in 2020.
This proposed rule implements a statutory enactment and a federal
court decision and codifies practices and interpretations already in
place for Participants. In doing so, it adds reporting requirements but
these requirements relate to information collected in the normal course
of business. SBA therefore expects the collection costs to be de
minimis and the costs of reporting to be minimal. Moreover, the
reporting requirements, such as the requirement that contractors report
indirect costs in their individual subcontracting reports (ISRs), will
not fall on small entities. Some of the proposed rule's changes, such
as that to documentation for retirement plans, reduce reporting
requirements for small entities that are Participants. Additionally,
the proposed rule's clarification of practices and interpretations
decreases uncertainty for Participants. Therefore, SBA does not believe
the proposed rule would have a disparate impact on small entities or
would impose any additional significant costs on them. For the reasons
discussed, SBA certifies that this proposed rule does not have a
significant economic impact on a substantial number of small entities.
List of Subjects
13 CFR Part 121
Administrative practice and procedure, Government procurement,
Government property, Grant programs--business, Individuals with
disabilities, Loan programs--business, Small businesses.
13 CFR Part 124
Administrative practice and procedure, Government procurement,
Government property, Small businesses.
13 CFR Part 125
Government contracts, Government procurement, Reporting and
recordkeeping requirements, Small businesses, Technical assistance.
13 CFR Part 126
Administrative practice and procedure, Government procurement,
Penalties, Reporting and recordkeeping requirements, Small businesses.
[[Page 55664]]
13 CFR Part 127
Government contracts, Reporting and recordkeeping requirements,
Small businesses.
Accordingly, for the reasons stated in the preamble, SBA proposes
to amend 13 CFR parts 121, 124, 125, 126, and 127 as follows:
PART 121--SMALL BUSINESS SIZE REGULATIONS
0
1. The authority citation for part 121 is revised to read as follows:
Authority: 15 U.S.C. 632, 634(b)(6), 636(a)(36), 662, 694a(9),
and 9012.
0
2. Amend Sec. 121.103 by:
0
a. Revising paragraph (h) introductory text and the third sentence of
Example 2 to paragraph (h) introductory text;
0
b. Redesignating paragraphs (h)(1) through (4) as paragraphs (h)(2)
through (5), respectively;
0
c. Adding a new paragraph (h)(1);
0
d. Revising newly redesignated paragraphs (h)(3) and (4); and
0
e. Adding paragraph (i).
The revisions and additions read as follows:
Sec. 121.103 How does SBA determine affiliation?
* * * * *
(h) Affiliation based on joint ventures. A joint venture is an
association of individuals and/or concerns with interests in any degree
or proportion intending to engage in and carry out business ventures
for joint profit over a two-year period, for which purpose they combine
their efforts, property, money, skill, or knowledge, but not on a
continuing or permanent basis for conducting business generally. This
means that a specific joint venture generally may not be awarded
contracts beyond a two-year period, starting from the date of the award
of the first contract, without the partners to the joint venture being
deemed affiliated for the joint venture. However, a joint venture may
be issued an order under a previously awarded contract beyond the two-
year period. Once a joint venture receives a contract, it may submit
additional offers for a period of two years from the date of that first
award. An individual joint venture may be awarded one or more contracts
after that two-year period as long as it submitted an offer prior to
the end of that two-year period. SBA will find joint venture partners
to be affiliated, and thus will aggregate their receipts and/or
employees in determining the size of the joint venture for all small
business programs, where the joint venture submits an offer after two
years from the date of the first award. The same two (or more) entities
may create additional joint ventures, and each new joint venture may
submit offers for a period of two years from the date of the first
contract to the joint venture without the partners to the joint venture
being deemed affiliates. At some point, however, such a longstanding
inter-relationship or contractual dependence between the same joint
venture partners may lead to a finding of general affiliation between
and among them. SBA may also determine that the relationship between a
prime contractor and its subcontractor is a joint venture pursuant to
paragraph (h)(3) of this section. For purposes of this paragraph (h),
contract refers to prime contracts, novations of prime contracts, and
any subcontract in which the joint venture is treated as a similarly
situated entity as the term is defined in part 125 of this chapter.
* * * * *
Example 2 to paragraph (h) introductory text. * * * On March 19,
year 3, XY receives its fifth contract. * * *
* * * * *
(1) Form of joint venture. A joint venture: must be in writing;
must do business under its own name and be identified as a joint
venture in the System for Award Management (SAM) for the award of a
prime contract or agreement; and may be in the form of a formal or
informal partnership or exist as a separate limited liability company
or other separate legal entity.
(i) If a joint venture exists as a formal separate legal entity, it
cannot not be populated with individuals intended to perform contracts
awarded to the joint venture for any contract or agreement which is set
aside or reserved for small business, unless all parties to the joint
venture are similarly situated as that term is defined in part 125 of
this chapter (i.e., the joint venture may have its own separate
employees to perform administrative functions, including one or more
Facility Security Officer(s), but may not have its own separate
employees to perform contracts awarded to the joint venture).
(ii) A populated joint venture that is not comprised entirely of
similarly situated entities will be ineligible for any contract or
agreement which is set aside or reserved for small business.
(iii) In determining the size of a populated joint venture, SBA
will aggregate the revenues or employees of all partners to the joint
venture.
* * * * *
(3) Ostensible subcontractors. A contractor and its ostensible
subcontractor are treated as joint venturers for size determination
purposes. An ostensible subcontractor is a subcontractor that is not a
similarly situated entity, as that term is defined in Sec. 125.1 of
this chapter, and performs primary and vital requirements of a
contract, or of an order, or is a subcontractor upon which the prime
contractor is unusually reliant. As long as each concern is small under
the size standard corresponding to the NAICS code assigned to the
contract (or the prime contractor is small if the subcontractor is the
SBA-approved mentor to the prime contractor), the arrangement will
qualify as a small business.
(i) All aspects of the relationship between the prime and
subcontractor are considered, including, but not limited to, the terms
of the proposal (such as contract management, transfer of the
subcontractor's incumbent managers, technical responsibilities, and the
percentage of subcontracted work), agreements between the prime and
subcontractor (such as bonding assistance or the teaming agreement),
whether the subcontractor is the incumbent contractor and is ineligible
to submit a proposal because it exceeds the applicable size standard
for that solicitation, and whether the prime contractor relies on the
subcontractor's experience because it lacks relevance experience of its
own.
(ii) In a general construction contract, the primary and vital
requirements of the contract are the management and oversight of the
project, not the actual construction or specialty trade construction
work performed.
(4) Receipts/employees attributable to joint venture partners. For
size purposes, a concern must include in its receipts its proportionate
share of joint venture receipts. Proportionate receipts do not include
proceeds from transactions between the concern and its joint ventures
(e.g., subcontracts from a joint venture entity to joint venture
partners) already accounted for in the concern's tax return. In
determining the number of employees, a concern must include in its
total number of employees its proportionate share of joint venture
employees. For the calculation of receipts, the appropriate
proportionate share is the same percentage of receipts or employees as
the joint venture partner's percentage share of the work performed by
the joint venture. For a populated joint venture (where work is
performed by the joint venture entity itself and not by the individual
joint venture partners) the appropriate share is the same percentage as
the joint venture partner's percentage ownership
[[Page 55665]]
share in the joint venture. For the calculation of employees, the
appropriate share is the same percentage of employees as the joint
venture partner's percentage ownership share in the joint venture,
after first subtracting any joint venture employee already accounted
for in one of the partner's employee counts.
Example 1 to paragraph (h)(4). Joint Venture AB is awarded a
contract for $10M. The joint venture will perform 50% of the work, with
A performing $2M (40% of the 50%, or 20% of the total value of the
contract) and B performing $3M (60% of the 50% or 30% of the total
value of the contract). Since A will perform 40% of the work done by
the joint venture, its share of the revenues for the entire contract is
40%, which means that the receipts from the contract awarded to Joint
Venture AB that must be included in A's receipts for size purposes are
$4M. A must add $4M to its receipts for size purposes, unless its
receipts already account for the $4M in transactions between A and
Joint Venture AB.
* * * * *
(i) Affiliation based on franchise and license agreements. The
restraints imposed on a franchisee or licensee by its franchise or
license agreement relating to standardized quality, advertising,
accounting format and other similar provisions, generally will not be
considered in determining whether the franchisor or licensor is
affiliated with the franchisee or licensee provided the franchisee or
licensee has the right to profit from its efforts and bears the risk of
loss commensurate with ownership. Affiliation may arise, however,
through other means, such as common ownership, common management or
excessive restrictions upon the sale of the franchise interest.
0
3. Amend Sec. 121.404 by:
0
a. Revising paragraphs (a)(1)(i)(B), (a)(1)(ii)(B), and (a)(1)(iv);
0
b. Removing the reference ``Sec. 121.103(h)(2)'' in paragraph (d) and
adding in its place ``Sec. 121.103(h)(3)'';
0
c. Revising the first sentence in paragraph (g)(2)(i) and the second
sentence in paragraph (g)(2)(iii);
0
d. Removing the reference ``Sec. 121.103(h)(4)'' in paragraph (g)(5)
and adding in its place ``Sec. 121.103(h)(3)''; and
0
e. Adding paragraph (g)(6).
The revisions and addition read as follows:
Sec. 121.404 When is the size status of a business concern
determined?
(a) * * *
(1) * * *
(i) * * *
(B) Set-aside Multiple Award Contracts. Except as set forth in
Sec. 124.503(i)(1)(iv) of this chapter for sole source 8(a) orders,
for a Multiple Award Contract that is set aside or reserved for small
business (i.e., small business set-aside, 8(a) small business, service-
disabled veteran-owned small business, HUBZone small business, or
women-owned small business), if a business concern (including a joint
venture) is small at the time of offer and contract-level
recertification for the Multiple Award Contract, it is small for each
order or Blanket Purchase Agreement issued against the contract, unless
a contracting officer requests a size recertification for a specific
order or Blanket Purchase Agreement.
(ii) * * *
(B) Set-aside Multiple Award Contracts. Except as set forth in
Sec. 124.503(i)(1)(iv) of this chapter for sole source 8(a) orders,
for a Multiple Award Contract that is set aside or reserved for small
business (i.e., small business set-aside, 8(a) small business, service-
disabled veteran-owned small business, HUBZone small business, or
women-owned small business), if a business concern (including a joint
venture) is small at the time of offer and contract-level
recertification for discrete categories on the Multiple Award Contract,
it is small for each order or Agreement issued against any of those
categories, unless a contracting officer requests a size
recertification for a specific order or Blanket Purchase.
* * * * *
(iv) Multiple award contract where price not required. For a
Multiple Award Contract, where concerns are not required to submit
price as part of the offer for the contract, size for the contract will
be determined as of the date of initial offer, which may not include
price. Size for set-aside orders will be determined in accordance with
paragraph (a)(1)(i)(A) or (B) or (a)(1)(ii)(A) or (B) of this section,
as appropriate.
* * * * *
(g) * * *
(2)(i) In the case of a merger, acquisition, or sale which results
in a change in controlling interest under Sec. 121.103, where contract
novation is not required, the contractor must, within 30 days of the
transaction becoming final, recertify its small business size status to
the procuring agency, or inform the procuring agency that it is other
than small. * * *
* * * * *
(iii) * * * If the merger, sale, or acquisition (including
agreements in principle) occurs within 180 days of the date of an offer
relating to the award of a contract, order, or agreement and the
offeror is unable to recertify as small, it will not be eligible as a
small business to receive the award of the contract, order, or
agreement. * * *
* * * * *
(6) Where a joint venture must recertify its small business size
status under paragraph (g) of this section, the joint venture can
recertify as small where all parties to the joint venture qualify as
small at the time of recertification, or the prot[eacute]g[eacute]
small business in a still active mentor-prot[eacute]g[eacute] joint
venture qualifies as small at the time of recertification. A joint
venture can recertify as small even though the date of recertification
occurs more than two years after the joint venture received its first
contract award (i.e., recertification is not considered a new contract
award under Sec. 121.103(h)).
* * * * *
0
4. Amend Sec. 121.411 by revising paragraph (c) to read as follows:
Sec. 121.411 What are the size procedures for SBA's Section 8(d)
Subcontracting Program?
* * * * *
(c) Notice of awardee. Upon determination of the successful
subcontract offeror for a competitive subcontract over the simplified
acquisition threshold, but prior to award, the prime contractor must
inform each unsuccessful subcontract offeror in writing of the name and
location of the apparent successful offeror.
* * * * *
0
5. Amend Sec. 121.507 by adding paragraph (d) to read as follows:
Sec. 121.507 What are the size standards and other requirements for
the purchase of Government-owned timber (other than Special Salvage
Timber)?
* * * * *
(d) The Director of Government Contracting (D/GC) may waive one or
more of the requirements set forth in paragraphs (a)(3) and (4) of this
section in limited circumstances where conditions make the
requirement(s) impractical or prohibitive. A request for waiver must be
made to the D/GC and contain facts, arguments, and any appropriate
supporting documentation as to why a waiver should be granted.
0
6. Amend Sec. 121.702 in paragraph (c)(7) by revising the first
sentence and adding a sentence following the first sentence to read as
follows:
Sec. 121.702 What size and eligibility standards are applicable to
the SBIR and STTR programs?
* * * * *
[[Page 55666]]
(c) * * *
(7) * * * A concern and its ostensible subcontractor are treated as
joint venturers. As such, they are affiliates for size determination
purposes and must meet the ownership and control requirements
applicable to joint ventures. * * *
* * * * *
0
6. Amend Sec. 121.1001 by revising paragraphs (a)(6)(i), (a)(8)(i),
(a)(9)(i), (b)(2)(ii) introductory text, and (b)(2)(ii)(A) and (C) to
read as follows:
Sec. 121.1001 Who may initiate a size protest or request a formal
size determination?
(a) * * *
(6) * * *
(i) Any offeror for a specific HUBZone set-aside contract that the
contracting officer has not eliminated from consideration for any
procurement-related reason, such as non-responsiveness, technical
unacceptability, or outside of the competitive range;
* * * * *
(8) * * *
(i) Any offeror for a specific service-disabled veteran-owned small
business set-aside contract that the contracting officer has not
eliminated from consideration for any procurement-related reason, such
as non-responsiveness, technical unacceptability, or outside of the
competitive range;
* * * * *
(9) * * *
(i) Any offeror for a specific contract set aside for WOSBs or
WOSBs owned by one or more women who are economically disadvantaged
(EDWOSB) that the contracting officer has not eliminated from
consideration for any procurement-related reason, such as non-
responsiveness, technical unacceptability or outside of the competitive
range;
* * * * *
(b) * * *
(2) * * *
(ii) Concerning individual sole source 8(a) contract awards and
competitive 8(a) contract awards where SBA cannot verify the
eligibility of the apparent successful offeror because SBA finds the
concern to be other than small, the following entities may request a
formal size determination:
(A) The Participant nominated for award of the particular sole
source contract, or found to be ineligible for a competitive 8(a)
contract due to its size;
* * * * *
(C) The SBA District Director in the district office that services
the Participant, the Associate Administrator for Business Development,
or the Associate General Counsel for Procurement Law.
* * * * *
0
7. Amend Sec. 121.1004 by:
0
a. Revising paragraph (a)(1);
0
b. Adding the words ``without a reserve'' at the end of paragraph
(a)(2)(iii); and
0
c. Adding paragraphs (f) and (g).
The revision and addition read as follows:
Sec. 121.1004 What time limits apply to size protests?
(a) * * *
(1) Sealed bids or sales (including protests on partial set-asides
and reserves of Multiple Award Contracts and set-asides of orders
against Multiple Award Contracts). (i) A protest must be received by
the contracting officer prior to the close of business on the 5th day,
exclusive of Saturdays, Sundays, and legal holidays, after bid opening
for:
(A) The contract;
(B) An order issued against a Multiple Award Contract if the
contracting officer requested a new size certification in connection
with that order; or
(C) Except for orders or Blanket Purchase Agreements issued under
any Federal Supply Schedule contract, an order or Blanket Purchase
Agreement set aside for small business (i.e., small business set-aside,
8(a) small business, service-disabled veteran-owned small business,
HUBZone small business, or women-owned small business) where the
underlying Multiple Award Contract was awarded on an unrestricted
basis.
(ii) Where the identified low bidder is determined to be ineligible
for award, a protest of any other identified low bidder must be
received prior to the close of business on the 5th day, exclusive of
Saturdays, Sundays, and legal holidays, after the contracting officer
has notified interested parties of the identity of that low bidder.
* * * * *
(f) Apparent successful offeror. A party with standing, as set
forth in Sec. 121.1001(a), may file a protest only against an apparent
successful offeror or an offeror in line to receive an award.
(g) GAO corrective action. SBA will dismiss any size protest
relating to an initial apparent successful offeror where an agency
decides to reevaluate offers as a corrective action in response to a
protest before the Government Accountability Office (GAO). When the
apparent successful offeror is announced after reevaluation, interested
parties will again have the opportunity to protest the size of the new
or same apparent successful offeror within five business days after
such notification.
0
8. Amend Sec. 121.1009 by revising paragraphs (a)(1) and (3) and
(g)(5) to read as follows:
Sec. 121.1009 What are the procedures for making the size
determination?
(a) * * *
(1) After receipt of a protest or a request for a formal size
determination:
(i) If no protest is pending before GAO, the SBA Area Office will
issue a formal size determination within 15 business days, if possible;
(ii) If a protest is pending before GAO, the SBA Area Office will
place the size determination case in suspense. Once GAO issues a
decision, the SBA the Area Office will recommence the size
determination process and issue a formal size determination within 15
business days of the GAO decision, if possible.
* * * * *
(3) If SBA does not issue its determination in accordance with
paragraph (a)(1) of this section (or request an extension that is
granted), the contracting officer may award the contract if he or she
determines in writing that there is an immediate need to award the
contract and that waiting until SBA makes its determination will be
disadvantageous to the Government. Notwithstanding such a
determination, the provisions of paragraph (g) of this section apply to
the procurement in question.
* * * * *
(g) * * *
(5) A concern determined to be other than small under a particular
size standard is ineligible for any procurement or any assistance
authorized by the Small Business Act or the Small Business Investment
Act of 1958 which requires the same or a lower size standard, unless
SBA recertifies the concern to be small pursuant to Sec. 121.1010 or
OHA reverses the adverse size determination. After an adverse size
determination, a concern cannot self-certify as small under the same or
lower size standard unless it is first recertified as small by SBA. If
a concern does so, it may be in violation of criminal laws, including
section 16(d) of the Small Business Act, 15 U.S.C. 645(d). If the
concern has already certified itself as small under the same or a
smaller size standard on a pending procurement or on an application for
SBA assistance, the concern must immediately inform the contracting
officer or responsible official of the adverse size determination.
(i) Not later than two days after the date on which SBA issues a
final size determination finding a business concern to be other than
small, such
[[Page 55667]]
concern must update its size status in the System for Award Management
(or any successor system).
(ii) If a business concern fails to update its size status in the
System for Award Management (or any successor system) in response to an
adverse size determination, SBA will make such update within two days
of the business's failure to do so.
* * * * *
0
9. Amend Sec. 121.1203 by:
0
a. Redesignating paragraph (d) as paragraph (g);
0
b. Adding a new paragraph (d) and paragraphs (e) and (f); and
0
c. In newly redesignated paragraph (g)(2), removing ``(d)(1)'' and
adding ``(g)(1)'' in its place.
The additions read as follows:
Sec. 121.1203 When will a waiver of the Nonmanufacturer Rule be
granted for an individual contract?
* * * * *
(d) Applicability of individual waiver. An individual waiver
applies only to the contract for which it is granted and does not apply
to modifications outside the scope of the contract or other procurement
actions (e.g., follow-on or bridge contracts).
(e) Long term contracts. SBA will not grant an individual waiver in
connection with a long-term contract (i.e., a contract with a duration
of longer than five years, including options).
(f) Multiple item procurements. For a multiple item procurement, a
waiver must be sought and granted for each item for which the procuring
agency believes no small business manufacturer or processor can
reasonably be expected to offer a product meeting the specifications of
the solicitation. SBA's waiver applies only to the specific item(s)
identified, not to the entire contract.
* * * * *
0
10. Amend Sec. 121.1204 by:
0
a. Revising paragraphs (b)(1)(i) and (ii);
0
b. Adding a sentence after the first sentence in paragraph (b)(1)(iii);
0
c. Redesignating paragraphs (b)(2) and (3) as paragraphs (b)(3) and
(4), respectively;
0
d. Adding a new paragraph (b)(2);
0
e. Revising newly redesignated paragraph (b)(4); and
0
f. Adding paragraph (b)(5).
The revisions and additions read as follows:
Sec. 121.1204 What are the procedures for requesting and granting
waivers?
* * * * *
(b) * * *
(1) * * *
(i) A definitive statement of each specific item sought to be
waived and justification as to why the specific item is required;
(ii) The proposed solicitation number, NAICS code, dollar amount of
the procurement, dollar amount of the item(s) for which a waiver is
sought, and a brief statement of the procurement history;
(iii) * * * For a multiple item procurement, a contracting officer
must determine that no small business manufacturer or processor
reasonably can be expected to offer each item for which a waiver is
sought. * * *
* * * * *
(2) Unless an agency has justified a brand-name acquisition, the
market research conducted to support the waiver request should be
tailored to attract the attention of potential small business
manufacturers or processors, not resellers or distributors.
* * * * *
(4) SBA will examine the contracting officer's determination and
any other information it deems necessary to make an informed decision
on the individual waiver request.
(i) If SBA's research verifies that no small business manufacturers
or processors exist for the item, the Director, Office of Government
Contracting will grant an individual, one-time waiver.
(ii) If a small business manufacturer or processor is found for the
product in question, the Director, Office of Government Contracting
will deny the request.
(iii) Where an agency requests a waiver for multiple items, SBA may
grant a waiver for all items requested, deny a waiver for all items
requested, or grant a waiver for some but not all of the items
requested. SBA's determination will specifically identify the items for
which a waiver is granted, and the procuring agency must then identify
the specific items for which the waiver applies in its solicitation.
(iv) The Director, Office of Government Contracting's decision to
grant or deny a waiver request represents the final agency decision by
SBA.
(5) A nonmanufacturer rule waiver for a specific solicitation
expires one year after SBA's determination to grant the waiver. This
means that contract award must occur within one year of the date SBA
granted the waiver. Where a contract is not awarded within one year,
the procuring agency must come back to SBA with revised market research
requesting that the waiver (or waivers in the case of a multiple item
procurement) be extended.
Sec. 121.1205 [Amended]
0
11. Amend Sec. 121.1205 by removing ``<a href="http://www.sba.gov/aboutsba/sbaprograms/gc/programs/gc_waivers_nonmanufacturer.html">http://www.sba.gov/aboutsba/sbaprograms/gc/programs/gc_waivers_nonmanufacturer.html</a>'' and adding in
its place ``<a href="https://www.sba.gov/document/support-non-manufacturer-rule-class-waiver-list">https://www.sba.gov/document/support-non-manufacturer-rule-class-waiver-list</a>''.
PART 124--8(a) BUSINESS DEVELOPMENT/SMALL DISADVANTAGED BUSINESS
STATUS DETERMINATIONS
0
12. The authority citation for part 124 continues to read as follows:
Authority: 15 U.S.C. 634(b)(6), 636(j), 637(a), 637(d), 644, 42
U.S.C. 9815; and Pub. L. 99-661, 100 Stat. 3816; Sec. 1207, Pub. L.
100-656, 102 Stat. 3853; Pub. L. 101-37, 103 Stat. 70; Pub. L. 101-
574, 104 Stat. 2814; Sec. 8021, Pub. L. 108-87, 117 Stat. 1054; and
Sec. 330, Pub. L. 116-260.
0
13. Amend Sec. 124.102 by revising paragraph (c) to read as follows:
Sec. 124.102 What size business is eligible to participate in the
8(a) BD program?
* * * * *
(c) A concern whose application is denied due to size by 8(a) BD
program officials may request a formal size determination with the SBA
Government Contracting Area Office serving the geographic area in which
the principal office of the business is located under part 121 of this
chapter. Where the SBA Government Contracting Area Office determines
that an applicant qualifies as a small business concern for the size
standard corresponding to its primary NAICS code:
(1) The Associate Administrator for Business Development (AA/BD)
will certify the concern as eligible to participate in the 8(a) BD
program if size was the only reason for decline; or
(2) The concern may reapply for participation in the 8(a) BD
program at any point after 90 days from the AA/BD's decline if size was
not the only reason for decline. In such a case, the AA/BD will accept
the size determination as conclusive of the concern's small business
status, provided the applicant concern has not completed an additional
fiscal year in the intervening period and SBA believes that the
additional fiscal year changes the applicant's size.
Sec. 124.103 [Amended]
0
14. Amend Sec. 124.103 by removing the words ``physical handicap'' in
paragraph (c)(2)(i) and adding in their place the words ``identifiable
disability''.
0
15. Amend Sec. 124.104 by:
0
a. Revising the second sentence of paragraph (c)(2)(ii);
[[Page 55668]]
0
b. Removing paragraph (c)(2)(iii); and
0
c. Redesignating paragraph (c)(2)(iv) as paragraph (c)(2)(iii).
The revision reads as follows:
Sec. 124.104 Who is economically disadvantaged?
* * * * *
(c) * * *
(2) * * *
(ii) * * * In order to properly assess whether funds invested in a
retirement account may be excluded from an individual's net worth, SBA
may require the individual to provide information about the terms and
restrictions of the account to SBA and certify that the retirement
account is legitimate.
* * * * *
0
16. Amend Sec. 124.105 by:
0
a. Revising paragraphs (h)(2) and (i)(1); and
0
b. Adding a sentence after the first sentence in paragraph (i)(2).
The revisions and addition read as follows:
Sec. 124.105 What does it mean to be unconditionally owned by one or
more disadvantaged individuals?
* * * * *
(h) * * *
(2) A non-Participant concern in the same or similar line of
business or a principal of such concern may generally not own more than
a 10 percent interest in a Participant that is in the developmental
stage or more than a 20 percent interest in a Participant in the
transitional stage of the program, except that:
(i) A former Participant in the same or similar line of business or
a principal of such a former Participant (except those that have been
terminated from 8(a) BD program participation pursuant to Sec. Sec.
124.303 and 124.304) may have an equity ownership interest of up to 20
percent in a current Participant in the developmental stage of the
program or up to 30 percent in a transitional stage Participant; and
(ii) A business concern approved by SBA to be a mentor pursuant to
Sec. 125.9 of this chapter may own up to 40 percent of its 8(a)
Participant prot[eacute]g[eacute] as set forth in Sec. 125.9(d)(2) of
this chapter, whether or not that concern is in the same or similar
line of business as the Participant.
(i) * * *
(1) Any Participant or former Participant that is performing one or
more 8(a) contracts may substitute one disadvantaged individual or
entity for another disadvantaged individual or entity without requiring
the termination of those contracts or a request for waiver under Sec.
124.515, as long as it receives SBA's approval prior to the change.
(2) * * * In determining whether a non-disadvantaged individual
involved in a change of ownership has more than a 20 percent interest
in the concern, SBA will aggregate the interests of all immediate
family members. * * *
* * * * *
0
17
[…truncated; see source link]Indexed from Federal Register on September 9, 2022.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.