Rule2023-07855
Ownership and Control and Contractual Assistance Requirements for the 8(a) Business Development Program
Primary source
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Published
April 27, 2023
Effective
May 30, 2023
Issuing agencies
Small Business Administration
Abstract
This final rule makes 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 makes 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 rule also makes 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, to include blanket purchase agreements in the list of contracting vehicles that are covered by the definitions of consolidation and bundling, and to more clearly specify the requirements relating to waivers of the nonmanufacturer rule.
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[Federal Register Volume 88, Number 81 (Thursday, April 27, 2023)]
[Rules and Regulations]
[Pages 26164-26217]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-07855]
[[Page 26163]]
Vol. 88
Thursday,
No. 81
April 27, 2023
Part IV
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; Final Rule
Federal Register / Vol. 88, No. 81 / Thursday, April 27, 2023 / Rules
and Regulations
[[Page 26164]]
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SMALL BUSINESS ADMINISTRATION
13 CFR Parts 121, 124, 125, 126, 127, and 128
RIN 3245-AH70
Ownership and Control and Contractual Assistance Requirements for
the 8(a) Business Development Program
AGENCY: U.S. Small Business Administration.
ACTION: Final rule.
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SUMMARY: This final rule makes 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 makes 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 rule also makes 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, to include blanket purchase agreements in the list of contracting
vehicles that are covered by the definitions of consolidation and
bundling, and to more clearly specify the requirements relating to
waivers of the nonmanufacturer rule.
DATES: This rule is effective on May 30, 2023. It applies to all
solicitations issued on or after that date.
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#f19c90839adf99909694959e839fb1829390df969e87"><span class="__cf_email__" data-cfemail="caa7abb8a1e4a2abadafaea5b8a48ab9a8abe4ada5bc">[email protected]</span></a>.
SUPPLEMENTARY INFORMATION: On September 9, 2022, SBA published in the
Federal Register a comprehensive proposal that primarily proposed
changes to the 8(a) Business Development (BD) program, but also
proposed changes to SBA's size regulations and SBA's other small
business contracting programs. 87 FR 55642. Specifically, the rule
proposed to make several changes to the ownership and control
requirements for the 8(a) 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, and to provisions relating to the award of
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 rule also
proposed to 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, to include blanket purchase agreements in the
list of contracting vehicles that are covered by the definitions of
consolidation and bundling, and to more clearly specify the
requirements relating to waivers of the nonmanufacturer rule.
Contemporaneously, on August 26, 2022, SBA also published a Notice in
the Federal Register announcing that SBA intended to conduct tribal
consultations and listening sessions relating to a proposal to require
a Community Benefits Plan laying out how a tribe, Alaska Native
Corporation (ANC) or Native Hawaiian Organization (NHO) that owned and
controlled one or more 8(a) BD Participants intended to give benefits
back to the Native community as a result of its 8(a) BD participation.
87 FR 52602. SBA held consultations in Anchorage, AK on September 14,
2022, in Albuquerque, NM on September 20, 2022, in Oklahoma City, OK on
September 22, 2022, and in Washington, DC on October 5, 2022. In
addition, SBA held a listening session on this topic in Honolulu, HI on
September 28, 2022. The tribal, ANC and NHO representatives
overwhelmingly opposed SBA imposing any target that a certain
percentage of an entity's 8(a) receipts should be distributed to
benefit the affected Native community or that there should be any
specific consequences if the benefit targets were not reached. They
believed that any such requirement infringed on self-determination and
tribal sovereignty, that the entity (tribe/ANC/NHO) is in the best
position to determine how and when to best reinvest in the 8(a)
Participant for long-term growth, and that the tribal members or ANC
shareholders, and not SBA, are the ones who determine what type of
benefits the tribe/ANC provides. SBA listened to the concerns voiced at
the tribal consultations. In response to those concerns, at the October
5, 2022, consultation in Washington, DC, SBA announced that the SBA
Administrator determined that this final rule would not change any
current requirements relating to Native community benefits. As such,
the proposed changes to Sec. 124.604 regarding the imposition of a
Community Benefits Plan are not included in this final rule. In
addition, the questions raised in the proposed rule and the August 26,
2022, Federal Register Notice regarding benefit targets or consequences
for failure to meet those targets are also not included in this final
rule.
During the proposed rule's 60-day comment period, SBA timely
received over 650 comments from 125 commenters, with a high percentage
of commenters favoring the proposed changes. A substantial number of
commenters applauded SBA's effort to clarify and address ambiguities
contained in the current rules. For the most part, the comments
supported the substantive changes proposed by SBA.
Section-By-Section Analysis
Section 121.103(h)
Section 121.103(h) sets forth the rules pertaining to affiliation
through joint ventures. SBA proposed to make several changes to this
section. SBA first proposed to take some of the language currently
contained in the introductory paragraph and add it to a new Sec.
121.103(h)(1) for ease of use. SBA believes that the current
introductory paragraph is overly complex and separating some of the
requirements into a separate subparagraph will be easier to understand
and use. In adding a new Sec. 121.103(h)(1), the proposed rule also
made corresponding numbering and cross reference adjustments. SBA
received no objections to these changes. As such, they are adopted as
final in this rule.
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. The proposed rule added a sentence to the introductory text of
Sec. 121.103(h) to capture SBA's current policy that allows orders to
be issued under previously awarded contracts
[[Page 26165]]
beyond the two-year period (since the restriction is on additional
contracts, not continued performance on contracts already awarded). All
comments that SBA received regarding this provision supported the
clarification pertaining to orders. As such, the final rule adopts the
clarification as proposed.
The proposed rule also sought to 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 clarified
that this requirement was meant to apply only to contracts set aside or
reserved 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 proposed rule
clarified 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 clarified that SBA will aggregate
the revenues or employees of all partners to the joint venture.
Commenters supported the change to clarify 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. Although several commenters agreed with the language in the
proposed rule aggregating the size of joint venture partners where a
joint venture is populated, two commenters recommended that populated
joint ventures should be permitted for set-aside contracts as long as
each party to the joint venture individually qualifies as small under
the size standard corresponding to the North American Classification
System (NAICS) code assigned to the contract and has any socioeconomic
designation that may be required for the contract (i.e., is similarly
situated). SBA disagrees. SBA has consistently stated its view that a
joint venture is not an on-going business entity, but rather something
that is formed for a limited purpose and duration. If two or more
separate business entities seek to join together through another entity
on a continuing, unlimited basis, SBA views that as a separate business
concern with each partner affiliated with each other. Where two or more
parties form a separate business entity (e.g., a limited liability
company or partnership) and populate that entity with employees
intended to perform work on behalf of that entity, SBA similarly views
that as an ongoing business entity and will aggregate the receipts/
employees of the parties that formed the separate business entity in
determining its size. SBA's joint venture regulations provide generally
that as long as each partner to the joint venture individually
qualifies as small under the NAICS code assigned to the contract, the
joint venture will qualify as small. However, that rule assumes that
each partner to the joint venture individually performs work under a
contract won by the joint venture with its own separate employees. That
is not the case where two or more parties form a separate legal entity,
populate that entity with employees, and intend to perform contracts
with the employees hired by that separate entity. As such, the final
rule adopts the language contained in the proposed rule that where two
parties form a populated joint venture, the joint venture will qualify
as small only where the parties to the joint venture meet the
applicable size standard in the aggregate.
In addition, the proposed rule revised the ostensible subcontractor
rule in redesignated Sec. 121.103(h)(3) in two ways. First, it
clarified how the ostensible subcontractor rule should apply to general
construction contracts. Second, it proposed to add factors to consider
in determining whether a specific subcontractor should be considered an
ostensible subcontractor to comport with recent decisions of SBA's
Office of Hearings and Appeals (OHA).
The proposed rule clarified that the primary role of a prime
contractor in a general construction project is to oversee and
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 received 17
comments regarding the proposed clarification to the ostensible
subcontractor rule for general construction contracts. All 17 comments
supported the clarification. A few commenters suggested adding the word
``supervise'' and to specifically identify that one of the primary
functions of a general construction prime contractor is to coordinate
the work of subcontractors. Although SBA does not see a real
distinction between oversight and supervision, the final rule
nevertheless adds supervision as a primary and vital requirement as
well as adding the coordination of subcontractor work. One commenter
recommended adding more specificity as to what managing the contract
entails. SBA believes that a general requirement to supervise, oversee,
manage, and schedule the work on a contract, including coordinating the
work of various subcontractors, is sufficient. SBA is concerned that
adding any specificity beyond that or highlighting one or two specific
items of managing a contract might be read as SBA believing those one
or two items are more important in the analysis than any others. That
is not SBA's intent, and SBA believes that an SBA Size Specialist
should have discretion to analyze all the facts in determining whether
an arrangement rises to the level of an ostensible subcontractor.
One commenter noted that the proposed rule also amended Sec.
126.401(d) to provide that SBA will find that a prime HUBZone
contractor is performing the primary and vital requirements of the
contract or order and is not unduly reliant on one or more
subcontractors that are not HUBZone-certified, where the prime
contractor can demonstrate that it, together with any subcontractors
that are certified HUBZone small business concerns, will meet the
limitations on subcontracting provisions. The commenter sought
clarification of that provision in light of the proposed language
relating to general construction contractors. Specifically, the
commenter believed the two provisions might conflict because a general
contractor could perform 15 percent of a construction contract but
still be unduly reliant on a
[[Page 26166]]
large business for the supervision and oversight of the contract. SBA
agrees. For a services, specialty trade construction, or supply
contract or order, SBA believes that meeting the applicable limitation
on subcontracting requirement is sufficient to overcome any claim of
the existence of an ostensible subcontractor. However, as the commenter
noted, for a general construction contract a prime contractor could
conceivably perform 15 percent of the contract but subcontract out all
the supervision and oversight responsibilities to another business
entity. If that business entity is not a similarly situated entity,
that subcontracting could render the prime contractor ineligible due to
the ostensible subcontractor rule. The final rule amends Sec.
121.103(h)(3) to clarify the distinction between meeting the limitation
on subcontracting for contracts or orders for services, specialty trade
construction or supplies and those for general construction. To ensure
consistency between the various programs, the final rule also makes
similar changes to Sec. 126.601(d) for the HUBZone program, to Sec.
127.504(g) for the WOSB program, and to Sec. 128.401(g) for the SDVO
program.
SBA further proposed to revise the ostensible subcontractor rule in
light of the decision of SBA's Office of Hearings and Appeals (OHA) in
Size Appeal of DoverStaffing, Inc., SBA No. SIZ-5300 (2011). In that
decision, 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 proposed 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. SBA did not include plans to hire a large majority of its
intended workforce on a contract from the incumbent contractor as a
factor because a successful concern is often required to offer to
qualified employees of a predecessor contract the right of first
refusal on a subsequent contract, and must hire such individuals if
they so opt. Because of this and other practical reasons, it is common
for the same individuals to work for multiple different business
concerns over time while performing the same function on follow-on
contracts.
SBA received comments on both sides of this issue, with seven
commenters agreeing with including the identified Doverstaffing factors
and nine commenters opposing their inclusion. Those opposing the
inclusion of these factors into the regulations highlighted that
leveraging the experience of a subcontractor is a tool needed to assist
a small business gain experience necessary to compete and win work.
They believed that reliance on a subcontractor's experience alone
should never result in a finding of an ostensible subcontractor. One
commenter argued that as long as the new prime contractor is meeting
the limitation on subcontracting requirement, SBA should not care who
the subcontractor is. Another commenter believed that it should not
matter whether a subcontractor previously performed the requirement or
was the incumbent contractor, and that all that should be looked at is
determining whether a subcontractor is performing primary and vital
requirements of the contract. One commenter similarly argued that
whether the prime contractor's proposed management previously served
with the subcontractor on the incumbent contract is also irrelevant.
The commenter believed that as long as those individuals are now
employed by and under the control of the prime contractor, that should
not negatively affect whether the subcontractor is an ostensible
subcontractor. Even three of the commenters who favored adding the two
identified factors to regulatory text believed that identifying factors
to consider was appropriate as long as SBA did not apply any
mechanically. SBA agrees that the ultimate determination in every case
depends upon who is performing the primary and vital requirements of a
contract or order and whether a prime contractor is unusually reliant
on a subcontractor. SBA also agrees that no factor is determinative and
that a prime contractor should be able to use the experience and past
performance of its subcontractors to strengthen its offer, even where a
subcontractor is the incumbent contractor. As with the existing rule,
SBA intends to consider all aspects of the prime contractor's
relationship with the subcontractor and would not limit its inquiry to
any enumerated 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. That being said, SBA believes that identifying factors that
can be considered is helpful to contractors. As such, the final rule
retains factors that SBA may consider but adds a provision identifying
that no single factor is determinative. The final rules also
specifically clarifies that a prime contractor may use the experience
and past performance of a subcontractor to enhance or strengthen its
offer, including that of an incumbent contractor. It also reenforces
that it is only where that subcontractor will perform primary and vital
requirements of a contract or order, or where the prime contractor is
unusually reliant on the subcontractor, that SBA will find the
subcontractor to be an ostensible subcontractor.
One commenter requested that SBA clarify that the ostensible
subcontractor rule does not apply to similarly-situated entities. SBA
believes that is unnecessary as the current rule already specifies that
an ``ostensible subcontractor is a subcontractor that is not a
similarly situated entity'' and that language has been retained in this
final rule.
One commenter also questioned whether the ostensible subcontractor
rule applied to contracts below the Simplified Acquisition Threshold
(SAT). SBA notes that the limitations on subcontracting requirements do
not apply to small business acquisitions with an estimated value
between the micro-purchase threshold and the simplified acquisition
threshold. See 13 CFR 121.406(c). That being the case, a small business
can subcontract to any business for such contracts and it does not
matter who is performing the primary and vital functions of the
contract. Although SBA believes that can be inferred from the current
regulatory language, the final rule adds clarifying language to Sec.
121.406(c) to eliminate any confusion.
Finally, the proposed rule revised 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
[[Page 26167]]
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. The proposed rule
specifically incorporated into redesignated Sec. 121.103(h)(4) SBA's
belief that revenues should be divided by ownership interest. Comments
supported this clarification, and SBA adopts the proposed language in
the final rule.
In connection with the comments relating to the proposed changes to
Sec. 121.103, SBA also received comments seeking clarification to the
joint venture provisions in Sec. 125.8. Specifically, several
commenters recommended that SBA provide further guidance regarding what
decisions non-managing partners to the joint venture can participate
in. The regulations provide that the managing venturer must control all
aspects of the day-to-day management and administration of the
contractual performance of the joint venture, and that other partners
to the joint venture may participate in all corporate governance
activities and decisions of the joint venture as is commercially
customary. One commenter recommended that SBA add language providing
that a non-managing joint venture partner could participate in
decisions that were customary for joint ventures outside of the small
business Government contracting environment. SBA believes that is
unnecessary as it does not add anything substantively different from
the current regulatory language. Another commenter recommended that SBA
specifically include in the regulation instances in which a non-
managing joint venture partner's concurrence could be required and
identified the ability of the joint venture to initiate litigation on
behalf of the joint venture as such an instance. As previously noted,
the managing joint venture partner must independently control all
aspects of the day-to-day management and administration of the
contractual performance of the joint venture. SBA believes that
initiating contract litigation is outside the scope of the management
of daily contractual performance and instead represents a decision that
reasonably falls into the exception that allows other joint venture
partners to participate in commercially customary decisions. A joint
venture is a mutual agreement between joint venture partners to combine
resources for a specific contract or contracts, and litigation is
sometimes required to protect those resources. Litigation on behalf of
the joint venture is a decision that carries significant risk for both
partners and as a result, it is unreasonable and outside the bounds of
customary commercial practices to limit that decision to only one
partner. Similarly, SBA believes that requiring the concurrence of a
non-managing joint venture partner in deciding what contract
opportunities the joint venture should seek is also something that
would be commercially customary. The partners to a joint venture have
formed a joint venture in order to seek contract opportunities. Since
the parties will be jointly and severally liable for any contracts
awarded to the joint venture, it makes sense that all parties to the
joint venture should have a say in what opportunities the joint venture
pursues. The final rule adds language specifying that a non-managing
venturer's approval may be required in determining what contract
opportunities the joint venture should seek and in initiating
litigation on behalf of the joint venture. That addition is not meant
to be the only decisions in which a non-managing member may participate
but is merely illustrative of corporate governance activities and
decisions of the joint venture that SBA believes non-managing venturer
participation is commercially customary.
Another commenter also sought clarification to a perceived
inconsistency in the regulations between Sec. 125.8(b)(2)(xii) and
Sec. 125.8(h)(2). Paragraph 125.8(b)(2)(xii) provides that a joint
venture must submit a project-end performance-of-work report to SBA and
the relevant contracting officer no later than 90 days after completion
of the contract. Paragraph (h)(2) provides that at the completion of
every contract set aside or reserved for small business that is awarded
to a joint venture between a prot[eacute]g[eacute] small business and
its SBA-approved mentor, and upon request by SBA or the relevant
contracting officer, the small business partner to the joint venture
must submit a report to the relevant contracting officer and to SBA.
The commenter believed that Sec. 125.8(b)(2)(xii) required a
performance-of-work report at contract completion while Sec.
125.8(h)(2) stated that such a report must be submitted only when
requested by SBA or the contracting officer. The commenter
misunderstood SBA's intent in Sec. 125.8(h)(2). That provision meant
to require the submission of a performance-of-work report in two
instances: first, always at the completion of the contract; and second,
whenever requested to do so by SBA or the contracting officer prior to
completion of the contract. In order to eliminate any confusion, the
final rule adds clarifying language to Sec. 125.8(h)(2).
Section 121.103(i)
The proposed rule 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. The proposed rule merely added back into the regulations
the provision that was inadvertently removed. Several commenters
supported adding this provision back into the regulations and no
comments opposed. As such, SBA the final rule adopts adding this
provision back into the regulations.
Section 121.404
SBA proposed 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. The proposed clarification intended to treat orders
issued pursuant to a multiple award contract that did not itself
include price similarly to orders under multiple award contracts
generally. SBA believes there is no justification for treating orders
issued on these contracts differently, simply because the contract did
not require price with initial offer. Thus, size for set-aside orders
will be determined in accordance with subparagraphs (a)(1)(i)(A),
(a)(1)(i)(B), (a)(1)(ii)(A), or (a)(1)(ii)(B), as appropriate, which
means that for orders issued under any set-aside contract, size will be
determined at the time of offer for the multiple award contract and not
at the time of each
[[Page 26168]]
individual order unless a contracting officer requests size
recertification with respect to an individual order.
SBA received comments both supporting and opposing this
clarification. Commenters generally agreed that orders for multiple
award contracts should be treated similarly whether offers included
price for the underlying multiple award contract itself. Several
commenters, however, repeated previous concerns raised with SBA
regarding the amendments to Sec. 121.404 that were made in 2020.
Section 121.404 states that where an order under an unrestricted
multiple award contract is set-aside exclusively for small business
(i.e., small business, 8(a) small business, service-disabled veteran-
owned small business, HUBZone small business, or women-owned small
business), a concern must recertify its size status and qualify as a
small business at the time it submits its initial offer, which includes
price, for the particular order. Although the proposed rule did not
seek to change that provision, several commenters voiced the view that
that provision should not apply to previously awarded multiple award
contracts.
A firm's status as a small business does not generally affect
whether the firm does or does not qualify for the award of an
unrestricted multiple award contract. As such, competitors are very
unlikely to protest the size of a concern that self-certifies as small
for an unrestricted multiple award contract. In SBA's view, when a
contracting officer sets aside an order for small business under an
unrestricted multiple award contract, the order is the first time that
size status is important because competition is being limited under the
contract. That is the first time that some firms will be eligible to
compete for the order while others will be excluded from competition
because of their size status. SBA never intended to allow a firm's
self-certification for the underlying unrestricted multiple award
contract to control whether a firm is small at the time of an order is
set-aside for small business years after the multiple award contract
was awarded. These few commenters believed that SBA attempted to
retroactively change the rules pertaining to previously awarded
unrestricted multiple award contracts. SBA disagrees. Small business
set-aside orders under unrestricted vehicles are completely
discretionary. When a contracting officer exercises this discretion,
Federal Acquisition Regulation (FAR, Title 48 of the Code of Federal
Regulations) Part 19 and SBA rules apply and change the eligibility
requirements of the contract for that order. For example, the
contractor must comply with the applicable limitations on
subcontracting for that order (whereas the limitations on
subcontracting do not generally apply to unrestricted contracts). When
a procuring agency for the first time decides to set aside a specific
order under an unrestricted multiple award contract for small business,
the agency is making an exception to the fair opportunity regularly
provided to all the contract holders to be considered for each order
under the unrestricted contract. Thus, it follows that a business
concern must qualify as small for an order set aside for small business
under SBA's regulations in effect at the time of the order to ensure
that the exception is applied appropriately at the order level because
being a small business concern was not a requirement for any awardees
under the unrestricted contract and verifying awardees' size status was
not prerequisite to awarding the unrestricted contract. Moreover, the
applicable size standard for any specific order set-aside for small
business would be the one currently codified in SBA's regulations (not
the one that was in effect at the time the underlying multiple award
contract was awarded). All firms that self-certified as small for the
underlying multiple award contract will continue to be considered to be
small businesses for goaling purposes for all orders issued under the
multiple award contract on an unrestricted basis.
SBA also proposed 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 added language to
clarify SBA's current intent. The comments supported this
clarification, and SBA adopts the proposed language in this final rule.
The proposed rule also clarified the recertification requirements
set forth in Sec. 121.404(g) for joint ventures. Specifically, the
proposed rule added a new Sec. 121.404(g)(6) which 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 also clarified
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. Commenters supported both of those
clarifications. As such, SBA adopts them as final.
Sections 121.404(a)(1)(i)(B), 121.404(a)(1)(ii)(B), 124.501(h), and
124.502(a)
Sections 121.404(a)(1)(i)(B) and 121.404(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). The proposed rule clarified that because
size is something SBA looks at in making an eligibility determination
in accepting a sole source offering, 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). The proposed rule amended Sec. Sec.
121.404(a)(1)(i)(B), 121.404(a)(1)(ii)(B), 124.501(h), and 124.502(a)
to clarify that position. Although a few commenters opposed this
clarification, the majority of commenters supported it. It has always
been SBA's interpretation of its statutory authority that a firm must
be an eligible Participant on the date of any
[[Page 26169]]
8(a) sole source award. As noted, an eligibility determination includes
size. As such, the final rule adopts the language proposed that a
Participant must currently qualify as a small business for any sole
source award.
Section 121.411(c)
The proposed rule corrected an inconsistency between Sec.
121.411(c) and Sec. 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 added
the over the simplified acquisition threshold condition to Sec.
121.411(c) and adjusted the language in Sec. 125.3(c)(1)(viii) to make
the two provisions consistent. SBA received three comments regarding
this provision. All three supported SBA's proposal to resolve the
inconsistency in the regulations. As such, SBA adopts the proposed
language in this final rule.
Section 121.413
Section 121.413 is currently a Reserved section, with no text. This
final rule merely removes Sec. 121.413 entirely. Section 121.401
currently refers to the rules set forth Sec. Sec. 121.401 through
121.413. With the elimination of Sec. 121.413, the final rule also
amends this reference to instead refer to the rules set forth in
Sec. Sec. 121.401 through 121.412.
Sections 121.506 and 121.507
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 its control such as natural disasters,
national emergencies, or other extenuating circumstances.
As proposed, SBA added Sec. 121.507(d) to allow the SBA's Director
of Government Contracting (D/GC) 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 sought
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.
SBA received ten comments on the proposed rule with five supporting
the proposed amendment and five opposing it. Commenters in opposition
focused on the importance of the 30/70 requirement to ensure access to
timber for small businesses and expressed concern that the waiver could
weaken the program. While generally in opposition to the waiver, two of
the five comments suggested that if SBA were to finalize the proposed
amendment, a waiver request must meet a set of strict criteria to
ensure that all avenues for compliance have been exhausted. SBA
recognizes that the 30/70 requirement is an integral part of the Small
Business Timber Set-Aside Program and is committed to a full and fair
implementation of the program. SBA does not intend to weaken the
requirement with this amendment, it merely establishes the D/GC's
authority to approve a waiver in limited circumstances when justified.
Historically, SBA has granted few waivers and only in extremely rare
circumstances. Due to that rarity, SBA has no internal procedure to
process requests or established criteria to evaluate and approve
waivers when needed. This amendment gives SBA the opportunity to set
procedure and criteria for processing waiver requests in the future.
SBA will continue to apply a strict standard and does not intend to
grant a waiver in circumstances of inconvenience, changes in market
value, ignorance of contract requirements, or unsupported claims of
changed conditions. Accordingly, SBA implements the Sec. 121.507(d) as
proposed.
SBA also received comments that urged the agency to amend
regulations to reflect the revised terms of the Memorandum of
Understanding (MOU) signed by SBA and Forest Service (FS) in 2020. With
the updated terms of the MOU, SBA and FS agreed to revise the
computation of market share to include timber volume sold under
Stewardship Integrated Resource Timber Contracts. To date, SBA has not
amended its regulations to reflect the revised agreed upon computation
of market share. The commenter recommended that SBA's regulations
should be updated to merely include the policy included in the MOU
agreed upon by SBA and FS to ensure that that policy is consistently
applied and to avoid any confusion regarding the policy. SBA agrees and
adopts this comment.
The MOU governs timber sales by FS under the Small Business Timber
Set-Aside Program and establishes guidelines for determining ``fair
proportion,'' sets a five-year re-computation period for determining
the base average shares of timber purchases and establishes a
``trigger'' mechanism for initiating set-aside timber sales. In 2016,
SBA proposed a change to regulations that included both Integrated
Resource Timber Contracts and Integrated Services Timber Contracts in
the small business market share calculation. (81 FR 66199). Although
SBA received comments supporting the amendment, it did not become final
due to ongoing negotiations with FS on the updated MOU. Ultimately, the
MOU included only Integrated Resource Timber Contracts in the small
business market share calculation. To reflect the 2020 update to the
MOU, SBA amends its regulations at Sec. 121.506 to add relevant
definitions and adds Sec. 121.507(e) to include Integrated Resource
Timber Contracts in the small business market share calculation.
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 clarified that when an SBIR/STTR offeror
is determined to be a joint venturer with its ostensible subcontractor,
all rules applicable to joint ventures apply. This means that SBA will
apply Sec. 121.702(a)(1)(iii) or Sec. 121.702(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. SBA received
five comments in response to this clarification. All five supported the
change. The commenters felt that if SBA determines that a subcontractor
really is a joint venture partner because it is
[[Page 26170]]
performing primary and vital aspects of the requirement, it makes sense
that all requirements that apply to joint ventures generally would
apply to the relationship deemed in effect to be a joint venture. SBA
adopts the proposed language in this final rule.
Section 121.702(c) relates to size and affiliation for the SBIR/
STTR programs. Some of the exceptions to affiliation that are
applicable to the SBIR/STTR programs are listed in Sec. 121.702(c).
However, others are listed in the general exceptions to size
affiliation that are located in section 121.103(b). Currently, there is
an exception to affiliation noted in Sec. 121.103(b)(1) for business
concerns owned in whole or substantial part by Small Business
Investment Companies (SBICs) licensed under the Small Business
Investment Act of 1958, as amended. Pursuant to Sec. 121.103(b)(8),
this exception applies to entities awarded SBIR or STTR contracts or
grants that are wholly or substantially owned by SBICs. SBA received a
comment recommending that SBA specifically clarify that the exception
applies to the SBIR/STTR programs. In response, the final rule
clarifies this longstanding exception to affiliation and its
applicability to the SBIR/STTR programs by specifically referencing the
exception at Sec. 121.103(b)(1) in a new Sec. 121.702(c)(11).
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 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 will remove any confusion and provide more
consistent implementation of the size protest procedures. The proposed
rule adopted 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. SBA received ten comments on this
change. All commenters supported making the protest language for all
SBA small business programs identical. As such the final rule make
conforming 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. The proposed rule provided 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 also authorized 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. SBA received four comments supporting this
change. Without any opposing comments, SBA adopts the language as
proposed.
Sections 121.1004(a)(ii), 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. The proposed rule
specifically provided 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. Eight commenters supported this
change, noting that the change was needed in order to preserve protests
rights when an initial low bidder ultimately does not receive the
award. SBA adopts the proposed provision in this final rule.
The final rule makes this change in Sec. 121.1004(a)(ii) for size
protests, 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. Although the proposed rule also amended Sec.
125.28(d)(2) for protests relating to SDVO status, this final rule does
not amend provisions relating to the timeliness of SDVO status protests
because SBA included the same provision in the final rule implementing
the Veteran Small Business Certification Program and is already
contained in Sec. 134.1004(a)(4) of SBA's regulations. See 87 FR 73400
(Nov. 29, 2022).
Section 121.1004
The proposed rule added Sec. 121.1004(f) to specify that size
protests may be filed only against an apparent
[[Page 26171]]
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 provided additional clarity to Sec. 121.1004(e), which
specifies that premature protests will be dismissed. SBA received three
comments, all supporting this clarification. The final rule adopts the
proposed language.
Where an agency decides to reevaluate offers as a corrective action
in response to a protest at the Government Accountability Office (GAO),
the proposed rule added 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, the proposed rule
authorized them to again have the opportunity to protest the size of
the apparent successful offeror within five business days after such
notification. One commenter agreed with proposed Sec. 121.1004(g) as
written, and one commenter agreed with the intent of the proposal but
sought further clarification. That commenter first recommended that all
protests under FAR subpart 33.1 should be treated similarly, meaning
that the same consequences should result where there is an agency level
protest, a protest at GAO or a case filed regarding the affected
procurement at the Court of Federal Claims. SBA agrees and has made
that clarification in the final rule both here and in Sec. 121.1009.
Additionally, the commenter recommended that the regulation allow a
procuring agency to request that a size determination be completed, and
for SBA in its discretion to process the size protest, despite
corrective actions. It is SBA's policy that with respect to a specific
contract, SBA will generally process size protests relating only to the
apparent successful offeror. Where a corrective action could cause a
procuring agency to change who it selects as the apparent successful
offeror, SBA would not agree to continue to process a size protest
relating to the initially identified apparent successful offeror.
Nevertheless, if a procuring agency can demonstrate that the corrective
action would not result in a change in the apparent successful offeror,
SBA believes that it could continue to process the size protest. The
final rule adds language providing that SBA will complete the size
determination where the procuring agency makes a written request to SBA
within two business days of the agency informing SBA of the corrective
action and demonstrates that the corrective action will not result in a
change of the apparent successful offeror. SBA will not, however,
continue to process a size protest where the size protest involves size
issues that are determined as of the date of final proposal revision
per Sec. 121.404(d).
Section 121.1009
Section 121.1009 details the procedures SBA's Government
Contracting Area Offices use in making formal size determinations.
Paragraph 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. As noted
above, 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 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
incorporated 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 proposed rule noted that 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.
Similar to the comment in response to proposed Sec. 121.1004(g), one
commenter believed that if SBA is going to suspend processing a size
protest pending the outcome of a GAO protest, the same should be done
for agency level protests and cases filed with the Court of Federal
Claims relating to the affected procurement. The commenter also
recommended that if the bid protest is not resolved within 40 days, the
SBA Area Office should resume consideration of the size protest and
issue a formal size determination within 15 business days thereafter,
if possible. SBA disagrees with this recommendation. Again, SBA's
policy is to process size protests only regarding firms that are in
line for award (i.e., for firms that have been selected as the apparent
successful offerors). If the apparent successful offeror could change
in light of the FAR subpart 33.1 protest, it does not make sense to SBA
to recommence processing a size protest regarding the firm initially
determined to be the apparent successful offeror, regardless of the
amount of time that has passed since the FAR subpart 33.1 protest was
filed. As such, the final rule amends the language to clarify that SBA
will suspend processing a size protest whenever a FAR subpart 33.1
protest is filed regarding the same procurement, but does not adopt the
recommendation that SBA restart processing the protest if a certain
amount of time passes. If the FAR subpart 33.1 decision does not change
the apparent successful offeror, SBA will generally issue a formal size
determination within 15 business days of the decision. If the decision
results in a cancellation of the award or a change of the apparent
successful offeror, SBA will dismiss the protest as moot. If the award
is cancelled and re-evaluation or other corrective action takes place,
interested parties may file a timely size protest with respect to the
newly identified apparent successful offeror after the notification of
award. Where re-evaluation results in the selection of the same
apparent successful offeror, a timely size protest may be filed with
respect to that firm.
Sections 121.1009(g)(5), 126.503(a)(2), 127.405(d), and 128.500(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 statute 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
[[Page 26172]]
the determination affects the eligibility of the concern to be awarded
the contract. The proposed rule implemented these provisions by
amending SBA's regulations in Sec. 121.1009(g)(5) (for size
determinations), Sec. 125.30(g)(4) (for SDVO status determinations),
Sec. 126.503(a)(2) (for HUBZone status determinations), and Sec.
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 did 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 required SBA to make such a change within four business days.
Several commenters supported the proposed regulatory changes in
response to the statutory change. A few commenters also complained
about difficulties they encountered trying to update <a href="http://SAM.gov">SAM.gov</a>, but those
issues are not relevant to the statutory requirements or SBA's
implementation of those requirements.
The final rule adopts the language proposed with a few
modifications. Because SBA renumbered all SDVO provisions when
implementing the Veteran Small Business Certification Program, this
final rule implements the provisions relating to section 863 for SDVO
status in a new Sec. 128.500(d) instead of Sec. 125.30(g)(4) as
proposed. See 87 FR 73400 (Nov. 29, 2022). To take into account SBA's
new authority to certify and decide protests relating to VOSB status,
the final rule also includes VOSB status as something that needs to be
changed in response to a final SBA determination finding a firm
ineligible as a VOSB. Additionally, the final rule applies the two-day
requirement on self-certifications to situations where SBA denies
applicants' requests for VOSB or SDVOSB certification or for WOSB
certification. Those changes are reflected in Sec. 128.302(f) for
VOSB/SDVOSB and in Sec. 127.304(g) for WOSB. For WOSB, the two-day
requirement applies where SBA's determination is based on the ownership
or control of the applicant.
SBA's protest decisions are appealable to OHA, and VOSB/SDVOSB
certification decisions also are appealable. If a participant or
applicant has appealed SBA's determination, the two-day requirement
does not apply until OHA issues a final decision finding the firm
ineligible. If there is no appeal available, the two-day requirement
applies immediately after the firm receives SBA's determination that
the firm is ineligible. If an appeal is available but the firm
ultimately chooses not to appeal the decision, the two-day requirement
applies immediately after the right to appeal lapses.
One commenter sought clarification as to whether there are any
consequences if a firm fails to change its status timely in <a href="http://SAM.gov">SAM.gov</a>.
Specifically, the commenter questioned whether a failure to change
status within two days would be a cause to initiate debarment or
suspension proceedings. Under the provisions of section 863, the
consequence of a firm failing to change its status is that SBA would
have authority to change the status on behalf of the firm. SBA will
work with the System for Award Management to exercise such authority,
but SBA does not presently have the ability in <a href="http://SAM.gov">SAM.gov</a> to change a
firm's certification status without the firm taking action to accept
the change.
Section 863 also requires firms to alert agencies with which the
firm has a pending offer when the firm receives a relevant negative
status determination. Failure to do so in that instance could lead to
protests or penalties. Initiating a debarment or suspension action
depends on the facts. If the only thing a firm did was not change its
status in <a href="http://SAM.gov">SAM.gov</a> within two days, SBA does not believe that would be
sufficient cause for debarment or suspension. Failure to notify
contracting officers on pending procurements of a firm's change in
status could be if SBA believed there was an intent to misrepresent the
firm's status in order to win an award. Submitting offers for new set-
aside awards would be. Similarly, failure to take timely action to
allow an SBA status change to be reflected on the firm's <a href="http://SAM.gov">SAM.gov</a>
profile could also be grounds for government-wide debarment or
suspension if SBA believed that the firm's failure to accept the change
was an intent to conceal the status change or otherwise deceive
procuring agencies of its current status. SBA does not believe that
that needs to be addressed in this regulation as the debarment and
suspension regulations provide authority to initiate actions where a
firm intentionally misrepresents its size or status.
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
section 121.1204 identifies the procedures for requesting and granting
waivers.
The proposed rule sought 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 clarified that for a multiple item procurement, a contracting
officer must specifically identify each item for which a waiver is
sought when the procuring agency believes that at least 50 percent of
the estimated contract value is available only from other than small
business manufacturers and processors. Of course, if at least 50% of
the estimated contract value of the contract is composed of items
manufactured or processed by small business, then a waiver of the
nonmanufacturer rule is not required and there is no requirement that
each item acquired in a multiple-item acquisition be manufactured or
processed by a small business. The proposed rule also clarified that
because a waiver is granted for specific items, 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.
SBA received comments both supporting and opposing the
clarification that a contracting officer must specifically identify
each item for which a waiver is sought. Those opposing the
clarification believed it would disrupt and delay procurements,
negatively affect the supply chain and the delivery of services to
warfighters, and significantly harm small business opportunities. One
commenter stated
[[Page 26173]]
that it understood why SBA proposed to require contracting officers to
specifically identify each item in the multi-item procurement for which
a contract-specific waiver is sought but was concerned that this will
increase the administrative burden and make contracting officers less
likely to request contract-specific waivers. Those supporting the
clarification stated that the regulations already require this and that
it is the appropriate approach to ensure that small business is
actually benefitting from set-aside contracts. One commenter believed
that if most of the items to be supplied through a multiple item
procurement really are not made by small business manufacturers, maybe
that procurement should not be set-aside for small business. It is true
that small business resellers or nonmanufacturers would still benefit
from such a procurement, but the value of the contract going to those
small business nonmanufacturers versus the total value of the contract
can be only a fraction of what could go to large business
manufacturers. Another commenter stated too many times an agency uses
some broad waiver (that doesn't specify exact items) to supply the
product of a large business to the detriment of legitimate small
business manufacturers. That commenter believed that it is fine to help
small business non-manufacturers, but not at the expense of small
business manufacturers.
One commenter believed that proposed Sec. 121.1203(f) seemed to
contradict Sec. 121.406(d)(1). Section 121.406(d)(1) provides that if
at least 50% of the estimated contract value of a multiple item
procurement is composed of items that are manufactured by small
business concerns, then a waiver of the nonmanufacturer rule is not
required. Proposed Sec. 121.1203(f) provided that 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 agrees that proposed Sec.
121.1203(f) was misleading. SBA intended that provision to apply only
where waivers were necessary to meet at least 50% of the value of the
contract, not where it is clear that at least 50% of the value of the
items to be procured will be supplied by small business. In addition,
waivers are needed only to the extent that would enable at least 50% of
the total estimated value of the items to be purchased to come from
small business manufacturers or from large businesses for those items
subject to a waiver. In other words, small plus waiver must equal at
least 50% of the value of the contract. Small plus waiver does not need
to equal 100% of the value of the contract. A contracting officer can
select some items that are not manufactured by small business to
request a waiver, but not others. As long as at least 50% of the
anticipated value of the items to be procured in the aggregate come
from small business or large business subject to a waiver, then the
nonmanufacturer rule is met. The final rule clarifies that a waiver
need not be sought if the conditions in Sec. 121.406(d)(1) are present
(i.e., where at least 50% of the estimated contract value of the items
to be procured are manufactured by small business concerns). The final
rule also clarifies that a contracting officer need not seek a waiver
for each item for which the procuring agency believes no small business
manufacturer or processor can reasonably be expected to offer, but
rather must seek a waiver with respect to such items in an amount that
would bring the total estimated value of items to be supplied by small
business and items subject to a waiver to be at least 50% of the value
of the contract.
SBA again notes that prior to the proposed rule, SBA's regulations
already required a contracting officer to provide ``[a] definitive
statement of the specific item to be waived and justification as to why
the specific item is required'' in order for SBA to grant a contract
specific waiver. 13 CFR 121.1204(b)(1)(i). Thus, it is not a change in
policy to require that in a multiple item procurement each item for
which a waiver is sought must be specifically identified. However, SBA
also understands the concern that specifying every part of a
multifaceted end item could be overly burdensome. For example, aircraft
X has many thousands of parts that make up the aircraft. To specify
every part of the aircraft that might need to be replaced as a separate
item for which a waiver must be sought would be burdensome. SBA does
not expect that. In such a case, the waiver request should state spare
parts relating to aircraft X as the item for which a waiver is sought.
However, a waiver request cannot be so broad as to have no real
identification (e.g., all medical supplies). SBA has added clarifying
language in the final rule to address what an ``item'' is for which a
waiver needs to be sought.
SBA also does not agree that contracting officers would be less
likely to use set-asides. In order to have a set-aside, at least 50% of
the value of the expected items to be procured in the aggregate must
come from small business manufacturers or large business manufacturers
for which a waiver (either class or contract specific) has been
granted. SBA has been told that more than 50% of the value of these
multiple item procurements is often supplied by small businesses. When
that is the case, waivers for individual items would not be required.
Where at least 50% of the estimated value of items to be procured are
not manufactured by small business, the contracting officer should
request a waiver of one or more specific items that are required under
the contract to achieve that 50% value requirement. And, as identified
above, the waiver request can be somewhat broad if it is also specific
(e.g., all spare parts relating to aircraft X). SBA also notes that
contracting officers should be able to rely on past performance. In
other words, for a follow-on multiple item procurement if more than 50%
of the value of the items on the previously awarded contract came from
small business manufacturers or large business manufacturers for which
the identified item(s) supplied were subject to a contract specific
waiver, the follow-on contract should be set-aside for some type of
small business. Contracting officers can project future compliance with
the non-manufacturer rule based on past performance, and not knowing
precisely what will be purchased under a multiple item procurement
should not prevent the procurement from being set aside for small
business.
The proposed rule also added a provision that prohibited 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). SBA firmly believes that 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
[[Page 26174]]
quantity or time constraints required by the contract could become
available to meet the agency's requirements. As an alternative, SBA
noted in the supplementary information to the proposed rule that SBA
was also 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. The proposed rule specifically
asked for comments on both approaches. SBA received three comments on
the proposal relating to long-term contracts. All three favored the
alternative approach which would allow a contracting officer to request
a second contract-specific waiver to be effective after the first five
years of a contract where the contracting officer can demonstrate that
a waiver is still needed. SBA adopts the alternative approach in this
final rule. This will make waivers relating to long-term contracts
similar to what is required for a follow-on contract to a normal base
and four option years contract. In that context, 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. The same will be required
for a long-term contract. A procuring agency will be required to
conduct new market research and demonstrate that a waiver is still
needed beyond the first five years.
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 waiverdecision 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 beyond
five years on 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 specifically
incorporated this policy into a new Sec. 121.1204(b)(5). SBA received
three comments on this provision. Two commenters indicated that they
had no objection to the proposal. One comment recommended that SBA
should consider allowing a waiver decision to last for two years but
did not provide accompanying rationale for that position. Presumably,
the commenter believes that some procurement actions take longer than
one year to finalize. As noted above, circumstances (availability and
new manufacturers coming into the market) can change in a year. SBA
believes that is the appropriate amount of time for a contract specific
waiver to last for a pending procurement. SBA adopts the proposed
language as final in this rule.
Although SBA believes that there is no current ambiguity, the
proposed rule also added 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 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 added this
language nevertheless to dispel any possible misunderstanding. There
was no opposition to this clarification, and SBA adopts it as final.
Finally, the proposed rule clarified 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. SBA received
no comments specifically addressing this provision. As such, SBA adopts
it as final.
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 updated the reference
to the correct website. A few commenters supported this update, and SBA
adopts adding 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 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 made 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
provided 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.
SBA received seven comments on proposed Sec. 124.102. All comments
received supported the proposed change that a concern whose application
is denied due to size by 8(a) BD program officials should be able to
request a formal size determination. The commenters also agreed that if
size is the only reason for decline and OHA reverses SBA, the firm
should be admitted to the 8(a) BD program without any further action
being necessary on the part of the firm. As such, SBA adopts the
proposed language in this final rule.
[[Page 26175]]
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
changed the words physical handicap to identifiable disability. SBA
received two comments supporting the proposed change and no comments
objecting to it. As such, SBA adopts the proposed language in this
final rule.
Section 124.104
Section 124.104 specifies the rules pertaining to whether an
individual may be considered economically disadvantaged. Paragraph
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 changed 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. SBA received
four comments supporting the change and one comment in opposition. The
commenter opposing the change believed that removing the requirement
could water down the economically disadvantaged criteria. SBA
disagrees. The change will not affect SBA's ability to seek additional
information relating to an IRA where appropriate. It merely eliminates
the unnecessary burden of requiring an applicant to submit such
information in every instance. SBA adopts the proposed change in this
final rule.
This rule also deletes 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. Paragraph
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 added 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. SBA received four
comments regarding the proposed clarification that a mentor in the same
or similar line of business can own up to 40 percent of its
prot[eacute]g[eacute] firm. All four commenters supported the
clarification. The final rule adopts the proposed language.
Paragraph 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. As noted in the proposed rule, 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. 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) 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 clarified that a change of ownership could apply to a
former Participant as well as to a current Participant. SBA received
nine comments supporting this clarification and no comments opposing
it. The final rule adopts the proposed language.
[[Page 26176]]
Paragraph 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. 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 provided 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. Three commenters supported
the change. One commenter supported the change but sought further
clarification. That commenter believed that the term ``immediate family
members'' in the proposed rule need to be defined and suggested that
SBA either reference the list of family members stated in Sec.
121.103(f), or add a definition of the term to Sec. 124.105(i)(2).
That commenter also believed that it was inconsistent for the change to
cover immediate family members, but not any other ``persons with an
identity of interest'' under Sec. 121.103(f). Given that SBA treats
persons with an identity of interest (regardless of type) as being
``one party,'' the commenter recommended that SBA should add persons
with an identity of interest generally, such as individuals who are not
family members but through common investments are deemed to be ``one
party'' under Sec. 121.103(f). SBA agrees and has made those changes
in the final rule.
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 Sec. 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 added language clarifying
that intent. SBA received eight comments in response to the proposed
clarification to Sec. 124.107. All eight comments supported the
proposed clarification that a firm can demonstrate potential for
success with prior commercial and government contracts, including state
and local government contract work. As such, SBA adopts the proposed
language in this final rule.
Section 124.108
Section 124.108 establishes other eligibility requirements that
pertain to firms applying to and participating in the 8(a) BD program.
Paragraph 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 added language clarifying 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 will be eligible for the program. Five
commenters supported this clarification as proposed. One commenter
believed that the terms ``financial obligations owed'' and ``financial
obligations have been settled and discharged/forgiven by the Federal
Government'' are vague. SBA disagrees. The eligibility requirement
pertaining to owing federal obligations to the Government has been in
SBA's regulations for some time without confusion as to its meaning.
Specifically, the regulation prior to the proposed change provided that
``[n]either a firm nor any of its principals that fails to pay
significant financial obligations owed to the Federal Government . . .
is eligible for admission to or participation in the 8(a) BD program.''
The proposed rule merely attempted to clarify that if the Government
has settled a debt (i.e., accepting less than the full amount owed to
discharge the debt), the firm/individual would not be barred from
participating in the 8(a) BD program on that basis alone. SBA adopts
the proposed language in this final rule.
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. The proposed rule sought to make two
changes with respect to that provision. First, the proposed rule
clarified that 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. 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 proposed to add language allowing
tribally-owned concerns organized under tribal law to waive sovereign
immunity in any similar documents authorized under tribal law.
The proposed rule also sought to make a change relating to the
potential for success requirement for tribes. 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
[[Page 26177]]
a tribally-owned concern to demonstrate its business history. The
proposed rule added 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 primary industry
in which it seeks 8(a) BD certification.
SBA received six comments supporting these two changes and no
comments opposing them. As such, SBA adopts the proposed language as
final in this rule. SBA also received two comments pertaining to other
provisions of Sec. 124.109 that were not addressed in the proposed
rule. Because any potential changes pertaining to those provisions are
outside the scope of this rulemaking, SBA does not address them in this
final rule.
Section 124.110
The proposed rule added 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 clarified 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 made that requirement explicit in the regulations.
SBA received six comments supporting these two changes and no
comments opposing them. Although one comment supported allowing an
individual to be involved in controlling two NHO-owned 8(a) concerns,
the commenter questioned what SBA means by a ``Native Hawaiian leader''
in the context of this regulation. The proposed language provided that
an individual's officer position, membership on the board of directors
or position as a Native Hawaiian leader does not necessarily imply that
the individual is responsible for the management and daily operations
of a given concern. This language was copied from the provision in
Sec. 124.109 for tribally owned firms. In the context of a tribe, the
term ``leader'', as in tribal leader, has some definite meaning. SBA
agrees that in the context of Native Hawaiians it does not. As such,
the final rule adopts the proposed language with one change. The final
rule deletes the reference to Native Hawaiian leader. SBA also received
one comment questioning why NHOs cannot use holding companies as part
of their ownership of 8(a) BD applicants and Participants as tribes and
ANCs can. Although this issue is not part of this rulemaking, SBA will
nevertheless address the reason for the disparate treatment. Section
8(a)(4)(A) of the Small Business Act, 15 U.S.C. 637(a)(4)(A), provides
in pertinent part that the term ``socially and economically
disadvantaged small business concern'' means any small business concern
which is at least 51 percent unconditionally owned by ``(II) an
economically disadvantaged Indian tribe (or a wholly owned business
entity of such tribe), or (III) an economically disadvantaged Native
Hawaiian organization . . .'' As noted, the statute specifically
authorizes tribes (which is also defined to include ANCs) to own an
8(a) Participant through ``a wholly owned business entity of such
tribe'' or in other words through a holding company. The statute does
not provide similar authority for NHOs. NHOs have the same statutory
requirement as socially and economically disadvantaged individuals,
meaning that they must directly own at least 51 percent of an applicant
or Participant concern. SBA does not have the authority to change that
statutory requirement.
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. Sec. 124.107(a) and 124.107(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. Sec. 124.107(a) and 124.107(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 identified these four threshold issues
that must be addressed before an application will be reviewed. SBA
received two comments supporting identifying these four reasons that
will stop the processing of an 8(a) BD application, one comment stating
that threshold application questions are for SBA to determine, and no
comments opposing this identification. The final rule adopts the
proposed language.
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
[[Page 26178]]
such, the proposed rule removed Sec. 124.302(b)(5), as not consistent
with the statutory oversight responsibilities. The supplementary
information to the proposed rule also noted that the requirements for
graduation are adequately set forth in Sec. 124.302(a)(1) of SBA's
regulations and requested comments on whether the entire Sec.
124.302(b) can be eliminated as unnecessary.
SBA received nine comments supporting the removal of Sec.
124.302(b)(5). In addition, seven commenters recommended that the
entire Sec. 124.302(b) be removed as the provisions in Sec.
124.302(a)(1) adequately establish the requirements for graduation. One
commenter also believed that the language in Sec. 124.302(b) is overly
subjective and should be eliminated on that basis as well. In response
to this comment, SBA more closely reviewed Sec. 124.302(b). Although
the paragraph is titled ``Criteria for determining whether a
Participant has met its goals and objectives,'' much of Sec.
124.302(b) pertains to the overall financial condition of the 8(a) BD
Participant and not to the specific goals and objectives contained in
the Participant's business plan. For that reason and because SBA agrees
that Sec. 124.302(a)(1) adequately explains what graduation means and
what must occur in order for a firm to be graduated from the 8(a) BD
program, the final rule removes the entire Sec. 124.302(b) as
unnecessary.
Section 124.304
Section 124.304 sets forth the procedures for early graduation and
termination from the 8(a) BD program. The proposed rule added a
provision to clarify that where SBA obtains evidence that a Participant
has ceased its operations, the AA/BD may immediately terminate a
concern's participation in the 8(a) BD program by notifying the concern
of its termination and right to appeal that decision to OHA. SBA
received two comments supporting this provision and no comments
opposing it. The final rule adopts the proposed language. SBA continues
to believe requiring SBA to go through the normal process to terminate
a Participant from the 8(a) BD program (i.e., providing an intent to
terminate notice and a 30-day opportunity to respond) is unnecessary
where it can be demonstrated that the concern has ceased its business
operations. Nevertheless, the final rule requires SBA to notify the
concern of its termination and provide it the right to appeal that
decision to OHA.
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). The proposed rule clarified that, consistent with the
statutory language, 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 merely prioritized 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 provided 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.
SBA received 11 comments in response to the proposed change to
Sec. 124.402. Seven comments supported the rule to prioritize business
plan review and approval for new 8(a) firms that were offered a sole
source 8(a) requirement or were the apparent successful offeror for a
competitive 8(a) requirement. Three comments opposed requiring business
plan approval prior to a firm being awarded any 8(a) contract. These
commenters believed that if a firm submitted its business plan to SBA
within 60 days of certification, it should not matter whether SBA
approved it before award. They rationalized that if the firm did
everything it needed to do, the firm should not be penalized by SBA's
failure to approve the business plan. As indicated above, SBA again
notes that the authorizing legislation requires business plan approval
prior to award. SBA cannot waive or disregard that statutory
requirement. However, the intent of the proposed regulation was to
ensure that business plan approval occurred in connection with a normal
eligibility determination and that by doing so every Participant on
whose behalf a sole source 8(a) requirement is offered or who was
identified as the apparent successful offeror in an 8(a) competitive
procurement would receive the award. Prioritizing business plan review
and approval will ensure that such approval can be timely done and not
adversely affect any 8(a) procurement. One comment recognized the
statutory requirement but was concerned that performing a business plan
review as part of an eligibility determination would slow down
eligibility determinations and could cause procuring agencies to avoid
using the 8(a) program. SBA disagrees. Currently, SBA generally
performs an eligibility determination (either for a sole source
offering or a competitive award) within five days, unless SBA seeks and
a procuring agency agrees to a longer period. SBA's intent is to review
and approve business plans within that same five-day period. Thus, SBA
does not envision any additional time being added to the normal
eligibility review timeframe. The final rule adopts the proposed
language.
Section 124.403
Section 124.403 sets forth the requirements relating to business
plans. Paragraph 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 clarified that a Participant must submit
[[Page 26179]]
a new or modified business plan only if its business plan has changed
from the previous year.
SBA received seven comments supporting the provision to require
business plan submissions only if a business plan had changed or been
modified from the previous year and no comments opposing the provision.
The commenters believed that eliminating needless submissions would
reduce the paperwork burden on Participants and enable them to more
thoroughly focus on business development. The final rule adopts the
proposed language.
Sections 124.501, 126.609, 127.503(e), and 128.404(d)
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 Sec. 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 added a sentence to Sec. 124.501(b) to clarify SBA's
position that prohibits a contracting activity from restricting an 8(a)
competition to Participants that are also certified HUBZone small
businesses, certified WOSBs or certified SDVO small businesses. SBA
also proposed 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. As noted earlier, the SDVO program
regulations have been moved to a new part 128 as part of implementing
the Veteran Small Business Certification Program. See 87 FR 73400 (Nov.
29, 2022). As such, the final rule amends Sec. 128.404(d) as opposed
to Sec. 125.22(d) as proposed.
SBA received ten comments supporting the clarification to more
clearly set forth SBA's position prohibiting a contracting activity
from restricting a competition to firms with multiple certifications.
One commenter supported the provision but also recommended further
clarification. Specifically, the commenter believed that agencies could
follow the prohibition (i.e., not limiting competition to firms with
multiple certifications) but circumvent SBA's intent by providing
significant evaluation preferences to firms with one or more other
certifications, and thus exclude firms with one certification from any
meaningful opportunity to be awarded a specific contract or order. The
commenter recommended that SBA amend this provision to also specify
that a procuring activity also cannot give additional evaluation points
or any evaluation preference to firms having one or more additional
certifications. SBA agrees and has added this language to each of the
associated regulatory provisions: Sec. 124.501(b) for the 8(a) BD
program; Sec. 126.609 for the HUBZone program; Sec. 127.503(e) for
the WOSB program; and Sec. 128.404(d) for the SDVO program.
SBA also proposed 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.
SBA received six comments in response to this provision. All comments
received supported the proposed language. As such, SBA adopts the
proposed language in this final rule.
The proposed rule also revised the introductory language to Sec.
124.501(g). The revised language first required 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 FAR 19.805-2, and is something that
should occur routinely, but believes that highlighting this in SBA's
regulations would be helpful. SBA also proposed 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 sought 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. SBA received three
comments supporting this clarification regarding the eligibility of a
joint venture offeror, and no comments opposing it. One commenter also
requested clarification as to whether a review of the joint venture
agreement is required where a joint venture is offered a sole source
order under a previously awarded competitive 8(a) multiple award
contract. SBA does not believe that SBA should review the joint venture
agreement itself in this context. The underlying contract is an 8(a)
competitive award. SBA's regulations do not require review of joint
venture agreements with respect to 8(a) competitive awards. Once
awarded, SBA does not believe it should review joint venture agreements
in connection with one or more individual sole source orders under the
8(a) multiple award contract. As such, SBA adopts the proposed language
in this final rule with the added clarification regarding sole source
orders to a joint venture under a previously competitively awarded 8(a)
multiple award contract.
Finally, the proposed rule also made 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
[[Page 26180]]
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, for whatever reason. 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, because of the COVID-19 pandemic, employees in both the public
and private sector were expected to telework on a significant basis. In
response, 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 during the maximum telework
policies. SBA Policy Notice 6000-819056 (August 25, 2021). Prior to the
expiration of that Policy Notice, the SBA Administrator determined that
requiring a bona fide place of business in a particular location
continues to be impracticable due to the lingering effects of the
COVID-19 pandemic and extended the moratorium on the requirement
through September 30, 2023. SBA will continue to examine the
practicality of the rule considering economic realities. Once the
conditions exist that demonstrate that it is no longer impracticable to
require a bona fide place of business, SBA will again implement the
statutory provision to do so with respect to all construction
requirements offered to the 8(a) program. As such, the proposed rule
sought to clarify several components of the bona fide place of business
requirement to be in place when the circumstances dictate that it is
again practicable to enforce the rule.
Before discussing the specific proposed changes to the bona fide
place of business rule and the comments received regarding those
changes, SBA will first discuss the comments received to the rule in
general. Several commenters agreed that current circumstances make it
impracticable to require a bona fide place of business at this time and
recommended that the moratorium be extended. As noted above, the
moratorium is currently in place through September 30, 2023. Before the
expiration of the moratorium, SBA will examine workplace realities. If
telework policies and other economic conditions continue to make
requiring a bona fide place of business impracticable, SBA will again
extend the moratorium. SBA cannot, however, make that commitment at
this point. Several other commenters urged SBA to eliminate the bona
fide place of business rule entirely, believing that the rule is
outdated and no longer makes sense. One commenter noted that the
moratorium has demonstrated that construction work can be performed
without a brick-and-mortar presence and recommended that the bona fide
place of business rule be eliminated. SBA believes that it does not
have the option of eliminating the requirement entirely. As noted
above, the Small Business Act statutorily imposes a strong preference
for local construction firms in the performance of 8(a) contracts. SBA
has implemented that preference through the bona fide place of business
rule. SBA cannot ignore that statutory language. A few commenters
believed that the rule should apply only to competitive 8(a)
construction requirements, but not to sole source 8(a) construction
requirements. The statutory authority does not make a distinction
between sole source and competitive requirements, but rather talks of
all ``construction'' contracts awarded through the 8(a) BD program. As
such, SBA believes that the statutory preference must be applied
equally to all competitive and sole source 8(a) construction
procurements. Recognizing the Small Business Act requirement, several
other commenters applauded SBA's efforts to lessen the burden to
establish a bona fide office. SBA will now address those proposed
changes, the comments to them and SBA's response.
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 sought
clarification of SBA's intent. The proposed rule clarified SBA's
intent.
The proposed rule also clarified 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
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, however, limited
that exclusion only to the state where the firm is currently performing
a contract. It provided 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 (or in that contiguous state or another state
touching that contiguous state).
The proposed rule also clarified 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 provided 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
[[Page 26181]]
putting it in the regulations will clarify any confusion that currently
exists. For a single award 8(a) construction contract requiring work in
multiple locations, the proposed rule provided 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 required a Participant to have a bona fide
place of business in any location where work is to be performed.
Commenters overwhelmingly supported the specific proposed changes
to make it easier to meet the bona fide place of business requirement.
Commenters supported the changes regarding allowing home offices to
meet the bona fide place of business requirement, noting that this will
reduce overhead costs. Commenters also supported the clarification that
an individual need not be a full-time resident of a state in order to
count as an employee for bona fide office purposes. They believed that
this clarification to allow ``floaters'' will provide needed
flexibility to enable a firm to engage with clients in different states
as needed and meet client needs more efficiently at a lower cost. SBA
adopts the proposed language for those provisions in this final rule.
SBA also received several comments supporting the clarification
regarding having an approved bona fide place of business in one state
and being eligible for work in a contiguous state. One commenter sought
further clarification of that provision. Specifically, the commenter
asked whether an 8(a) construction firm that has a bona fide office in
Virginia, but does not have a bona fide office in North Carolina, will
qualify for an 8(a) sole source construction project in North Carolina
because the states border each other. The language of the rule states
that a firm will be eligible for work that will be performed in the
geographical area serviced by a contiguous SBA district office to where
the firm has a bona fide place of business (in addition to stating a
firm will be eligible for work anywhere in a state in which the firm
has a bona fide place of business). There are two SBA district offices
servicing Virginia: the Washington Metropolitan Area District Office
services northern Virginia and the Richmond District Office services
the rest of Virginia. North Carolina has only one SBA district office,
so any district office whose geographic area touches any part of North
Carolina will be eligible for any 8(a) construction contract anywhere
in the entire state. Only the geographic area serviced by the Richmond
District Office touches North Carolina. As such, a firm having a bona
fide place of business in the geographic area serviced by the Richmond
District Office will be eligible for 8(a) construction contracts in
North Carolina. Firms having a bona fide place of business in the
geographic area serviced by the Washington Metropolitan Area District
Office will be not eligible because the geographic area serviced by
that office is not contiguous to that of the area serviced by the North
Carolina District Office. SBA believes that the proposed regulatory
language clearly stated that, and thus no change is needed to the
regulatory text as proposed.
Several commenters also supported the proposed change regarding the
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. Commenters agreed that a
firm should not be required to have a bona fide place of business in
each state in which work will be performed. One commenter requested SBA
to define how it will determine what a ``majority'' of work will be for
contracts with more than one location. SBA intends to apply this by the
dollar value of the work to be performed. SBA also understands that a
requirement may have an indefinite aspect to it where the dollar value
to be performed at each location is not exactly known at the time of
contract award. As such, the final rule adds language defining majority
in terms of dollar value but also ties it to the ``anticipated'' work
to be performed. A procuring agency should be able to identify where it
anticipates a majority of the dollars on a contract will be spent.
Finally, several commenters recommended that the rule allow part-
time employees to count in establishing a bona fide place of business.
Although several commenters agreed that part-time employees should be
sufficient to establish a bona fide place of business, most did not
define what they believed a ``part-time'' employee to be. One commenter
recommended that SBA adopt the definition of part-time employee used in
the HUBZone program, believing that consistency between the programs
was important. One commenter recommended that an individual who works
at least 20 hours per week should count in establishing a bona fide
place of business. This commenter believed that 20 hours per week
evidences the small business concern's commitment to establish a bona
fide place of business while at the same time giving it some needed
flexibility. In the HUBZone program, a part-time employee counts as a
HUBZone employee if the individual works a minimum of 40 hours during
the four-week period immediately prior to the relevant date of review.
13 CFR 126.103. SBA does not believe that definition works in
establishing a bona fide place of business for 8(a) construction
contracts. If SBA applied that definition to the bona fide place of
business rule, an individual could work 40 hours in one week and the
``office'' could be empty and closed for the remaining three weeks of
the month. As noted above, the Small Business Act directs that 8(a)
construction contracts generally be awarded within the county or State
where the work is to be performed. SBA believes this means that a
Participant small business concern must have a legitimate presence in
the geographic area close to where the work is to be performed. SBA
does not believe that a firm that could be closed three weeks every
month meets that legitimate presence, but rather that there should be a
presence at the bona fide place of business every week. SBA agrees with
the commenter that 20 hours per week creates the proper balance between
establishing a legitimate presence in a location and providing needed
flexibility to small business construction firms. As such, SBA amends
the definition of bona fide place of business in Sec. 124.3 to allow a
Participant to demonstrate a bona fide place of business in a location
with at least one employee who works at least 20 hours per week at that
location.
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
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 business days unless the agency grants an extension. This
proposed rule clarified that the ten-day acceptance timeframe under
section 124.503(a) applies only to 8(a) offers made outside the 8(a)
Partnership Agreement authority. One commenter recommended that the
ten-day period be calendar days instead of business days. The
regulatory text before this clarification identified the acceptance
period as ten business days. The proposed rule did not seek to alter
that timeframe. Rather, it merely intended to
[[Page 26182]]
formally recognize in the regulation that SBA and the procuring
activity may agree to a shorter timeframe for SBA's review under a
Partnership Agreement delegating 8(a) contract execution functions to
the agency. As such, SBA adopts the proposed language in this final
rule.
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 merely clarified
that requirement in SBA's regulations. SBA received two comments
supporting the clarification that SBA determines eligibility in cases
where it has delegated 8(a) contract authority to procuring agency.
Thus, SBA adopts the proposed language in this final rule.
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 clarified that this ten-day time
period is intended to be ten business days. One commenter supported the
clarification, and one opposed it. The comment in opposition
recommended instead that the time frame be measured in calendar days.
Because the language in Sec. 124.503(a) is measured in business days,
SBA believes it makes sense to consistently identify time periods
throughout the section in the same way. As such, SBA adopts the
proposed language as final in this rule.
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 amended 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.
SBA received six comments agreeing that SBA should be notified when
standalone 8(a) work is migrating as an order under an 8(a) multiple
award contract. SBA adopts the proposed language.
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-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 and
otherwise eligible 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, the proposed rule
clarified 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 clarified 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. SBA received 21 comments in response
to this proposal. Nineteen comments supported the
[[Page 26183]]
proposed language specifically authorizing sole source awards under
8(a) multiple award contracts and requiring eligibility and business
activity target compliance at the time of the order award. These
commenters believed that any sole source award, whether an individual
contract or an order under a previously awarded multiple award
contract, should be treated similarly. In other words, these commenters
agreed with SBA's position that eligibility for a sole source 8(a)
order must be determined as of the date of the order, not the
underlying multiple award contract itself. Two commenters opposed the
proposed change. They believed that it would harm 8(a) firms that were
awarded 8(a) multiple award contracts but have grown throughout the
life of the contract. SBA notes that Participants that received an 8(a)
multiple award contract will generally continue to be eligible for
orders that are competitively awarded under that contract throughout
the life of the contract. Of course, a contracting officer may request
recertification of size and/or eligibility with respect to a specific
order and recertification of size and status must occur after the fifth
year on a long-term contract, but firms that grow to be other than
small and/or firms that have graduated or otherwise left the 8(a) BD
program may be awarded competitive orders under the multiple award
contract. However, SBA continues to believe that sole source awards are
unique. Sole source authority does not derive directly from an
underlying competitively awarded 8(a) multiple award contract. SBA
believes that the rules governing the award of a sole source 8(a)
contract should also apply to the award of a sole source 8(a) order.
That means that a firm must still be an eligible Participant that
qualifies as small as of the date the order is issued. Part of any
eligibility determination for a sole source award is an examination of
a Participant's compliance with its applicable business activity
target. Therefore, SBA adopts the proposed language as final.
In addition, the proposed rule further clarified 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 proposed rule specifically clarified 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 provided 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. SBA received two comments
supporting the proposed clarifications relating to joint ventures and
no comments opposing them. As such, SBA adopts the proposed language in
this final rule.
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 rule amends
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. The proposed rule clarified 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.
Several commenters supported these clarifications, and none opposed. As
such, SBA adopts the proposed language as final in this rule.
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
[[Page 26184]]
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 amended 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 factor 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 clarified that release may occur whenever a procuring
agency identifies a procurement strategy that would emphasize or target
small business participation.
SBA received 11 comments supporting this clarification and no
comments opposing it. Commenters believed that 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 (such as a FSS
holder) because the incumbent, who may have done a fantastic job in the
past, would have no opportunity to be awarded for the follow-on
contract, nor would it have the opportunity to demonstrate that it
would be adversely impacted by the loss of the opportunity to compete
for the follow-on procurement. Commenters also supported the provision
requiring a procuring agency to ``coordinate with'' SBA when it seeks
to re-procure a follow-on requirement through a pre-existing, limited
contracting vehicle that is not available to all 8(a) Participants.
They believed that this will facilitate meaningful dialogue between the
procurement agency and SBA and promote the purposes of the 8(a)
program. SBA agrees with the comments and adopts the proposed language
in this final rule.
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) provided 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 added language clarifying that
intent. SBA received 12 comments supporting the clarification to allow
a sole source award to an entity-owned Participant where the procuring
activity has not evidenced its intent to fulfill the current
requirement as a competitive 8(a) procurement and no comments opposing
it. As such, SBA adopts the proposed language in this final rule.
The proposed rule also sought 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
where the follow-on procurement is offered to SBA as a sole source 8(a)
procurement on behalf of an entity-owned Participant. In response, SBA
received five comments. The comments opposed adding such a provision to
the regulations. Commenters noted that while they understood SBA's
intent to ensure program participants are not negatively impacted when
a follow-on 8(a) procurement is awarded on a sole source basis, they
believed that procuring agencies should have discretion in how best to
procure a requirement through the 8(a) BD program. Commenters also
noted that a procuring agency oftentimes changes its procurement
strategy because of an incumbent's unsatisfactory performance on a
contract. They believed that a procuring agency should not be saddled
with a contractor whose performance is lacking merely because the
contract would advance the firm's business development. Finally, one
commenter also believed that it is important to consider the business
development needs of all Participants, meaning both the entity-owned
Participants as well as the Participants who previously performed
certain incumbent contracts in this context. SBA believes that a
specific regulatory change is not needed to capture SBA's role in
ensuring that
[[Page 26185]]
the business development purposes of the 8(a) BD program are served. As
such, SBA makes no further changes to this section in the final rule.
Section 124.506(d)
The proposed rule clarified SBA's rules pertaining to the award of
sole source 8(a) contracts to individually-owned 8(a) Participants. The
proposed rule added 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 one
of the exceptions to full and open competition set forth in FAR 6.302
exists. For example, if a procuring agency has determined that an
unusual and compelling urgency exists and has identified an
individually-owned 8(a) Participant that is capable of fulfilling its
needs, the agency 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. Because the agency could
use its authority under FAR 6.302 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 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 also clarified
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 added language to clarify what SBA believes the
current requirement is and does so in order to avoid any confusion.
SBA received four comments on these proposed clarifications. Three
supported the clarifications and one opposed. The one comment in
opposition believed that allowing a sole source award above the
competitive thresholds to an individually-owned Participant could lead
to small businesses being exploited. The three comments supporting the
changes agreed that if an agency could justify the use of a sole source
award outside the 8(a) program, it makes sense to allow them to use the
8(a) program instead. SBA does not agree with the one commenter's
concerns that a small business could be exploited because of this
change. The authority that SBA recognizes is very limited. A procuring
activity must be able to justify a sole source award to a particular
Participant based on one of the FAR 6.302 exceptions to full and open
competition. If that justification exists, SBA not allowing the
procuring activity to use the 8(a) BD program would not prevent an
award to the identified concern from occurring. The award could still
be made to the same small business concern, and the activity could
still count the award towards its small disadvantaged business goal. A
sole source award outside the 8(a) BD program, however, would not
necessarily require inclusion of the applicable limitations on
subcontracting provision. If the limitations on subcontracting
provision were not included, the concern could subcontract any portion
of the award to one or more other business concerns. SBA believes that
there is a greater chance for exploitation in that scenario than
through an 8(a) award. Thus, SBA adopts the language as proposed in
this final rule.
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 how they may
demonstrate their good faith efforts. The proposed rule sought to
provide guidance by incorporating SBA's interpretation of good faith
efforts in this context. Specifically, the proposed rule provided 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 also identified 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.
Commenters largely supported SBA's efforts to provide clarity on
how a Participant may demonstrate that it made good faith efforts to
meet its applicable non-8(a) business activity target. One commenter
urged SBA to adjust the period of measurement for submitting offers for
non-8(a) procurements, which, if awarded, would have given the
Participant sufficient non-8(a) revenues to achieve the applicable non-
8(a) business activity target during its just completed program year.
This commenter believed that providing a list of proposals submitted
during the applicable program year (irrespective of award or when
contract revenues would be realized) would provide a more bright-line
and consistent approach. While SBA recognizes the value of clear
regulatory standards, compliance with the business activity target
requirement is measured based on a Participant's 8(a) and non-8(a)
revenues in a given program year. As such, in assessing whether a
Participant has made good faith efforts to meet its applicable non-8(a)
business activity target, SBA believes it should only consider non-8(a)
receipts which would have been realized during the relevant program
year. In addition, it is unclear how SBA should treat contract revenues
that would not be derived in the pertinent program year. In SBA's view,
a Participant must demonstrate to SBA that it submitted offers for one
or more non-8(a) procurements which, if awarded during its just
completed program year, would have given the Participant sufficient
revenues to achieve the applicable non-8(a) business activity target
during that same program year. The final rule revises the proposed
language to clarify this policy. In addition, two commenters urged SBA
to expand the list of extenuating circumstances that may be considered
to include: unanticipated labor or supply shortages which may preclude
a Participant from submitting a proposal;
[[Page 26186]]
and marketing efforts such as responding to an agency's Request for
Information or attendance at industry days or other procurement
conferences. As proposed, the regulatory text provides that the list of
extenuating circumstances is not exhaustive. This is consistent with
SBA's intent to consider all relevant circumstances out of the
Participant's control which adversely impacted its efforts to obtain
sufficient non-8(a) revenues. This rule adopts the proposed language as
final.
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. However, it was
brought to SBA's attention that these sales estimates were difficult to
prepare and inaccurate. In response to these concerns, the proposed
rule specifically requested comments as to how firms believe it would
be easiest for them to meet the program year information requirements.
The supplementary information to the proposed rule explained that SBA
was considering an approach 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. While this approach would exclude revenues derived during
the final weeks or months leading up to a Participant's program
anniversary date, SBA explained that it 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.
Commenters were split on SBA's approach to capture program year
business activity based on interim financial statement figures. Three
commenters confirmed that the incumbent policy requiring Participants
to estimate their 8(a) and non-8(a) sales on a program year basis is
challenging and yields inaccurate figures, especially where a
Participant's program anniversary date falls in the middle of a
calendar month. On the other hand, four commenters voiced concern that
requiring a Participant to submit its interim financial statements
would impose an undue administrative burden and cost on the 8(a)
community. One such commenter urged SBA to accept interim financial
statements prepared in-house if this approach is adopted. Through its
independent research, SBA recognizes that it could be burdensome on
some businesses to report sales estimates based on interim reporting
periods spanning different fiscal years where they do not currently
prepare interim quarterly statements. After carefully considering these
comments and findings, SBA will continue to allow Participants to
estimate as best they can program year revenues for both 8(a) and non-
8(a) activities. The final rule revises Sec. 124.509 to explicitly
incorporate SBA's current business activity reporting policy. However,
as noted above, SBA is mindful that estimating program year sales in
this manner is neither practical nor precise for some 8(a)
Participants. To address these concerns, the final rule will also
revise Sec. 124.509 to permit program year sales reporting based on
the Participant's interim financial statement figures, which may be
prepared in-house. Because SBA does not seek to impose unnecessary
reporting or compliance burdens on the 8(a) portfolio, the final rule
provides that a Participant need not submit the underlying monthly,
quarterly, or semi-annual financial statements in connection with its
annual review. SBA believes this approach will reduce administrative
burdens across the entire 8(a) portfolio while simultaneously promoting
accurate reporting and oversight.
Sections 124.513(a), 126.616(a)(2), 127.506(a)(3), and 128.402(a)(3)
The proposed rule added 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 applied 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 added similar language as that added to Sec. 124.513(a)(3) for
those programs in proposed Sec. 125.18(b) (for SDVOSB), Sec.
126.616(a)(2) (for HUBZone), and Sec. 127.506(a)(3) (for WOSB).
The proposed rule also specifically requested 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.
SBA received seven comments responding to whether a firm should be
able to be a joint venture partner on more than one joint venture that
submits an offer for a specific small business contract. All commenters
supported the proposed change. Commenters believed that the changes
will help maintain fair market competition within the small business
programs and prevent firms from unduly benefiting from the programs at
the expense of other, less sophisticated small business concerns.
Commenters also believed that the rule should apply to all contracts
set-aside or reserved for
[[Page 26187]]
8(a)/HUBZone/WOSB/SDVOSB, and to all orders set-aside for such
businesses under unrestricted multiple award contracts. As such, SBA
adopts the changes to Sec. 124.513(a)(3) (for the 8(a) program), to
Sec. 126.616(a)(2) (for the HUBZone program), and to Sec.
127.506(a)(3) (for the WOSB program). Although the proposed rule also
amended Sec. 125.18(b) for joint ventures relating to the SDVO
program, the final rule modifies Sec. 128.402(a)(3) instead. SBA
included the same provision in the final rule implementing the Veteran
Small Business Certification Program and is already contained in Sec.
128.402(a)(3) of SBA's regulations for the SDVO program. See 87 FR
73400 (Nov. 29, 2022). This final rule slightly modifies the language
in Sec. 128.402(a)(3) to be identical to that for the HUBZone and WOSB
programs. The restriction on being a member of more than one joint
venture will apply equally to apply to all contracts or orders set-
aside or reserved for the 8(a), HUBZone, WOSB, or SDVO programs.
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 the contract. 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, grants a waiver based on one or
more of five statutorily identified reasons. The proposed rule revised
Sec. 124.515(c) for clarity. Specifically, it broke one longer
paragraph into several smaller subparagraphs and clarified 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.
Under the procedures that existed prior to this rule, a Participant
(or former Participant that is still performing an 8(a) contract)
submitted 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. To streamline the process, the proposed rule sought
comments regarding where requests for waivers should be initiated.
Specifically, SBA sought comments as to whether waiver requests should
be sent directly to the AA/BD instead of to the servicing district
office.
SBA received 13 comments regarding the proposed changes to Sec.
124.515. One commenter believed there was no need to change the request
for waiver process. Twelve commenters supported changing the process.
The commenters supporting a change believed that streamlining the
waiver process is beneficial to small businesses. Commenters noted that
the process initiating at the district office level was lengthy and
often dissuaded firms from initiating a waiver request. They believed
that requests get bogged down in SBA for months, which can make deals
fall apart. Commenters noted that disadvantaged individuals are
penalized in the waiver process because it is difficult to negotiate a
price for a business that will be acquired a year or more into the
future. Commenters recommended that waiver requests be initiated with
the AA/BD. Commenters also recommended that time limits be put into the
regulation to provide that SBA will process such requests in a certain
amount of time. SBA agrees that the termination for convenience waiver
process was oftentimes exceedingly lengthy. In order to streamline the
process, the final rule provides that waiver requests will be initiated
with the AA/BD and that SBA will process a request for waiver within 90
days of receipt of a complete waiver package by the AA/BD.
SBA also received a comment questioning SBA's implementation of a
waiver based on the transfer of ownership and control to another
eligible Program Participant. Specifically, the commenter questioned
why SBA would not grant a waiver with respect to a specific 8(a)
contract if the work to be performed under the contract is not similar
to the type of work previously performed by the acquiring 8(a)
Participant. The commenter believed that SBA should be looking at the
eligibility of the acquiring firm, as required by the statutory
authority, but should not be attempting to determine the responsibility
of the acquiring firm to perform the contract prior to the acquisition
or question the acquiring firm's business strategy going forward. SBA
agrees. The statutory authority speaks solely to requiring SBA to
ensure that the acquiring firm is an eligible Participant prior to the
transfer. As such, the final rule deletes the last sentence of current
Sec. 124.515(d), which restricted the transfer of 8(a) contracts to
another Participant that had not previously performed work similar to
that being transferred.
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.
The proposed rule sought to add 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. The proposed rule also sought
comments regarding such a Community Benefits Plan and whether and how
SBA should seek to ensure that benefits derived from the 8(a) BD
program flow back to the native or disadvantaged communities served by
tribes, ANCs, NHOs and CDCs. As noted above, SBA held five tribal
consultations and listening sessions to hear from the Native
communities. The tribal, ANC and NHO representatives overwhelmingly
opposed any changes to the benefits reporting provisions. In addition,
in response to the proposed rule SBA received 35 comments further
opposing any changes to the benefits reporting requirements and
imposing a new Community Benefits Plan requirement. One commenter,
however, agreed that entities should have a Community Benefits Plan
given the unique benefits available to entity-owned firms and that it
makes sense that entity-owned firms should demonstrate how they are
substantively improving the lives of the communities they serve. During
the last tribal consultation in Washington, DC, SBA announced that it
would not finalize anything new pertaining to benefits reporting. As
such, this final rule does not adopt any new language to Sec. 124.604
or any new language to Sec. 124.108 dealing with benefits or 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
[[Page 26188]]
awarded under the 8(a) BD program. The ``Section 1207'' or 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 to the ruling, the FAR Council revised the SBA protest
process for SDBs in the FAR to a ``review'' process in a final rule
effective October 2014 (79 FR 61746). 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 added 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 copied
similar text contained in FAR 19.305.
SBA did not receive any comments relating to Sec. 124.1002, and
SBA adopts the proposed language in this final rule. Under the rule,
SBA will be able to 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, a contracting officer or the SBA may protest the SDB status of
a proposed subcontractor or subcontract awardee. Finally, where SBA
determines that a subcontractor does not qualify as an SDB, prime
contractors must 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 rule
disallows SDB subcontracting credit only prospectively from the point
of an adverse SDB determination.
Sections 125.1, 125.3(c)(1)(i), 125.3(c)(1)(x), and 125.3(c)(2)
SBA proposed 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 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 proposed to amend its regulations to adopt
these changes when SBA's regulation is referring to a commercial
product, a commercial service, or both. Specifically, the proposed rule
amended the definition for ``cost of materials'' in 125.1 to refer only
to commercial products. Further, SBA proposed to amend 125.3(c)(1)(i),
(c)(1)(x), and (c)(2) to update the references to both commercial
products and commercial services.
SBA received no comments in response to these proposed changes and
adopts them as final in this rule.
Section 125.1
The proposed rule added 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 sought to implement consistency among
SBA's programs and referred to requirements set forth in part 124 for
8(a) eligibility. SBA received no comments on this proposed change and
adopts it as final in this rule. SBA believes that the change will
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 also proposed 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). The proposed rule requested comments as to
whether the list should apply to both types of BPAs, FSS and FAR
13.303, and whether it should apply to both BPAs established with more
than one supplier and BPAs established with a single firm. Generally, a
consolidated requirement is one that consolidates two or more previous
requirements performed under smaller contracts 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 likely 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
[[Page 26189]]
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.
SBA received ten comments regarding the change to include BPAs in
the definition of bundling. All ten commenters supported the inclusion
of BPAs. Commenters agreed that the consolidation and bundling
requirements should not be limited to either BPAs established with more
than one supplier or a single firm and should apply to both BPAs
established under FAR Part 8 or Part 13 procedures. One commenter
commended SBA for this change, believing that it can prevent contracts
from being bundled and taken away from small business. Several
commenters also recommended that SBA amend the definition of
consolidation to include BPAs as well. SBA agrees that the
consolidation and bundling requirements should apply to BPAs
established with a more than one supplier or a single firm and to both
BPAs established under FAR Part 8 or Part 13 procedures. SBA has added
BPAs to both the definitions of bundling and consolidation in this
final rule.
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.
The statutory language speaks solely to the value of existing work. As
long as the combined existing work is greater than $2 million, the
statute defines it to be consolidation. New work is not relevant to
that determination. To eliminate any confusion, the proposed rule
clarified 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.'' Commenters agreed that
``consolidation'' and ``bundling'' can occur regardless of whether an
agency adds additional new requirements to a procurement or whether the
overall requirement can be considered ``new'' due to its increase in
scope, value or magnitude. SBA adopts that language in this final rule.
Section 125.2
Section 125.2 sets forth guidance as to SBA's and procuring
agencies' responsibilities when providing contracting assistance to
small businesses. Paragraph 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
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 Sec. 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 paragraph
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 proposed 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 contract 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.
SBA received five comments on the proposal to require a cost/price
comparative analysis as part of any bundling justification. Commenters
first noted that bundling has a serious negative impact on small
businesses because the requirements will result in diminished
opportunities for many small businesses to compete for prime contracts.
One commenter believed such a comparative analysis was not necessary
without providing any reasons for that belief. Four commenters agreed
that no bundling analysis could have real meaning without such a
comparison. They believed that a procuring activity could not
adequately justify any consolidation or bundling without comparing the
cost/price to previously acquire the goods or services to the projected
cost/price to acquire those same goods or services through the
consolidated or bundled requirement and demonstrating the required
savings. A commenter also noted that if services that were previously
provided in-house
[…truncated; see source link]Indexed from Federal Register on April 27, 2023.
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