Proposed Rule2024-18325
HUBZone Program Updates and Clarifications, and Clarifications to Other Small Business Programs
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Published
August 23, 2024
Issuing agencies
Small Business Administration
Abstract
The U.S. Small Business Administration (SBA or Agency) proposes to amend its regulations governing the Historically Underutilized Business Zone (HUBZone) Program to clarify certain policies. In 2019, SBA published a comprehensive revision to the HUBZone Program regulations, which implemented changes intended to make the HUBZone Program more efficient and effective. This proposed rule is intended to clarify and improve policies surrounding some of those changes. In particular, the rule proposes to require any certified HUBZone small business to be eligible as of the date of offer for any HUBZone contract. SBA also proposes to make several changes to SBA's size and 8(a) Business Development (BD) regulations, as well as some technical changes to the Women-Owned Small Business (WOSB) and Veteran Small Business Certification (VetCert) programs. Of note, the proposed rule would delete the program specific recertification requirements contained separately in SBA's size, 8(a) BD, HUBZone, WOSB, and VetCert and move them to a new section that would cover all size and status recertification requirements. This should ensure that the size and status requirements will be uniformly applied.
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[Federal Register Volume 89, Number 164 (Friday, August 23, 2024)]
[Proposed Rules]
[Pages 68274-68319]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-18325]
[[Page 68273]]
Vol. 89
Friday,
No. 164
August 23, 2024
Part III
Small Business Administration
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13 CFR Parts 121, 124, 125, et al.
HUBZone Program Updates and Clarifications, and Clarifications to Other
Small Business Programs; Proposed Rule
Federal Register / Vol. 89 , No. 164 / Friday, August 23, 2024 /
Proposed Rules
[[Page 68274]]
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SMALL BUSINESS ADMINISTRATION
13 CFR Parts 121, 124, 125, 126, 127, 128, 134
[Docket ID SBA-2024-0007]
RIN 3245-AH68
HUBZone Program Updates and Clarifications, and Clarifications to
Other Small Business Programs
AGENCY: U.S. Small Business Administration.
ACTION: Proposed rule.
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SUMMARY: The U.S. Small Business Administration (SBA or Agency)
proposes to amend its regulations governing the Historically
Underutilized Business Zone (HUBZone) Program to clarify certain
policies. In 2019, SBA published a comprehensive revision to the
HUBZone Program regulations, which implemented changes intended to make
the HUBZone Program more efficient and effective. This proposed rule is
intended to clarify and improve policies surrounding some of those
changes. In particular, the rule proposes to require any certified
HUBZone small business to be eligible as of the date of offer for any
HUBZone contract. SBA also proposes to make several changes to SBA's
size and 8(a) Business Development (BD) regulations, as well as some
technical changes to the Women-Owned Small Business (WOSB) and Veteran
Small Business Certification (VetCert) programs. Of note, the proposed
rule would delete the program specific recertification requirements
contained separately in SBA's size, 8(a) BD, HUBZone, WOSB, and VetCert
and move them to a new section that would cover all size and status
recertification requirements. This should ensure that the size and
status requirements will be uniformly applied.
DATES: Comments must be received on or before October 7, 2024.
ADDRESSES: You may submit comments, identified by Docket No. SBA-2024-
0007 or RIN 3245-AH68, by any of the following methods:
<bullet> Federal eRulemaking Portal: <a href="http://www.regulations.gov">http://www.regulations.gov</a> and
follow the instructions for submitting comments.
<bullet> Mail (for paper submissions): Laura Maas, HUBZone Program,
409 Third Street SW, Washington, DC 20416.
Instructions: All submissions received must include the agency name
and docket number or Regulatory Information Number (RIN) for this
rulemaking. All comments received will be posted on <a href="http://www.regulations.gov">http://www.regulations.gov</a>. If you wish to submit confidential business
information (CBI) as defined in the User Notice at <a href="http://www.regulations.gov">http://www.regulations.gov</a>, please submit the comments to Laura Maas and
highlight the information that you consider to be CBI and explain why
you believe this information should be held confidential. SBA will make
a final determination as to whether the comments will be published or
not.
FOR FURTHER INFORMATION CONTACT: Laura Maas, Deputy Director, Office of
HUBZone, (202) 205-7341, <a href="/cdn-cgi/l/email-protection#d1b9a4b3abbebfb491a2b3b0ffb6bea7"><span class="__cf_email__" data-cfemail="107865726a7f7e75506372713e777f66">[email protected]</span></a>.
SUPPLEMENTARY INFORMATION:
I. Background
On November 26, 2019, SBA published the first comprehensive
revision of the HUBZone Program regulations since the program's
implementation more than 20 years ago. 84 FR 65222. The revisions were
intended to clarify current HUBZone Program policies and procedures and
implement changes to make the HUBZone Program more efficient and
effective. This proposed rule would make additional clarifications to
the program regulations to reflect SBA policies established in response
to feedback received in the time since the publication of the
comprehensive revision.
SBA also made a number of revisions to the HUBZone regulations as
part of its implementation of section 1701 of the National Defense
Authorization Act for Fiscal Year 2018 (NDAA 2018), Public Law 115-91,
Dec. 12, 2017. Included within that rulemaking were revisions freezing
the HUBZone map until the results of the 2020 census were released;
authorizing ``legacy HUBZone employees''; requiring annual
recertification; implementing one-year certification and requiring
HUBZone firms to be eligible on each anniversary of their HUBZone
certification date; and requiring HUBZone firms to be HUBZone-certified
at the time of offer for any HUBZone contract, with eligibility
relating back to their certification anniversary date and removing the
requirement for HUBZone small businesses to be eligible at the time of
award of a HUBZone contract.
In the time since SBA published the comprehensive revision, the
Office of the HUBZone Program has received questions and information
that prompted refinement and clarification of policies contained in
that revision, which SBA published in ``Frequently Asked Questions'' in
February 2020 and in subsequent updates. This proposed rule would
incorporate some of those clarifications and make other refinements in
the HUBZone regulations, including requiring HUBZone firms to be
eligible on the date of offer for a HUBZone contract and relieving the
burden of annual recertification by moving to a triennial
recertification requirement. In addition, this proposed rule would
clarify policies related to ``Governor-designated covered areas,''
which were authorized by the NDAA 2018 and implemented through a direct
final rule published by SBA on November 15, 2019. 84 FR 62447.
Further, in response to concerns related to potential fraud and
abuse in the program, SBA is proposing to amend the definition of the
term ``employee'' by raising the minimum number of work hours necessary
for an individual to count as an employee for HUBZone program purposes.
The proposed rule would also make several changes to SBA's size and
8(a) business development (BD) regulations, as well as some technical
changes to the women-owned small business (WOSB) and the Veteran Small
Business Certification (VetCert) programs. Of note, the proposed rule
would delete the program specific recertification requirements
contained separately in SBA's size, 8(a) BD, HUBZone, WOSB, and VetCert
and move them to a new section that would cover all size and status
recertification requirements. Currently, there is some language
contained in the program specific recertification rules that is not
identical in each of the programs. This has caused some confusion as to
whether SBA intended the rules to be different in certain cases. That
was not SBA's intent. Moving all size and recertification to new Sec.
125.12 should alleviate any confusion between the different programs
and ensure that the size and status requirements will be uniformly
applied.
II. Section-by-Section Analysis
Sections 121.103(a)(3), 124.106(h), 127.202(h) and 128.203(j)(6)
SBA proposes to amend its rules on affiliation in the size
regulations and control in the 8(a) BD, WOSB and VetCert program
regulations regarding negative control. Specifically, this proposed
rule would make the negative-control rules consistent across SBA's
various programs. The negative control provision states that a concern
may be deemed controlled by, and therefore affiliated with, a minority
shareholder that has the ability to prevent a quorum or otherwise block
action by the board of directors or shareholders. The rule does not
include any specific exceptions, though some have
[[Page 68275]]
developed through caselaw at SBA's Office of Hearings and Appeals
(OHA). See, e.g., Southern Contracting Solutions III, LLC, SBA No. SIZ-
5956 (Aug. 30, 2018).
This proposed rule would first amend Sec. 121.103(a)(3) by adding
language currently contained in the VetCert rules that developed from
OHA case law to clarify that there are certain ``extraordinary
circumstances'' under which a minority shareholder may have some
decision-making authority without a finding of negative control.
Specifically, SBA will not find that a lack of control exists where a
qualifying individual or business does not have the unilateral power
and authority to make decisions regarding: (1) adding a new equity
stakeholder; (2) dissolution of the company; (3) sale of the company or
all assets of the company; (4) the merger of the company; (5) the
company declaring bankruptcy; and (g) amendment of the company's
governance documents to remove the shareholder's authority to block any
of (1) through (5). These exceptions to negative control are being
implemented to promote consistency with other SBA contracting programs
(see Sec. 128.203(j)).
This rule proposes to add the same language to a new Sec.
124.106(h) for the 8(a) BD program and to Sec. 127.202(h) for the WOSB
program. Finally, since the current VetCert regulations have only the
first five exceptions for control and this rule would add six to the
size, 8(a) BD and WOSB regulations, the proposed rule would add that
same sixth exception to the VetCert regulations also. That addition
would be a new Sec. 128.203(j)(6). Through this proposed rule, SBA
would add explicit exceptions to the negative-control provision for all
programs for which control is an eligibility element. This would permit
all small businesses to seek equity funding without becoming affiliated
with the investors solely because of a broad interpretation of the
negative-control rule. SBA specifically requests comments as to whether
the six identified exceptions are sufficient or whether one or more
additional exceptions should also be included in the regulations.
Section 121.103(h)
Section 121.103(h)(3) sets forth SBA's ``ostensible subcontractor''
rule, which may find a prime contractor ineligible for the award of any
small business contract or order where a subcontractor that is not
similarly situated (as that term is defined in Sec. 125.1) performs
primary and vital requirements of a contract, order, or agreement, or
where the prime contractor is unusually reliant on such a
subcontractor. The current regulatory text provides that a contractor
and its ostensible subcontractor are treated as joint venturers for
size determination purposes, and as long as each concern is small under
the size standard corresponding to the relevant North American Industry
Classification System (NAICS) code or the prime contractor is small and
the subcontractor is its SBA-approved mentor, the arrangement will
qualify as a small business. That language has caused some confusion.
In the context of a subcontractor that is an SBA-approved mentor of the
prime contractor, in treating the relationship ``as a joint venture'',
SBA intended to allow the relationship to qualify as a small business
only if all the joint venture requirements were met. That would mean
that the prot[eacute]g[eacute] and mentor have an underlying joint
venture agreement that meets the requirements of Sec. 125.8(b), the
prot[eacute]g[eacute] will direct and have ultimate responsibility for
the contract, and the performance of work requirements set forth in
Sec. 125.8(c) will be met. In a prime-subcontractor relationship,
those requirements are not present and SBA would aggregate the
revenues/employees of such ``joint ventures'' in determining size.
Unfortunately, without clearly specifying SBA's intent, the current
regulation could be read to allow mentors to be found to be ostensible
subcontractors while not meeting the normal joint venture requirements.
That was not SBA's intent. This proposed rule would simplify Sec.
121.103(h) by eliminating the reference to a joint venture and instead
specify that an offeror is ineligible as a small business concern, an
8(a) small business concern, a certified HUBZone small business
concern, a WOSB/EDWOSB, or a VO/SDVO small business concern where SBA
determines there to be an ostensible subcontractor relationship.
This proposed rule would also make a corresponding change to Sec.
121.702(c)(7) for the SBIR program. That change would provide that a
concern with an other than small ostensible subcontractor cannot be
considered a small business concern for SBIR and STTR awards.
Section 121.104
Section 121.104 defines the term annual receipts to mean all
revenue in whatever form received or accrued from whatever source,
including from the sales of products or services, interest, dividends,
rents, royalties, fees, or commissions, reduced by returns and
allowances. It goes on to state that generally, receipts are considered
``total income'' plus ``cost of goods sold'' as these terms are defined
and reported on Internal Revenue Service (IRS) tax return forms. The
section also provides that Federal income tax must be used to determine
the size status of a concern. There has been some confusion as to
whether SBA is restricted in all circumstances to examining only a
concern's tax returns or whether SBA may look at other information if
it appears or there is other information suggesting that the tax
returns do not adequately capture a concern's total revenue. The
proposed rule clarifies that SBA will always consider a concern's tax
returns, but may also consider other relevant information in
appropriate circumstances in determining whether the concern qualifies
as small.
Section 121.404
SBA proposes to simplify and reorganize Sec. 121.404, which
addresses the date used to determine size for size certifications and
determinations. The proposed changes would not alter the substance of
SBA's rules regarding the date to determine size, but rather seek to
clarify the current rules and make them easier to understand and apply.
In addition to these clarifications, SBA is proposing substantive
changes to the rules regarding size recertification and proposes to
remove paragraph (g) on size recertification and relocate that
paragraph to new section 125.12, which addresses size and small
business program status recertification.
Generally, a concern (including its affiliates) must qualify as
small under the NAICS code assigned to a contract as of the date the
concern submits a self-certification that it is small to the procuring
activity as part of its initial offer or response which includes price.
Once awarded a contract as a small business, a concern is generally
considered to be a small business throughout the life of that contract.
For orders and agreements issued under multiple award contracts, the
date that size is determined depends on whether the underlying multiple
award contract was awarded on an unrestricted basis or whether it was
set aside or reserved for small business (i.e., small business set-
aside, 8(a) small business, service-disabled veteran-owned small
business, HUBZone small business, or women-owned/economically
disadvantaged women-owned small business).
Where an order or agreement is to be set aside for small business
under an unrestricted multiple award contract, size is determined as of
the date of initial offer (or other formal response to a solicitation),
including price, for each
[[Page 68276]]
order or agreement placed against the multiple award contract. In that
scenario, the order or agreement is the first time that size status is
important to eligibility. That is the first time that only some
contract holders will be eligible to compete for the order or agreement
while others will be excluded from competition because of their size
status. SBA repeats here its view that 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 an order
or agreement is set-aside for small business years after the multiple
award contract was awarded.
Where the underlying multiple award contract was set aside or
reserved for small business, size status will generally flow down from
the underlying contract to the order or agreement, unless
recertification is requested by a contracting officer with respect to
an agreement or order. As such, size status for an order or agreement
under a multiple award contract that itself was set aside or reserved
for small business is determined as of the date of initial offer,
including price, for the multiple award contract, unless size
recertification is requested by the contracting officer in connection
with a specific order or agreement.
This rule proposes to also clarify that where a contracting officer
requests size recertification with respect to a specific order or
agreement, size is determined as of the date of initial offer (or other
formal response to a solicitation), including price, for that specific
order or agreement only. The requirement to recertify applies only to
the order or agreement for which a contracting officer requested
recertification. The recertification does not apply to the underlying
contract. Where an initially-small contract holder has naturally grown
to be other than small and could not recertify as small for a specific
order or agreement for which a contracting officer requested
recertification, it may continue to qualify as small for other orders
or agreements where a contracting officer does not request
recertification.
If size recertification is triggered by a merger, sale, or
acquisition; or because it is a long-term contract in the fifth year of
performance, size will be determined as of the date of the merger,
sale, or acquisition occurred, or the date of the size recertification
in the case of a recertification in the fifth year of a long-term
contract. The impact of a disqualifying recertification, the events
that require recertification, and the timing of recertification, are
discussed in detail in 125.12, which is a new proposed section of SBA's
regulations.
To summarize and clarify, there are three, narrow exceptions to the
general rule that the date on which size is determined for an order or
agreement against a multiple award contract is dependent on whether the
underlying multiple award contract was set aside for small business or
unrestricted. The first exception is for set-aside orders or agreements
to be placed against GSA's Federal Supply Schedule (FSS) Multiple Award
Schedule (MAS) contracts, which is an unrestricted vehicle. Unlike set-
side and reserved orders issued under unrestricted multiple award
contracts where size status is determined at the date of the offer for
the order, for FSS orders size status is determined as of the date of
offer for the underlying FSS contract. This exception does not apply
when any trigger for size recertification occurs under Sec. 125.12,
including when a contracting officer requests a size recertification
with the offer for a specific order or agreement that is set-aside for
small businesses against the FSS MAS.
SBA provides this clarification in response to a recent decision of
the Government Accountability Office (GAO) in Washington Business
Dynamics, LLC, B-421953, B-421953.2 (Dec. 18, 2023), which cites to
several OHA decisions. SBA believes both GAO and OHA misinterpret SBA's
regulations. In its decision, GAO extended the FSS exception to apply
to size recertifications for orders placed under other multiple award
contracts. When a contracting officer requests recertification of size
with respect to an order or agreement, the FSS exception does not
apply. If there is a disqualifying size recertification in response to
any event in 125.12, including a merger, sale, or acquisition, the
concern must notify the contracting officer for the underlying multiple
award contract and the contracting officer for all existing orders, and
update its <a href="http://SAM.gov">SAM.gov</a> profile to reflect its current size status. The
concern is no longer eligible for set-aside orders or agreements
against the FSS MAS. In those instances, size is determined as of the
date that the triggering event occurred or offer for the particular
order or agreement, depending on the cause for recertification.
The second exception is for 8(a) sole source awards issued against
multiple award contracts, regardless of whether the underlying multiple
award contract is unrestricted, set-aside (even if the underlying
multiple award contract itself was set-aside or reserved as an 8(a)
award), or under the GSA's FSS MAS contracts. SBA has always required
an 8(a) Participant to qualify as eligible (to still be an active
Participant in the 8(a) program, qualify as small, and meet all other
eligibility criteria) at the time of any 8(a) sole source award. In
terms of size for a specific 8(a) sole source order or agreement under
a multiple award contract, including GSA's FSS MAS contracts, the
concern must qualify as small for the size standard corresponding to
the NAICS code assigned to the order or agreement on the date of
initial offer for and award of the order or agreement.
The third exception applies when size recertification is triggered
pursuant to any scenario outlined in new Sec. 125.12, including when a
contracting officer requests recertification of size for a particular
order or agreement against a multiple award contract. To be clear, when
a recertification of size is triggered, the date to determine size is
outlined in new section 125.12, and is typically the date of the
triggering event, but may be the date of initial offer for a particular
order or agreement if a contracting officer requested recertification
with the offer. Size recertification is an essential tool that ensures
small business awards continue to be entered into with entities that
are small at the time of offer for a particular award. As such, when
the requirement for recertification is triggered, the date to determine
size shifts to a date that coincides with either the triggering event
or the date of initial offer for a particular award (except for sole
source 8(a) awards as noted above).
Section 121.1001
Section 121.1001 identifies who may initiate a size protest or
request a formal size determination in different instances. Paragraph
121.1001(b)(2)(ii) identifies who may request a formal size
determination where SBA cannot verify that an 8(a) Participant is small
for a specific sole source or competitive 8(a) contract. There have
been a few cases where SBA initially determined that a Participant
qualified as small for a sole source 8(a) contract, but later received
information that questioned that determination. Under a strict reading
of Sec. 121.1001(b)(2)(ii), SBA could not then request a formal size
determination because the wording of Sec. 121.1001(b)(2)(ii)
authorized such a request only where SBA ``cannot verify the
eligibility of the apparent successful offeror because SBA finds the
concern to be other than small.'' Since verification, albeit initial
verification only, had already occurred, some have questioned whether
SBA could request a formal size determination at all in that
[[Page 68277]]
context. SBA notes that it was never SBA's intent to prohibit further
analysis of an 8(a) Participant's size eligibility when new information
becomes available to SBA that questions the firm's eligibility at any
point prior to award. SBA seeks to ensure that only firms that qualify
as small receive 8(a) contracts. This proposed rule would add a new
Sec. 121.1001(b)(2)(iii) to specifically authorize SBA to request a
formal size determination where SBA initially verified the eligibility
of an 8(a) Participant for the award of an 8(a) contract but then
subsequently receives specific information that the Participant may be
other than small and consequently ineligible.
This rule also proposes to add a new Sec. 121.1001(b)(12) to
specifically authorize requests for formal size determinations relating
to size recertifications required by Sec. 125.12. Section 125.12
requires a concern to recertify its size when there is a merger,
acquisition, or sale and prior to the sixth year and every option
thereafter of a long-term contract. Although SBA and the relevant
contracting officer may file a size protest before or after the award
of a contract (see Sec. 121.1004(b)), the regulations do not currently
specifically authorize a protest or a request for a formal size
determination in connection with a size recertification. More
importantly, there currently is no mechanism to allow a protest or
request for a formal size determination from another interested small
business concern who believes that a size recertification is incorrect.
For example, on a multiple award contract, if after a merger or
acquisition a concern re-certifies itself to be small, another contract
holder on that multiple award contract could not currently challenge
that recertification. Because the proposed rule would render a concern
ineligible for orders set aside for small business or set aside for a
specific type of small business under a multiple award contract where
the concern submits a disqualifying recertification (see Sec. 125.12
below), SBA believes that other contract holders should have the
ability to question a size recertification. The proposed rule would
specifically authorize the contracting officer, the relevant SBA
program manager, or the Associate General Counsel for Procurement Law
to request a formal size determination. The relevant SBA program
manager is that individual overseeing the program relating to the
contract at issue. For an 8(a) contract, that would be the Associate
Administrator for Business Development; for a HUBZone contract, that
would be the Director of HUBZones; and for a small business set-aside,
WOSB/EDWOSB or SDVOSB contract, that would be the Director of
Government Contracting. The proposed rule would also specify that in
connection with a size recertification relating to a multiple award
contract, any contract holder on that multiple award contract could
request a formal size determination in addition to the contracting
officer, the relevant SBA program manager, or the Associate General
Counsel for Procurement Law. As with a size protest, a request for a
formal size determination questioning the size of a concern after its
size recertification must be sufficiently specific to provide
reasonable notice as to the grounds upon which the recertifying
concern's size is questioned.
SBA is also considering allowing a size protest in connection with
the award of an order issued under a multi-agency multiple award
contract where the protest relates to the ostensible subcontractor
rule. Whether a large business subcontractor will perform primary and
vital requirements or whether a small business prime contractor will be
unduly reliant on a large business subcontractor will not be an issue
at the time of award of an underlying small business multiple award
contract. It is at the order level where undue reliance may become an
issue. SBA requests comments regarding whether SBA should implement a
regulatory provision authorizing such a protest.
Section 121.1010
Section 121.1010 explains how a concern can become recertified as a
small business after receiving an adverse size determination. This
proposed rule would make slight wording changes to Sec. 121.1010(b) to
make clear that size recertification is not required and the
prohibition against future self-certification does not apply if the
adverse SBA size determination is based solely on a finding of
affiliation limited to a particular Government procurement or property
sale, such as an ostensible subcontracting relationship or non-
compliance with the nonmanufacturer rule.
Section 124.3
Section 124.3 sets forth the definitions that are important in the
8(a) BD program. Included within this section is the definition of the
term Community Development Corporation or CDC. In 1981, Congress
enacted the Omnibus Reconciliation Act. Included within Title VI of
this Act was Sec. 626(a)(2), codified at 42 U.S.C. 9815(a)(2), which
required SBA to ``promulgate regulations to ensure the availability to
community development corporations of such programs as shall further
the purposes of this subchapter, including programs under section 8(a)
of the Small Business Act.'' Pursuant to 42 U.S.C. 9802, a CDC is
defined as a non-profit organization responsible to the residents of
the area it serves which is receiving financial assistance under 42
U.S.C. 9805, et seq. Under 42 U.S.C. 9806 the Secretary of Health and
Human Services (HHS) has the authority to provide financial assistance
in the form of grants to nonprofit and for-profit community development
corporations. The program authorized by 42 U.S.C. 9805, et seq. is the
Department of Health and Human Services (HHS) Urban and Rural Special
Impact Program. In 1998, as part of Community Opportunities,
Accountability, and Training and Educational Act of 1998, Public Law
105-285, 202(b)(1), 112 Stat. 2702, 2755 (1998), Congress moved HHS'
funding authority for the Urban and Rural Special Impact Program from
42 U.S.C. 9803 to 42 U.S.C. 9921. Thus, after that date CDCs could not
receive funding under 42 U.S.C. 9805, et seq. CDCs that have been in
existence for a long time may still be able to demonstrate that they
have received funding under 42 U.S.C. 9805, et seq. However, those
forming after 1998 could not do so. In order for such a CDC seeking to
participate in the 8(a) BD program after that date, SBA has required
the CDC to obtain a letter from HHS confirming that the CDC has
received funding through the successor program to that authorized by 42
U.S.C. 9805, et seq. However, SBA's regulations have not been changed
to acknowledge eligibility for a CDC-owned firm through that process.
The proposed rule would recognize that process. The proposed rule would
also make the same change to the definition of the term Community
Development Corporation or CDC contained in Sec. 126.103 for the
HUBZone program.
Sections 124.105(b), 127.202(d) and 128.202(c)
Sections 124.105(b) (for the 8(a) BD program), 127.202(d) (for the
WOSB program), and 128.202(c) (for VetCert program) set forth ownership
requirements pertaining to partnerships. The language of the three
sections is not consistent. SBA seeks to harmonize the provisions so
that a firm simultaneously applying to be certified in more than one
program must meet the same requirements. SBA does not want possible
contradictory determinations based on the same facts. In other words,
SBA believes that it would be
[[Page 68278]]
inappropriate to find that a qualifying individual controls a
partnership firm for purposes of one certification program but not to
control the same partnership firm for purposes of another certification
program. This rule would revise the ownership requirements for
partnership to be identical for the 8(a) BD, WOSB and VetCert programs.
Section 124.105
Section 124.105 sets forth the ownership requirements that an
applicant to or Participant in the 8(a) BD program must meet in order
to be and remain eligible for the program. Paragraph 124.105(h)
provides certain ownership restrictions that are applicable to non-
disadvantaged individuals and concerns that seek to have an ownership
interest in an applicant or Participant. The regulation currently
provides that a non-disadvantaged individual or another business
concern in the same or similar line of business generally cannot own
more than a 10 percent interest in a Participant that is in the
developmental stage or more than a 20 percent interest in a Participant
in the transitional stage of the program. The proposed rule would
increase the allowable ownership percentages for non-disadvantaged
individuals and business concerns in the same or similar line of
business from 10 and 20 percent to 20 and 30 percent. By changing 10
percent to 20 percent, the proposed rule would make this ownership
restriction consistent with that contained in Sec. 124.108(a)(4). It
then follows that the current 20 percent ownership restriction for the
transitional stage would also be correspondingly increased, which is
why the proposed rule would raise that restriction to 30 percent.
Paragraph (i) sets forth the requirements relating to changes of
ownership. Generally, a Participant may change its ownership or
business structure so long as one or more disadvantaged individuals own
and control it after the change and SBA approves the transaction in
writing prior to the change. Paragraph 124.105(i)(2) authorizes three
exceptions as to when prior SBA approval of a change of ownership is
not needed and provides four examples implementing the change of
ownership requirements, one showing when prior SBA approval is required
and three showing when it is not. Prior SBA approval is not needed
where all non-disadvantaged individual (or entity) 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 be consistent with
the proposed change to Sec. 124.105(h) above, the proposed rule would
require prior approval only where a non-disadvantaged individual owns
more than a 30 percent interest in the 8(a) Participant either before
or after the transaction. The proposed rule would also add a fourth
exception as to when prior SBA approval is not required. Specifically,
the proposed rule would specify that prior SBA approval is not required
where the 8(a) Participant has never received an 8(a) contract. The
rule would then clarify that where prior approval is not required, the
Participant must notify SBA within 60 days of such a change in
ownership, or before it submits an offer for an 8(a) contract,
whichever occurs first. SBA must be able to determine the continued
eligibility of the Participant before it accepts a sole source 8(a)
procurement on behalf of or authorizes the award of a competitive 8(a)
award to the Participant. Finally, the rule would make changes to the
examples set forth in Sec. 124.105(i)(2) to reflect the change from 20
percent to 30 percent and would add a fifth example highlighting that
prior SBA approval is not required where a Participant has never
received an 8(a) contract.
Paragraph 124.105(k) currently provides generally that SBA
considers applicable state community property laws in determining
ownership interests when an owner resides in a community property
state. Under that provision, a transfer or relinquishment of interest
by the non-disadvantaged spouse may be necessary in some cases to
establish eligibility for the 8(a) BD program. SBA initially
promulgated this provision in order to comply with the statutory
requirement that an 8(a) concern must be at least 51 percent
``unconditionally'' owned one or more socially and economically
disadvantaged individuals. Upon reexamination, SBA believes that it may
not be necessary to consider community property laws when determining
that a specific individual does in fact ``unconditionally'' own an
applicant or Participant. In order to align the 8(a) BD ownership
requirements with those applicable in the WOSB and VetCert programs,
SBA proposes to eliminate Sec. 124.105(k). SBA requests comments as to
whether not considering community property laws complies with the
unconditional ownership requirement and whether previously required
transmutation agreements (i.e., agreements between spouses
relinquishing some percentage of his or her community property
ownership rights in an applicant or Participant) are permissible under
state law.
The proposed rule would add a new Sec. 124.105(k) to allow a right
of first refusal granting a non-disadvantaged individual the
contractual right to purchase the ownership interests of a
disadvantaged individual without affecting the unconditional nature of
ownership, if the terms follow normal commercial practices. This would
align 8(a) ownership requirements with those set forth in the VetCert
program. Of course, if those rights are exercised by a non-
disadvantaged individual after certification that result in
disadvantaged individuals owning less than 51% of the concern, SBA will
initiate termination proceedings. This same provision would be added to
Sec. 127.201(b) to conform the WOSB unconditional ownership
requirements as well.
The proposed rule would also align the language in Sec.
124.105(f)(1) (for the 8(a) BD program), Sec. 127. (for the WOSB
program), and Sec. 128.202(g) (for the VetCert program) regarding the
distribution of profits. There was a slight wording difference in the
8(a) BD and VetCert regulations and the proposed rule would make the
wording consistent. The same provision would also be added to the WOSB
regulations.
Sections 124.106(e), 127.202(g) and 128.203(h)
Sections 124.106(e) (for the 8(a) BD program), 127.202(g) (for the
WOSB program), and 128.203(h) (for VetCert program) address limitations
on the involvement of non-qualifying individuals that can affect a
business concern's eligibility for participation in the 8(a) BD, WOSB,
and VetCert programs based on a qualifying individual's lack of
control. Basically, each of these provisions generally prohibit a non-
qualifying individual from unduly influencing the day-to-day management
and control of qualifying individuals. The language of the three
provisions, however, is not entirely consistent. This has led to
questions as to whether SBA intended different application of the
control requirements for different programs. In order to clear up any
confusion, this rule proposes to change the wording of the three
provisions to bring them more in line with each other to ensure that
the control requirement is consistently applied. For example, the WOSB
regulations did not previously contain a provision that generally
required a qualifying woman to be the highest compensated individual in
the business concern unless the concern demonstrates that the
compensation to be received by a non-qualifying woman is commercially
reasonable or that the qualifying woman has elected to take
[[Page 68279]]
lower compensation to benefit the concern. Such a provision was
contained previously in both the 8(a) BD and VetCert regulations, and
the proposed rule would add a similar provision for the WOSB program.
In connection with the 8(a) BD program, the proposed rule would change
the requirement that an 8(a) Participant must obtain the prior written
consent of SBA before changing the compensation paid to the highest-
ranking officer to be below that paid to a non-disadvantaged individual
to a requirement that the Participant must notify SBA within 30
calendar days of such an occurrence. SBA believes that notification is
preferable to prior approval because SBA does not want a Participant to
lose an individual with a particular expertise where the approval
process is lengthy. SBA would then have to determine that the
compensation to be received by the non-disadvantaged individual is
commercially reasonable or that the highest-ranking officer has elected
to take lower compensation to benefit the Participant before SBA may
determine that the Participant is eligible for an 8(a) award.
Section 124.107
Section 124.107(a) currently provides that an applicant's income
tax returns for each of the two previous tax years must show operating
revenues in the primary industry in which the applicant is seeking 8(a)
BD certification. The proposed rule would revise this provision to
require merely that an applicant's income tax returns for each of the
two previous tax years must show operating revenues. Revenue on an
income tax return may not be aligned by industry or NAICS code and SBA
does not seek to deny entry to the 8(a) program to a firm that has
performed work in its projected primary industry but that work may not
have been properly captured on its tax return.
Section 124.107(e) requires that, as a condition to show an 8(a)
applicant's potential for success, the applicant or individuals
employed by the applicant must hold all requisite licenses if the
concern is engaged in an industry requiring professional licensing
(e.g., public accountancy, law, professional engineering). Generally,
the potential-for-success requirements carry out the requirement in
section 8(a)(7)(A) of the Small Business Act, 15 U.S.C. 637(a)(7)(A),
that SBA determine that an 8(a) applicant have reasonable prospects for
success in competing in the private sector. That same statutory
provision, however, requires SBA to determine that with contract,
financial, technical, and management support the applicant will be able
to perform contracts which may be awarded to it. As such, SBA believes
that issues of current responsibility should not prevent an applicant
from being eligible for the 8(a) BD program where SBA believes that the
business concern will be able to perform contracts awarded to it with
certain contract, financial, technical, or management support. Although
a business concern applying to the 8(a) BD program that does not have a
required professional license may not currently be responsible to be
awarded certain 8(a) contracts, as long as SBA determines that the
concern would be able to perform such contracts with appropriate
support, SBA believes that the concern should be eligible for
participation in the 8(a) BD program. The current section 124.107(e)
affects relatively few businesses because it applies only to those in
an industry requiring a professional license. This rule proposes to
remove this professional-licensing requirement. It is not only
inapplicable to most applicants, it also can be overcome before any
8(a) contract opportunity is sought by those concerns to which it
applies. SBA also considered changing the current license provision to
requiring an applicant to acknowledge that a license is needed for its
primary business and to certify that it has such a license or will
obtain a license when performing a contract. SBA requests comments on
both alternatives.
Section 124.108
Section 124.108 sets forth other eligibility requirements that
apply to 8(a) applicants and Participants. One of those requirements is
that SBA must determine that an applicant or Participant and all of its
principals possess good character. The 8(a) BD program is one of
several certification programs to help small businesses win federal
contracting awards, but the scope of the 8(a) BD program is different.
For the WOSB and VetCert programs, SBA only determines whether a small
business applicant is owned and controlled by one or more qualifying
individuals. SBA does not look at character or business integrity in
determining whether a small business is owned and controlled by
qualifying individuals. Similarly, for the HUBZone program, SBA only
determines whether the small business applicant is located in and
employs residents of a historically underutilized business zone. SBA
certification of these qualifications allows the certified small
businesses to compete for certain federal contracts. These are not
business development programs. Although SBA determines whether an 8(a)
small business applicant is owned and controlled by one or more
qualifying individuals, the program is not limited to this
certification. Its scope is broader and includes a multi-year business
development program with eligibility for specific management and
technical assistance from SBA to support the business's successful
competition in the marketplace. SBA requires ``good character'' to be
admitted to this development program.
The proposed rule would limit the grounds that would serve as an
automatic, mandatory bar from participation in the 8(a) BD program
based on good character (i.e., either an application denied or possible
termination action commenced against a current Participant). It would
remove the automatic bar for ``possible criminal conduct'' and amend
the lack of business integrity bar to lack of business integrity as
demonstrated by conduct that could be grounds for suspension or
debarment. Expanding access to the 8(a) BD program aids the federal
government's goal of helping small businesses win at least 23% of
federal contracting dollars each year. The 8(a) BD program gives
socially and economically disadvantaged small businesses access to
important tools and training to help them become stronger competitors
in the marketplace. The proposed rule also will facilitate employment
opportunities for individuals with criminal history records. Research
demonstrates that employment increases success during reentry,
decreases the risk of recidivism, and strengthens both public safety
and economic opportunity. Research also demonstrates that
entrepreneurship provides an important and distinct avenue for economic
stability given persistent stigma from employers who may decline to
hire people with criminal history records. Notably, SBA found several
studies showing the difficulty of obtaining employment for formerly
incarcerated people (see, e.g., Investigating Prisoner Reentry: The
Impact of Conviction Status on the Employment Prospects of Young Men;
\1\ from the Department of Justice's National Institute of Justice
Grant) and a positive link between employment and successful reentry,
including preventing recidivism (see, e.g., Local Labor Markets and
Criminal
[[Page 68280]]
Recidivism \2\ in the Journal of Public Economics). Moreover, because
individuals with criminal history records may face barriers in
obtaining employment, entrepreneurship can be a productive option, and
SBA found several studies showing the potential for entrepreneurship
among individuals with criminal records (see, e.g., From Prison to
Entrepreneurship \3\ in the American Academy of Political and Social
Science).
---------------------------------------------------------------------------
\1\ Investigating Prisoner Reentry: The Impact of Conviction
Status on the Employment Prospects of Young Men. Investigating
Prisoner Reentry National Institute of Justice Grant, Final Report.,
October 2009.
\2\ Local Labor Markets and Criminal Recidivism, ScienceDirect,
Journal of Public Economics, Volume 147, March 2017, Pages 16-29
\3\ From Prison to Entrepreneurship: Can Entrepreneurship be a
Reentry Strategy for Justice-Impacted Individuals? <a href="https://doi.org/10.1177/00027162221115378">https://doi.org/10.1177/00027162221115378</a>, Sage Journals, Volume 701, Issue 1,
September 14, 2022.
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SBA will continue to conduct internal checks related to an
applicant's business integrity that includes the applicant's criminal
history, and consider all factors in evaluating whether an applicant
would be a good candidate to participate in the 8(a) BD program. SBA
will consider each application individually. The proposed rule does not
change business integrity requirements of procuring agency contracting
officers or any business integrity evaluations done by them. Procuring
agency contracting officers evaluate offerors' responsibility to
perform federal contracts prior to award, a process that can include an
evaluation of business integrity.
Where fraudulent activity occurs after a firm is admitted to the
8(a) BD program, whether that activity results in an indictment,
conviction, civil judgment or not, SBA may immediately move to protect
the Government's interests. This could be through suspension/
termination from the 8(a) BD program or through a Government-wide
suspension/debarment action. The existence of a cause for suspension,
termination or debarment, however, does not necessarily require that
the Participant be suspended, terminated or debarred. SBA will consider
the seriousness of the Participant's acts or omissions and any remedial
measures or mitigating factors made by the Participant.
Sections 124.108(e), 126.200(h), 127.200(h), and 128.201(b)
Sections 124.108(e) (for the 8(a) BD program) and 128.201(b) (for
the VetCert program) provide generally that a small business concern is
ineligible for certification if the concern or any of its principals
has failed to pay significant financial obligations owed to the Federal
Government. A similar provision is not currently contained in the WOSB
or HUBZone eligibility requirements. This rule proposes to apply that
restriction to the WOSB and HUBZone programs as well. To ensure
consistency among the programs, the rule would also revise the language
in Sec. Sec. 124.108(e) and 128.201(b) so that the regulatory language
applying to all four programs is the same.
Sections 124.204(d), 126.306(d), 127.304(d), and 128.302
Sections 124.204(d) (for the 8(a) BD program), 126.306(d) (for the
HUBZone program), 127.304(d) (for the WOSB program), and 128.302 (for
the VetCert program) set forth the date at which at applicant must be
eligible for each certification program. The wording of the regulations
is not consistent. Section 124.204(d) specifies that an applicant must
be eligible as of the date SBA issues a decision. Section 126.306(d)
specifies that an applicant must be eligible as of the date it
submitted its application and at the time SBA issues a decision.
Section 127.304(d) specifies that an applicant must be eligible as of
the date it submitted its application and up until the time SBA issues
a decision. Section 128.302 details how SBA processes applications for
VOSB and SDVOSB certification, but does not specifically address the
point at which eligibility is determined. SBA is in the process of
establishing a uniform application processing system. That system will
allow a firm to simultaneously apply for multiple certifications for
which it believes it is eligible. SBA believes that it is critical that
eligibility be determined at the same point in time for all
certification programs. If, for example, a firm amends a corporate
document to come into compliance with a specific control requirement
after initially submitting its application for the 8(a) BD program and
the WOSB program, the current regulations would support a finding that
a qualifying individual did control the applicant for 8(a) BD purposes
but did not control the applicant for WOSB purposes. SBA believes that
would be an inappropriate result. Therefore, this proposed rule amends
each of these sections to require consistent wording that an applicant
must be eligible as of the date SBA issues a decision. Although the
proposed rule would specify that an applicant must be eligible as of
the date SBA issues a decision, implicitly a small business must
believe that it is eligible at the time it applies for certification
for any program. For purposes of applying for HUBZone certification, an
applicant must submit payroll records for the four-week period
immediately prior to its application date. It would be impossible to
require payroll records for some unknown future date. After submitting
an application for any program, a concern must immediately notify SBA
of any changes that could affect its eligibility and provide
information and documents to verify the changes.
Sections 124.303(c), 126.503(c), 127.405(f), and 128.310(g)
The proposed rule would add a new provision to Sec. 124.303(c)
(for the 8(a) BD program), to Sec. 126.503 (for the HUBZone program),
to Sec. 127.405(f) (for the WOSB program), and to Sec. 128.310(g)
(for the VetCert program) providing that a firm that is decertified or
terminated from one SBA certification program due to the submission of
false or misleading information may be removed from SBA's other small
business contracting programs. In addition, the proposed rule would
provide that SBA may require the firm to enter into an administrative
agreement as a condition of admission or re-admission to one of the SBA
certification programs. SBA believes that a firm that submits false
information to obtain a certification in one program is more likely to
submit false information to other SBA programs, and SBA needs a
mechanism by which to investigate whether this has occurred and remove
non-responsible firms from its programs expeditiously.
Section 124.207
Section 124.207 provides that a concern which has been declined for
8(a) BD program participation may submit a new application for
admission to the program at any time after 90 days from the date of the
Agency's final decision to decline. It also provides that a concern
that has been declined three times within 18 months of the date of the
first final Agency decision finding the concern ineligible cannot
submit a new application for admission to the program until 12 months
from the date of the third final Agency decision to decline. The
proposed rule would remove that second provision. No other program has
such a restriction and SBA does not seek to thwart firms who have made
legitimate attempts to overcome deficiencies from again applying to the
8(a) BD program.
Section 124.503
Section 124.503 addresses how SBA will accept a procurement offered
for award through the 8(a) BD program. An agency may offer a sole
source procurement to SBA nominating a particular 8(a) Participant for
performance based on the firm's self-
[[Page 68281]]
marketing efforts, or may offer it as an open requirement (i.e., an
offering to the program generally, but not in support of a particular
8(a) Participant). SBA's acceptance policies for such offerings are
contained in Sec. Sec. 124.503(c) and (d), respectively. SBA has long
recognized the importance of self-marketing in a Participant's business
development and continued viability. Thus, where an agency offers a
sole source 8(a) procurement in support of a particular Participant as
a result of self-marketing and SBA deems it suitable for the program,
SBA will normally accept it on behalf of the Participant recommended by
the agency as long as specified eligibility criteria are met. This
policy was first incorporated in SBA regulations in 1986, 51 FR 36132
at 36149, but had been previously part of the standard operating
procedure for the 8(a) BD program.
Section 303 of the Business Opportunity Development Reform Act of
1988 (BODRA), Public Law No. 100-656, tit. III, Sec. 303, 102 Stat.
3865 (1988), adopted and expanded SBA's sole source contract acceptance
procedures, mandating that SBA shall award a sole source 8(a) contract
to the 8(a) firm nominated by the offering agency, provided the
following three statutory criteria are met: (i) the Program Participant
is determined to be a responsible contractor with respect to
performance of such contract opportunity; (ii) the award of such
contract would be consistent with the Program Participant's business
plan; and (iii) the award of the contract would not result in the
Program Participant exceeding its 8(a) competitive business mix. This
mandate is codified in Section 8(a)(16)(A) of the Small Business Act,
15 U.S.C. 637(a)(16)(A). BODRA also directed SBA to promote--to the
maximum extent practicable--the equitable geographic distribution of
sole source 8(a) contracts. In response to BODRA, SBA promulgated a
rule stating that it would consider, among other things, equitable
geographic distribution for open 8(a) sole source contracts offered to
the 8(a) BD program. This policy is currently set forth in paragraph
124.503(d)(3).
There has been some confusion as to whether SBA considers equitable
contract distribution for a follow-on to an 8(a) procurement offered to
SBA on behalf of a specific 8(a) Participant. In SBA's view, the
imperative statutory command of Section 8(a)(16)(A) restricts its
authority to affirmatively deny a contract offering made on behalf of a
specific Participant based on considerations related to the equitable
distribution of sole source 8(a) contracts, irrespective of whether the
procurement is a ``new'' or repetitive 8(a) requirement. The proposed
rule would clarify this position by providing that Sec.
124.503(g)(1)(iii) applies only to open sole source 8(a) offerings.
Sections 124.504(a)
Section 124.504 identifies several reasons why SBA will not accept
a particular requirement for award through the 8(a) BD program. One of
those reasons is where the procuring activity issued a solicitation for
or otherwise expressed publicly a clear intent to award a contract as a
small business set-aside, or to use the HUBZone, VetCert, or WOSB
programs prior to offering the requirement to SBA for award as an 8(a)
contract. This rule proposes to authorize SBA to accept a requirement
for the 8(a) program where the AA/BD determines that there is a
reasonable basis to cancel the initial solicitation or, if a
solicitation had not yet been issued, a reasonable basis for the
procuring agency to change its initial clear expression of intent to
procure outside the 8(a) BD program. This would happen, for example,
where the procuring agency's needs have changed since the initial
solicitation was issued such that the solicitation no longer represents
its current need, or where appropriations are no longer available for
the requirement as anticipated, and the solicitation must be cancelled
until a following fiscal year where funds are available. A change in
strategy only (i.e., an agency seeks to solicit through the 8(a) BD
program instead of through another previously identified program) would
never constitute a reasonable basis for SBA to accept the requirement
into the 8(a) BD program.
Section 124.509
Section 124.509 establishes non-8(a) business activity targets
(BATs) to ensure that Participants do not develop an unreasonable
reliance on 8(a) awards. The reason for requiring a certain percentage
of non-8(a) revenue during a Participant's last five years in the 8(a)
BD program is to strengthen the Participant's ability to prosper once
it exits the program. Congress believed that firms that were totally
reliant on the 8(a) BD program for their revenues would be ill prepared
to survive as on-going business concerns after leaving the program. As
such, Congress required a certain percentage of non-8(a) revenue during
the transitional stage of program participation to bolster
Participants' continued viability. SBA amended Sec. 124.509 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. SBA
sought to provide guidance regarding what SBA considers to be good
faith efforts in a final rule published in April 2023. See 88 FR 26164,
26208 (April 27, 2023). This rule proposes to provide further guidance
on how SBA considers unsuccessful offers in determining whether good
faith efforts have been made. Specifically, in determining the
projected revenue that SBA will consider in determining whether one or
more unsuccessful offers submitted by a Participant would have given
the Participant sufficient revenues to achieve the applicable non-8(a)
business activity target, the proposed rule would first provide that
SBA will consider only procurements for which the Participant had
reasonable prospects of success. The proposed regulatory text would
include an example showing how revenue for an unsuccessful offer would
be considered. Where a Participant has never received a contract in
excess of a relatively small amount (the example cites $5M), SBA would
not count any revenue from an unsuccessful offer for a contract that
greatly exceeds what the Participant has previously performed (the
example points to $100M contract). In such a case, the Participant
would not have a reasonable prospect of success in submitting an offer
for a contract that was substantially higher than anything it had
performed in the past. The proposed rule would also clarify that only
the value of the base year of the contract for which the Participant's
offer was unsuccessful would be considered in determining whether the
Participant made good faith efforts to achieve its non-8(a) BAT. There
has been some confusion as to whether the value of the entire contract
or only the value of the base year should be considered in determining
whether the revenues from that contract, if received, would have
brought the Participant back into compliance with its BAT. SBA believes
that it does not make sense to consider more than the revenues from the
base year of the contract. If the Participant had been successful and
was awarded that contract, pursuant to Sec. 124.509(b)(3) SBA would
measure the Participant's compliance with the applicable BAT by
comparing the Participant's non-8(a) revenue to its total revenue
during the program year just completed. Thus, SBA would look at the
non-8(a) revenues
[[Page 68282]]
received, not the total value of the non-8(a) contract that a
Participant is performing. SBA believes the same should happen when
considering whether a Participant has made good faith efforts to meet
its BAT.
Section 124.514(a)(1)
Section 124.514 provides guidance regarding the exercise of 8(a)
options and modifications. Paragraph 124.514(a)(1) currently states
that if a concern has graduated or been terminated from the 8(a) BD
program or is no longer small under the size standard corresponding to
the NAICS code for the requirement, negotiations to price the option
cannot be entered into and the option cannot be exercised. Because the
regulatory language specifies graduation and termination from the
program, SBA has received a few inquiries as to whether this provision
applies to firms that have voluntarily exited the program. SBA has
always intended this provision to apply to all firms that are no longer
active Participants in the program. The proposed rule would merely make
that intent clear by specifically providing that this provision applies
to all firms whose term of participation in the 8(a) BD program has
ended or who have otherwise exited the program through any means.
Section 124.518
Section 124.518(c) provides that SBA may authorize another
Participant to complete performance of an 8(a) contract and, in
conjunction with the procuring activity, permit novation of that
contract without invoking the termination for convenience or waiver
provisions of Sec. 124.515 where SBA determines that substitution
would serve the business development needs of both 8(a) Participants.
SBA has seen several instances where a joint venture between an 8(a)
Participant and a non-8(a) business concern was awarded an 8(a)
contract and for whatever reason the two firms seek to terminate the
joint venture and novate the 8(a) contract individually to the 8(a)
Participant that was the lead partner of the joint venture. If novation
would occur, performance of the 8(a) contract would remain with an 8(a)
Participant (i.e., the 8(a) Participant that was the lead partner of
the joint venture). As such the intent of the program would be
furthered. It could be argued that the current Sec. 124.518(c)
authority could be used to novate the 8(a) contract in this instance;
substitution would serve the business development needs of both the
initial 8(a) awardee (the joint venture) and the substituting 8(a)
Participant (the former lead 8(a) partner to the joint venture).
However, in order to more specifically authorize such a substitution,
the proposed rule would add a new Sec. 124.518(d). SBA also seeks
comments on whether it should further define how substitution ``would
serve the business development needs of both 8(a) Participants.'' For
example, where a Participant was not in compliance with its applicable
business activity target, sought to transfer an 8(a) contract to
another eligible 8(a) Participant through the substitution process and
then sought to perform a significant portion of that contract as a
subcontractor to the new 8(a) Participant (to then count the revenue
from the subcontract as non-8(a) revenue), SBA would not determine that
such a transfer was in the best interests of the program or serve the
business development needs of both 8(a) Participants.
Section 124.602
Section 124.602 sets forth the kind of annual financial statement
an 8(a) BD Participant submits to SBA, depending upon its gross annual
receipts. Currently, Participants with gross annual receipts of more
than $10 million must submit to SBA audited annual financial statements
prepared by a licensed independent public accountant; Participants with
gross annual receipts between $2 million and $10 million must submit to
SBA reviewed annual financial statements prepared by a licensed
independent public accountant; and Participants with gross annual
receipts of less than $2 million must submit to SBA an annual statement
prepared in-house or a compilation statement prepared by a licensed
independent public accountant. SBA believes that with the value of
federal contracts greatly increasing over the last few years, the top
dollar threshold of $10 million is being met by most Participants far
more frequently. Recognizing that requiring an audited financial
statement can be a significant cost to many small businesses, this rule
proposes to require audited financial statements for those Participants
exceeding $20 million, reviewed financial statements for those
Participants with gross annual receipts between $5 million and $20
million, and in-house financial statements for those Participants with
less than $5 million in annual receipts.
Section 125.2
SBA's regulations currently make clear that a contracting activity
cannot conduct a competition requiring multiple socioeconomic
certifications. In this regard, Sec. 124.501(b) 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. There is a similar
restriction for the HUBZone program in Sec. 126.609, for the WOSB
program in Sec. 127.503(e), and for the VetCert program in Sec.
128.404(d). However, there is no similar specific restriction for small
business set-asides and reserves. Where a contracting activity seeks to
require 8(a), HUBZone, WOSB or SDVO certification in addition to status
as a small business, in essence the contracting activity would be
soliciting as an 8(a), HUBZone, WOSB or SDVO small business contract.
That is permissible. Similarly, current Sec. 125.2(e)(6) specifies
that a contracting officer may set aside orders for eligible 8(a)
Participants, certified HUBZone small business concerns, SDVO small
business concerns, WOSBs, and EDWOSBs against total small business set-
aside multiple award contracts. As such, there should be no doubt that
there can be an order or agreement set-aside or reserved for a specific
type of small business (i.e., 8(a), HUBZone, WOSB/EDWOSB, or SDVO)
under a multiple award contract that itself was set aside for small
business. SBA has been asked whether a contracting activity could
require multiple certifications through ``a small business set aside''.
SBA believes that the current program specific regulations identified
above would prohibit that. In order to eliminate any misinterpretation,
the proposed rule would add a new Sec. 125.2(c)(6) that would clarify
that a procuring activity cannot restrict a small business set-aside or
reserve (for either a contract or order) to require multiple
socioeconomic program certifications in addition to a size
certification.
Section 125.3
Section 125.3 governs subcontracting plans and reporting of
subcontracting achievements. SBA proposes to extend the due dates for
subcontracting reports by 15 days, from 30 days to 45 days. SBA also
would extend the time period for reviewing such reports by 15 days,
from 60 days to 75 days. These extended time periods recognize that
prime contractors are under increased reporting burdens because of
order-level subcontract reporting.
Section 125.6(d)
Section 125.6 sets forth the limitations on subcontracting that
apply to a small business prime contractor. A small business prime
contractor, together with any similarly situated entity, must perform a
certain specified
[[Page 68283]]
amount of a small business contract and cannot subcontract more than
that amount to another than similarly qualified small business.
Paragraph 125.6(d) provides that for a multi-agency set aside contract
where more than one agency can issue orders under the contract, the
ordering agency must use the period of performance for each order to
determine compliance. A question has arisen as to who should monitor
compliance with such an order, the contracting officer for the
underlying multi-agency contract or the contracting officer for the
ordering agency. SBA believes that the contracting officer for the
ordering agency is in the best position to monitor compliance with the
limitations on subcontracting for a specific order. As such, the
ordering contracting officer should monitor compliance throughout
performance. At the end of performance of the order, the ordering
contracting officer should inform the contracting officer for the
underlying multi-agency contract if the ordering contracting officer
knows that the contractor has failed to meet the applicable limitations
on subcontracting requirement.
Additionally, there has been some confusion as to how work
performed by leased employees is considered in determining compliance
with the applicable limitation on subcontracting. Paragraph 125.6(d)(3)
explains that work performed by an independent contractor shall be
considered a subcontract and will therefore count against the prime
contractor's limitation on subcontracting unless the independent
contractor qualifies as a similarly situated entity. Unlike independent
contractors, employees obtained from a temporary employee agency,
professional employee organization, or leasing concern perform work
under the primary direction and control of the recipient concern. For
this reason, such individuals are treated as employees of the recipient
concern for purposes of determining that concern's employee count under
Section 121.106(a). SBA believes the same logic should apply when
determining a recipient prime contractor's compliance with the
limitations on subcontracting. Work performed by employees leased to
the small business prime contractor shall be considered the prime
contractor's self performance, and therefore will not count against the
prime contractor's limitation on subcontracting. The proposed rule
would clarify this position in Sec. 125.6(d)(3).
Section 125.8
Section 125.8(e) covers how agencies evaluate the capabilities,
past performance, and experience of joint ventures, including SBA
mentor-prot[eacute]g[eacute] joint ventures. For SBA mentor-
prot[eacute]g[eacute] joint ventures, section 125.8(e) provides that a
procuring activity may not require the prot[eacute]g[eacute] firm to
individually meet the same evaluation or responsibility criteria as
that required of other offerors generally. This provision recognizes
that prot[eacute]g[eacute]s may be less experienced when submitting an
offer but, if they win the award, will gain experience and capabilities
while performing with the mentor. SBA does not require, however, that
every contract competition include special evaluation criteria for
prot[eacute]g[eacute]s.
A recent decision by the Court of Federal Claims has caused some
confusion as to what past performance a procuring activity can require
of a prot[eacute]g[eacute] joint venture partner and how that past
performance should be evaluated. See SH Synergy, LLC v. United States,
165 Fed. Cl. 745 (2023). The SBA's mentor-prot[eacute]g[eacute] program
is designed to enhance the capabilities of prot[eacute]g[eacute] firms
by requiring approved mentors to provide business development
assistance to prot[eacute]g[eacute] firms and to improve the
prot[eacute]g[eacute] firms' ability to successfully compete for
federal contracts. The program recognizes that many small businesses
may not have the necessary past performance and experience to
individually compete successfully for certain larger contracts. Thus,
it allows joint ventures between a prot[eacute]g[eacute] firm and a
large business mentor to qualify as small to allow
prot[eacute]g[eacute] firms to gain valuable experience overseeing and
performing larger contracts. While the joint venture as a whole must
meet the applicable limitation on subcontracting (or in other words
perform a certain percentage of the contract), the
prot[eacute]g[eacute] firm must perform at least 40% of all the work
done by the joint venture partners in the aggregate. Because of that
40% requirement, some procuring activities require
prot[eacute]g[eacute] joint venture partners to demonstrate some level
of past performance as part of a joint venture's offer. Although SBA's
current regulation provides that a procuring activity may not require
the prot[eacute]g[eacute] firm to individually meet the same evaluation
or responsibility criteria as that required of other offerors
generally, it does not provide guidance on what a procuring activity
could require. This rule proposes to provide such guidance.
Specifically, the rule proposes to permit a procuring activity to
require some past performance at a dollar level below what would be
required of joint venture mentor partners or of individual offerors.
The rule would provide an example of how this could work. In the
example, where offerors must generally demonstrate successful
performance on five contracts with a value of at least $20 million, a
procuring activity could require a prot[eacute]g[eacute] joint venture
partner to demonstrate one or two contracts valued at $10 million or $8
million. In addition, if a procuring activity requires a
prot[eacute]g[eacute] joint venture partner to demonstrate successful
performance on two contracts valued at $10 million or more, successful
performance by the prot[eacute]g[eacute] firm on those $10 million
contracts shall be rated equivalently to successful performance by the
mentor partner to the joint venture or any other individual offeror on
$20 million contracts.
Where a joint venture is the apparent successful offeror for a
contract set aside or reserved for small business, Sec. 125.8(f)
currently authorizes the procuring activity to execute a contract in
the name of the joint venture entity or a small business partner to the
joint venture. There has been some confusion as to whether a procuring
activity can choose to either execute the contract in the name of the
joint venture entity or to a small business partner to the joint
venture. SBA did not intend such discretion. SBA's joint venture rules
set forth in Sec. 121.103(h)(1) provide that a joint venture may be in
the form of a formal or informal partnership or exist as a separate
limited liability company or other separate legal entity. Where a joint
venture exists as a separate legal entity, SBA intended a contract to
be executed in the name of the joint venture. SBA intended to allow
contracts successfully won by a joint venture to be awarded in the name
of the small business partner only where the joint venture was not a
separate legal entity, but rather an informal arrangement that had a
written joint venture agreement that complied with SBA's regulations.
The proposed rule would clarify SBA's intent.
Section 125.9
Section 125.9 sets forth the requirements relating to SBA's mentor-
prot[eacute]g[eacute] program. Paragraph 125.9(b) specifies rules
pertaining to firms seeking to become mentors and to firms which have
been approved as mentors in the program. The introductory language to
that paragraph provides that any concern that demonstrates a commitment
and the ability to assist small business concerns may act as a mentor,
including other than small businesses. There has been some confusion as
to whether no-profit
[[Page 68284]]
entities may act as mentors. The statutory authority for the mentor-
prot[eacute]g[eacute] program specifies that the term ``mentor'' means
a for-profit business concern, of any size, that has the ability to
assist and commits to assisting a protege to compete for Federal prime
contracts and subcontracts. 15 U.S.C. 657r(d). Although Sec. 125.9(b)
does not specifically state that a mentor must be a for-profit entity,
it requires a mentor to be a ``concern'' and that term is defined in
SBA's regulations as a business entity organized for profit under Sec.
121.105(1)(1). To eliminate any confusion, this rule proposes to
clarify that only for-profit business concerns may be mentors.
Paragraph 125.9(b)(3)(ii)(B) authorizes a mentor to purchase
another business entity that is also an SBA-approved mentor of one or
more prot[eacute]g[eacute] small business concerns where the purchasing
mentor commits to honoring the obligations under the seller's mentor-
prot[eacute]g[eacute] agreement. Paragraph 125.9(b)(3)(i) provides that
a mentor that has more than one prot[eacute]g[eacute] cannot submit
competing offers in response to a solicitation for a specific
procurement through separate joint ventures with different
prot[eacute]g[eacute]s. However, it is possible that the initial or
selling mentor may be a contract holder as a joint venture with a
prot[eacute]g[eacute] on the same multiple award contract where the
acquiring mentor is also a contract holder as a joint venture with its
prot[eacute]g[eacute]. In such a case, after the purchase and the
purchasing mentor committing to fulfill the obligations of the selling
mentor's mentor-prot[eacute]g[eacute] agreement, the purchasing mentor
could then have two different joint ventures as contract holders on the
same multiple award contract. This could allow the mentor to dictate
which joint venture could compete for any specific order under the
multiple award contract. SBA does not believe that the mentor should be
able to choose one prot[eacute]g[eacute] over another to compete for an
order. In order to clarify SBA's intent, the proposed rule would
provide that where a mentor purchases another business entity that is
also an SBA-approved mentor that is a contract holder as a joint
venture with a prot[eacute]g[eacute] small business and the mentor is
also a contract holder with a prot[eacute]g[eacute] small business on
that same multiple award contract, the mentor must exit one of those
joint venture relationships. SBA understands that this could adversely
affect one of the prot[eacute]g[eacute] firms involved in a joint
venture. To alleviate any harm to a prot[eacute]g[eacute], the proposed
rule would also permit the prot[eacute]g[eacute] firm connected to the
joint venture from which the mentor exits to seek to acquire the new
mentor's interest in the underlying multiple award contract or reserve
and work with the contracting officer to determine whether novation of
such contract or reserve to itself only may be appropriate where it is
consistent with 41 U.S.C. 6305 and FAR 42.1204. The
prot[eacute]g[eacute] may also seek to replace the new mentor with
another business in the joint venture such that the revised joint
venture continues to qualify as small. Similarly, the proposed rule
would also add a new Sec. 125.9(d)(1)(iv) which would give a
prot[eacute]g[eacute] firm a right of first refusal to purchase a
mentor's interest in a mentor-prot[eacute]g[eacute] joint venture where
the mentor seeks to sell its interest in the joint venture.
The proposed rule would also redesignate current Sec. 125.9(e)(6)
as Sec. 125.9(c)(4). This provision relates to rules affecting
prot[eacute]g[eacute] firms and SBA believes it should more
appropriately be located in Sec. 125.9(c), which has a heading
entitled ``Proteges.'' The proposed rule would add clarifying language
to redesignated Sec. 125.9(c)(4)(iv) to make clear that a concern
cannot be a prot[eacute]g[eacute] for a total of more than 12 years.
There has been some confusion that if a prot[eacute]g[eacute] elects to
extend its mentor-prot[eacute]g[eacute] relationship with the same
mentor for an additional six-year period that the prot[eacute]g[eacute]
could somehow be able to participate in the mentor-
prot[eacute]g[eacute] program as a prot[eacute]g[eacute] for more than
12 years. SBA believes that the current regulations clearly restrict
such participation to a total of 12 years. Nevertheless, in order to
dispel any possible contrary interpretation, the proposed rule would
specify that a firm could be a prot[eacute]g[eacute] for up to 12
years, whether the concern has a mentor-prot[eacute]g[eacute]
relationship with two different mentors or the same mentor for second
six-year period.
Finally, the proposed rule would add a new Sec. 125.9(c)(5).
Within the provisions relating to mentors in Sec. 125.9(b), the
current regulations authorize a firm to purchase another firm that is
currently an approved mentor in SBA's mentor-prot[eacute]g[eacute]
program and to continue that mentor-prot[eacute]g[eacute] relationship
if the purchasing firm commits to honoring the obligations under the
seller's mentor-prot[eacute]g[eacute] agreement. The regulations do
not, however, currently address any rights a prot[eacute]g[eacute] may
have where such a sale occurs. There are times that the former mentor-
prot[eacute]g[eacute] agreement would not be a good fit with the
purchasing business concern. The purchasing concern may have different
capabilities than the selling concern and may not be the best business
concern to carry out the previous mentor's commitments. Where the
purchasing concern is not able to fulfill the requirements of the
existing mentor-prot[eacute]g[eacute] agreements as written, SBA
believes that the prot[eacute]g[eacute] firm should be able to either
negotiate a revised mentor-prot[eacute]g[eacute] agreement with the
buying concern or terminate the mentor-prot[eacute]g[eacute] agreement
if the prot[eacute]g[eacute] believes the buying concern is not a good
fit for it. This right of the prot[eacute]g[eacute] would be limited to
where the new mentor would not fulfill the former mentor-
prot[eacute]g[eacute] agreement. SBA would have to approve any revised
mentor-prot[eacute]g[eacute] agreement. If the mentor-
prot[eacute]g[eacute] agreement is terminated, the
prot[eacute]g[eacute] firm could seek another business concern to enter
a mentor-prot[eacute]g[eacute] relationship for a duration not to
exceed six years minus the length of the mentor-prot[eacute]g[eacute]
relationship with the former mentor.
Sections 125.12, 126.619, 127.504(h), and 128.401(e)
SBA proposes to relocate size recertification and small business
program status recertification to new Sec. 125.12. Historically, size
and status recertification have been separately addressed in parts 121
(for size), 124 (for 8(a) BD), 126 (for HUBZone), 127 (for WOSB), and
128 (for service-disabled veteran-owned small business or SDVOSB) of
SBA's regulations. Differences in the regulatory text are an unintended
result of placing the size and status recertification rules across
multiple sections of title 13. SBA believes that the rules regarding
recertification should be the same for size and status, across all SBA
small business government contracting and business development
programs. The consolidation of the rules into one section that is
cross-referenced in each small business program regulation would
simplify the text and ensure easier, more consistent interpretation and
application of the regulations. The requirements for recertification
currently contained in Sec. 121.404(g) (for size), Sec. 126.619 (for
HUBZone status), Sec. 127.504(h) (for WOSB/EDWOSB status), and Sec.
128.401(e) (for SDVOSB status) would be amended to reference the
provisions contained in Sec. 125.12. This change would ensure that all
recertification requirements pertaining to size and status would be
identical.
Size and status recertification is a complex area of SBA's
regulations that requires simplification and clarity, especially in the
context of exceptions to recertification and the impact of
recertification. SBA's proposed
[[Page 68285]]
consolidation and relocation of size and status recertification would
make several clarifications to how SBA always intended recertification
to operate, but which may be unclear from the existing regulatory text.
First, a concern that recertifies as other than the size or status
required for an award that it is currently performing may continue to
perform that particular period of performance. Whether it can continue
to receive future orders under an underlying contract or agreement
after it submitted a disqualifying recertification depends upon whether
the underlying contract or agreement is a single award or a multiple
award vehicle. A concern that has recertified as other than small or
other than a qualified program participant still may receive orders or
agreements issued under a single award small business contract or
agreement or unrestricted orders issued under an unrestricted multiple
award contract. In either case, a procuring agency could not count the
order as an award to small business or to the specific type of small
business (i.e., 8(a), WOSB, SDVOSB, or HUBZone). For any multiple award
contract or agreement, the concern would not be eligible for orders set
aside for small business or set aside for a specific type of small
business.
Similarly, for a single award small business contract or any
unrestricted contract, a concern that recertified as other than small
or other than the required small business program status remains
eligible to receive options. The procuring agency cannot count the
option period as an award to a small business or small business program
participant for goaling purposes. Such a concern may recertify as small
or as the required small business program status for a subsequent
option period if it meets the applicable size standard or becomes a
certified small business program participant at that time. Conversely,
for a multiple award small business set-aside or reserve, a concern
that recertified as other than small or other than the required small
business program would be ineligible to receive options.
The proposed rule would also clarify SBA's intent as to the effect
of a disqualifying recertification that occurs after an offer is
submitted but prior to award. For an award set aside or reserved for
small business, a concern must recertify its size and, where
appropriate, status if a merger, sale or acquisition occurs after an
offer is submitted but prior to award. If the concern submits a
disqualifying recertification, it may or may not be eligible for the
award depending on when the sale, merger or acquisition occurred. If
the merger, sale, or acquisition occurs within 180 days of offer
submission and before award, the concern is ineligible for the award.
If the merger, sale, or acquisition occurs after 180 days of its offer
and before award, the concern would continue to be eligible for the
award.
These proposed changes are needed to overcome several recent
decisions from the GAO and SBA's Office of Hearings and Appeals (OHA).
SBA believes that GAO and OHA adopted incorrect interpretations in
these cases, resulting in the misapplication of SBA's size
recertification regulations. SBA provides clarification through this
preamble and proposed changes to the regulatory text to avoid confusion
from courts or administrative venues regarding the proper and
reasonable interpretation of SBA's size recertification rules.
In 2021, OHA issued a decision in Size Appeal of Odyssey Systems
Consulting Group, Ltd., SBA No. SIZ-6135 (2021). Odyssey involved a
small business set-aside task order that was awarded against the
General Services Administration's (GSA) OASIS multiple award contract.
Specifically, the task order was solicited against the small business
pool that was established for the OASIS multiple award contract. The
protested firm had allegedly exceeded the size standard assigned to a
task order solicitation, following an acquisition by another entity.
The issue on appeal was whether SBA had properly dismissed the size
protest as untimely.
SBA filed comments in response to the appeal that distinguished
between size recertifications requested by a contracting officer and
recertifications following a merger, sale, or acquisition, only as that
distinction relates to timeliness for size protests. Over the years,
the distinction was misinterpreted to be broader than SBA intended and
to impact eligibility for future set-aside orders against unrestricted
multiple award contracts. SBA's OHA has issued several subsequent
decisions to the Odyssey case that relate to this issue with the most
recent in January 2024, confirming that if a concern recertifies as
other than small following a merger, sale, or acquisition, the concern
may remain eligible for future set-aside orders under an unrestricted
multiple award contract, but not provide goaling credit. See Size
Appeal of Saalex Corp. d/b/a Saalex Solutions, Inc., SBA No. SIZ-6274
at 11 (2024). This was not SBA's intended interpretation of a size
recertification following a merger, sale, or acquisition, or following
the requirement to recertify size in the fifth year of a long-term
contract.
Any disqualifying size or status recertification precipitated by
Sec. 125.12(a) or Sec. 125.12(b) (except for the 180-day rule
discussed above), renders a concern ineligible for future set-aside or
reserved awards, including awards of set-aside or reserved orders
against pre-existing unrestricted or set-aside multiple award
contracts. Additionally, in support of this interpretation, SBA
proposes to allow requests for size determinations following any size
recertification made in Sec. Sec. 125.12(a) and (b) as well as those
is requested by a contracting officer as set forth in Sec. 125.12(c).
SBA notes that the requirement for size recertification has always
been interpreted by SBA to apply to Blanket Purchase Agreements in
addition to all other small business set-aside or reserved awards,
whether those awards are executed in the form of task orders,
contracts, or any other type of procurement mechanism. Following a 2022
bid protest decision from GAO, SBA explicitly added the word
``agreement'' at 13 CFR 121.404(g)(2)(iii).
Sections 125.13 and 124.4
The proposed rule would add a new Sec. 125.13 explaining the
restrictions on fees for representatives of applicants to and
participants in the 8(a) BD, HUBZone, WOSB, and VetCert programs. These
restrictions are currently contained in Sec. 124.4 for the 8(a) BD
program. The proposed rule takes the language currently contained in
Sec. 124.4 for the 8(a) BD program and adds it to a new Sec. 125.13
that would be applicable to the 8(a) BD, HUBZone, WOSB and VetCert
programs. SBA considered making revisions to part 126, 127 and 128 of
this title adopting the same language contained in Sec. 124.4 for the
WOSB, HUBZone and VetCert programs. Instead, SBA believes that it would
be more expedient to add a new Sec. 125.13 that would apply to all of
SBA's certification programs than it would be to repeat the same
language in each of the specific program area's regulations.
Section 126.103
The proposed rule would revise the definitions for the following
terms: ``Certify'', ``Contracting Officer (CO)'', ``Decertify'',
``Dynamic Small Business Search (DSBS)'', ``Employee'', ``HUBZone Small
Business Concern'', ``Indian Tribal Government'', ``Interested party'',
``Principal office'', ``Qualified Disaster Area'', ``Redesignated
Area'', ``Reside'', and
[[Page 68286]]
``Small business concern (SBC)''. The proposed rule would add
definitions for the terms ``HUBZone Certification Date'', ``HUBZone
Map'', ``HUBZone Resident Employee'', and ``System for Award Management
(SAM)''. The proposed rule would delete the definition for the term
``AA/BD'' because this term no longer appears in Part 126.
The proposed rule would clarify that ``Certification'' and
``Certify'' both mean the process by which SBA determines that a
concern is qualified for the HUBZone program and eligible to be
designated by SBA as a certified HUBZone small business concern in DSBS
(or successor system).
The proposed rule would add a new definition for the term
``Certification''.
The proposed rule would amend the definition of ``Contracting
Officer'' to correct an outdated citation.
The proposed rule would amend the definition of ``decertify'' to
clarify that a firm may voluntarily withdraw from the program without
SBA needing to approve such withdrawal.
The proposed rule would amend the definition of ``Dynamic Small
Business Search (DSBS)'' to reference ``SAM, as defined in this
section'' rather than ``the System for Award Management (SAM)''. SBA
proposes to remove the words ``the Dynamic Small Business Search
(DSBS)'' wherever they appear and add in their place the acronym
``DSBS''.
The proposed rule would amend the definition of ``employee'' to
prevent abuse and strengthen the integrity of the program. The HUBZone
program was intended to provide meaningful work experiences to
individuals who reside in some of the nation's most economically
distressed communities to help them gain valuable skills, on-the-job
experience, and upward mobility. In 2021, SBA HUBZone analysts
identified a pattern in which firms put on their payroll HUBZone
residents who did not perform work for those companies in order to
claim them as employees and appear to qualify for the program. This has
never been permitted under the HUBZone regulations because allowing
this practice would undermine the purpose of the HUBZone program.
In response to the discovery of this practice and to prevent fraud
and abuse in the program, this proposed rule would increase the number
of hours that an individual must work to be considered an employee for
HUBZone purposes to 80 hours per month. Under SBA's current
regulations, an employee is defined as an individual ``employed on a
full-time, part-time, or other basis, so long as that 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 believes that
the minimum 40 hours per month is not sufficient to promote the purpose
of the program. Furthermore, under the current 40 hour per month
requirement, an individual could work 40 hours in one week and be off
the remaining three weeks of the month. If all HUBZone employees did
the same, the ``principal office'' could be empty and closed for the
remaining three weeks of the month. SBA believes that there needs to be
a legitimate presence in the HUBZone, and this includes occupying the
principal office and requiring that office to be open during normal
business hours, and requiring employees to work significantly at that
office. SBA does not believe that a firm that can close its ``principal
office'' three weeks every month meets that legitimate presence, but
rather that there should be a consistent presence at the principal
office. SBA also notes that an 80 hour per month requirement would be
consistent with how the 8(a) BD program treats employees establishing a
bona fide place of business. In that context, Sec. 124.3 defines the
term bona fide place of business for 8(a) construction contracts to
mean a location where an 8(a) BD Participant regularly maintains an
office within the appropriate geographical boundary which employs at
least one individual who works at least 20 hours per week at that
location. The 80 hours per month requirement in this proposed rule
would be in line with that 20 hours per week requirement. SBA requests
comments on whether 80 hours per month is an appropriate threshold and
whether there should be a minimum number of hours per week. SBA also
seeks comments on whether there should be an exception to the 80 hours
per month threshold for a limited number (or percentage) of individuals
where such individuals are working at least 40 hours per month.
In addition, the proposed rule would clarify the existing
requirement that an individual must be performing work for the concern
in order to be considered an employee for HUBZone purposes. This
proposed rule would provide that in order to ensure that an individual
is performing work for the business concern, SBA may request a
combination of job descriptions, resumes, detailed timesheets, sample
work product and other relevant documentation.
The proposed rule also would delete the provision providing that
individuals who receive in-kind compensation may be considered
employees. The current regulations provide that someone receiving in-
kind compensation may be considered an employee, where the compensation
is commensurate with the work performed by the individual and provides
a demonstrable financial value to the individual, and where the
arrangement is compliant with all relevant federal and state laws, such
as federal tax laws. SBA is proposing to eliminate this provision
because SBA has found that little to no firms are able to meet these
requirements. The process of requesting and reviewing documentation
that is ultimately insufficient has only served to slow down
application processing.
Finally, SBA is requesting comments on when reservists should be
considered employees for HUBZone purposes. When reservists are called
up for active duty, companies may be required to hold their positions
for them, which may mean those individuals appear on the company's
payroll with zero hours listed. SBA requests feedback on whether there
are scenarios when such individuals should be treated as employees for
HUBZone purposes.
The proposed rule would provide that individuals who are obtained
``from a concern primarily engaged in leasing employees'' (emphasis
added) are generally considered employees. The current regulations
provide that individuals obtained from a ``leasing concern'' are
generally considered employees, however it has been SBA's policy for a
number of years that leased employees will only be considered employees
for HUBZone purposes where they are leased from a concern that is
primarily engaged in leasing employees. This policy is consistent with
SBA's size regulations at Sec. 121.103(b)(4), which provide:
``Business concerns which lease employees from concerns primarily
engaged in leasing employees to other businesses . . . are not
affiliated with the leasing company . . . solely on the basis of a
leasing agreement.''
The proposed rule would add a new definition for the term ``HUBZone
Certification Date'' providing that this is the date on which SBA
approves a concern's application for HUBZone certification and is the
date specified in the concern's certification letter. The proposed
definition would provide that if a concern leaves the HUBZone program
and reapplies for certification, their HUBZone certification date is
the date SBA approves the concern's most recent application.
The proposed rule would add a new definition for the term ``HUBZone
Map'' providing that the HUBZone Map is a
[[Page 68287]]
publicly accessible online tool that depicts HUBZones.
The proposed rule would add a new definition for the term ``HUBZone
Resident Employee'' providing that this means an individual who meets
the definition of an employee and who SBA has determined resides in a
HUBZone.''
The proposed rule would amend the definition of the term ``HUBZone
small business concern'' by deleting the last sentence, which provides:
``A concern that was a certified HUBZone small business concern as of
December 12, 2017, and that had its principal office located in a
Redesignated Area set to expire prior to January 1, 2020, shall remain
a certified HUBZone small business concern until June 30, 2023, so long
as all other HUBZone eligibility requirements are met.'' This is a
reference to the previous map freeze, and since the map freeze ended on
June 30, 2023, this language is no longer a necessary.
The proposed rule would amend the definition of ``Indian Tribal
Government'' to make it consistent with the definition of the term
``Indian tribe'' in the 8(a) BD Program regulations at Sec. 124.3 of
this chapter. Specifically, the proposed rule revises the definition to
explicitly allow participation by State-recognized tribes.
The proposed rule would amend the definition of ``interested
party'' to prevent non-HUBZone firms from filing a HUBZone protest on a
HUBZone set-aside procurement. Currently, an interested party is
defined as any concern that submits an offer for a specific HUBZone
set-aside contract or order, or any concern that submitted an offer in
full and open competition and its opportunity for award will be
affected by a price evaluation preference given a qualified HUBZone
small business concern. In the context of a HUBZone set-aside contract,
SBA does not believe that a firm that is not itself a qualified HUBZone
small business concern should be able to submit a protest. In other
words, a large business or a small business which is not a qualified
HUBZone small business should not be able to protest the HUBZone status
of the apparent successful offeror on a HUBZone set aside contract
merely because it submitted an offer for that contract or order. The
large business or small business which is not a qualified HUBZone small
business is not harmed by an award to the apparent successful offeror
since it has no right itself to that award. It is ineligible for that
award. Only firms that are capable of winning the HUBZone set-aside
contract or order should be able to protest the HUBZone status of an
apparent successful offeror. SBA has seen situations where a non-
eligible firm has submitted an offer and then protested the HUBZone
status of the apparent successful offeror. SBA believes this is not the
intent of the protest process and causes unnecessary delays. If such a
``protest'' raises a genuine concern, SBA can always adopt it as an
SBA-initiated protest. However, often this is a delay tactic used by an
incumbent contractor protesting the apparent successful offeror in
order to continue to perform the underlying work while the protest is
resolved. This change would not affect the ability of a large business
to protest the HUBZone status of an apparent successful offeror where
the apparent successful offeror received the benefit of the HUBZone
price evaluation preference in an unrestricted competition and the
large business submitted an offer for that contract. In such a case, a
large business could otherwise be eligible for the award of the
contract. SBA is proposing a similar change to the WOSB regulations
through a separate rulemaking.
The proposed rule would amend the definition of ``principal
office'' to make several changes and clarifications. First, the
proposed rule would require firms to provide a lease that commenced at
least 30 days prior to the date of SBA's review and ends at least 60
days after the date of SBA's review. Second, the proposed rule would
clarify the requirement that a firm must conduct business from the
location identified as the firm's principal office and may be required
to demonstrate that it is doing so by providing documentation such as
photos and/or providing a live or virtual walk-through of the space.
The proposed rule would also provide that for shared working spaces (or
``coworking'' spaces), firms will need to provide evidence that the
firm has dedicated space within any shared location, and that such
dedicated space contains sufficient work surface area, furniture, and
equipment to accommodate the number of employees claimed to work from
this location. The proposed rule would specify that a virtual office
(or other location where a firm only receives mail and/or occasionally
performs business) does not qualify as a principal office. Third, the
proposed rule would add a provision stating that if 100% of a firm's
employees telework (i.e., work the majority of the time from their
homes), then at least 51% of its employees must work from HUBZone
locations and the firm's principal office would be the location where
its records are kept. One of the purposes of the principal office
requirement is to provide an infusion of capital into the HUBZone area
with employees utilizing the services of other business concerns
located near the principal office is situated. Where all of a firm's
employees telework, that intent cannot be fulfilled. However, SBA
understands that in today's business environment, firms are utilizing
telework employees more and more. With that understanding, SBA proposes
to allow 100% of a firm's employees to telework, but where that occurs
would require the firm to have 51% of its employees reside in a HUBZone
instead of the normal 35%. SBA believes that such an additional
requirement would make up for the lack of additional capital infusion
caused by not having a traditional office located in a HUBZone. In
addition, SBA seeks comments on whether SBA could allow teleworking
employees who reside and work within the same census tract as the
firm's claimed principal office (or an adjacent census tract) to be
counted as working from the principal office. If permitted, SBA
believes this should be limited to firms with commercial leases and/or
firms with only a single office location but seeks comments on this and
other changes SBA should consider in response to the shift to telework.
The proposed rule would revise the definition of ``Qualified
Disaster Area'' to provide that a census tract or non-metropolitan
county shall be considered to be a Qualified Disaster Area for the
period of time starting on the date on which the President declared the
major disaster for the area in which the census tract or non-
metropolitan county, as applicable, is located (or in the case of a
catastrophic incident, on the date on which the catastrophic incident
occurred in the area in which the census tract or non-metropolitan
county, as applicable, is located) and ending on the date when SBA next
updates the HUBZone Map in accordance with Sec. 126.104(a). This is
SBA's current interpretation of the statutory definition of ``Qualified
Disaster Area'' and the proposed rule would only make that
interpretation clearer.
The proposed rule would amend the definition of ``Redesignated
Area'' to delete the last sentence, which currently reads: ``However,
an area that was a redesignated area on or after December 12, 2017,
shall remain a redesignated area until June 30, 2023.'' This is a
reference to the previous map freeze, and since the map freeze ended on
June 30, 2023, this language is no longer necessary.
The proposed rule would revise the definition of ``reside'' to
provide that to
[[Page 68288]]
determine residence, SBA will first look to an individual's address
identified on his or her driver's license ``or other government-issued
identification.'' The current regulation provides that SBA will rely on
an individual's voter registration card. However, voter registration
cards generally do not specify the date that they were issued and thus
SBA cannot rely on them to determine how long an individual has resided
at a location. In addition, SBA is proposing to change the requirement
for an individual to have lived at a location for 180 calendar days
immediately prior to the relevant date of review. The proposed rule
would decrease this to 90 calendar days because it would allow firms to
enter the program more quickly where they have employees who have
resided in HUBZones for less than 180 days.
The proposed rule would amend the definition of ``Small business
concern (SBC)'' to make it consistent with the definition contained in
Sec. 126.200(b)(1). In order to be eligible for the HUBZone program,
SBA previously required that a concern qualify as small for the size
standard corresponding to its primary industry. That requirement was
contained both in Sec. 126.103 and Sec. 126.200(b)(1). SBA amended
Sec. 126.200(b)(1) to require that a concern must qualify as small
under the size standard corresponding to any NAICS code listed in its
profile in the System for Award Management. 88 FR 26164, 26212 (Apr.
27, 2023). SBA inadvertently did not make a corresponding change to the
definition of small business concern contained in Sec. 126.103. The
proposed rule would adjust Sec. 126.103 to be consistent with Sec.
126.200(b)(1).
The proposed rule would define ``System for Award Management
(SAM)'' as having the same meaning as that which is in FAR 2.101. SBA
also proposes to remove the words ``System for Award Management
(<a href="http://SAM.gov">SAM.gov</a>)'' wherever they appear in this part and add in their place
the acronym ``SAM''.
Finally, SBA proposes to remove the word ``SBC'' wherever it
appears in this part and add in its place the phrase ``small business
concern''.
Section 126.104
The proposed rule would make several amendments to Sec. 126.104,
which explains how Governor-designated covered areas become designated.
First, the proposed rule would insert language providing that a State
Governor may annually submit a petition to the SBA Office of the
HUBZone Program requesting that certain covered areas be designated as
Governor-designated covered areas. This is not a change from current
policy, but rather a restatement of that policy in a more clear and
direct way. Second, the proposed rule also would clarify that a
petition need not seek SBA approval for those covered areas previously
designated as Governor-designated covered areas. Third, the proposed
rule would provide that a Governor-designated covered area will be
treated as a HUBZone until SBA next updates the HUBZone Map in
accordance with Sec. 126.104(a), or one year after the petition is
approved, whichever is later. Fourth, the proposed rule would authorize
the Associate Administrator for Government Contracting and Business
Development or designee, instead of the SBA Administrator, to approve
specific covered areas to be considered as Governor-designated covered
areas. SBA believes that this will reduce the amount of time to approve
a petition, which will allow small businesses located in such areas the
opportunity to participate more expeditiously in the HUBZone Program.
Finally, the proposed rule would remove the term ``urbanized area''
in the definition of ``covered area'' in Sec. 126.104(d)(1). The
HUBZone statute and the current regulations provide that only certain
areas are eligible to become Governor-Designated Covered Areas. Such
areas are referred to as ``covered areas.'' A ``covered area'' is
defined in the statute and regulations as ``an area in a State . . .
(i) [t]hat is located outside of an urbanized area, as determined by
the Bureau of the Census; (ii) [w]ith a population of not more than
50,000; and (iii) [f]or which the average unemployment rate is not less
than 120 percent of the average unemployment rate of the United States
or of the State in which the covered area is located, whichever is
less, based on the most recent data available from the American
Community Survey conducted by the Bureau of the Census.'' 15 U.S.C.
657a(b)(3)(F)(v)(I); 13 CFR 126.104(d)(1). Thus, the statute and
implementing regulations provide that ``covered areas'' must be located
outside of ``urbanized areas.'' At the time this provision was
implemented, the Census Bureau defined ``urbanized areas'' as ``urban
areas'' with populations of 50,000 or more. In addition, the Census
Bureau defined ``urban clusters'' as ``urban areas'' with populations
of more than 2,500 and less than 50,000. Given these definitions, SBA
interpreted the statute to mean that areas located in ``urban
clusters'' could be eligible for Governor's designation if they also
met the unemployment requirement. In addition, SBA interpreted ``area''
to mean either a census tract or a county.
Following the 2020 census, the Census Bureau changed the definition
of ``urban area'' in several ways, including by removing the
distinction between ``urbanized areas'' and ``urban clusters'' and
discontinuing the use of those terms. As a result, areas that
previously were known as urbanized areas or urban clusters are both now
simply designated as urban areas. In a Federal Register notice
published on December 29, 2022, the Census Bureau noted: ``Agencies
using the [urban area] classification for their programs are
responsible for ensuring that the classification is appropriate for
their use.'' To be consistent with Congressional intent, this proposed
rule would amend the definition of ``covered area'' to remove the term
``urbanized area'' and instead provide that the term ``covered area''
means a census tract or a county ``that is located outside of an urban
area, as determined by the Bureau of the Census, with a population of
not more than 50,000.''
Section 126.105
The proposed rule would add a new Sec. 126.105, explaining when
the HUBZone Map will be updated in accordance with statutory
requirements. Proposed Sec. 126.105 would provide that Qualified
Census Tracts and Qualified Non-Metropolitan Counties will be updated
every 5 years. This is consistent with the statutory requirement for
SBA to update these designations on a 5-year cycle. The proposed rule
would provide that Redesignated Areas will be added to the HUBZone Map
when areas cease to be designated as Qualified Census Tracts or
Qualified Non-Metropolitan Counties, in accordance with the 5-year
cycle, and will expire after 3 years. The proposed rule would provide
that Qualified Base Closure Areas will be added to the HUBZone Map
after SBA receives information that the Department of Defense has
created a new base closure area and will expire after 8 years. The
proposed rule would provide that Qualified Disaster Areas generally
will be added to the HUBZone Map on a monthly basis, based on data
received by SBA from the Federal Emergency Management Agency (FEMA),
and generally will expire on the effective date of the 5-year HUBZone
Map update following the declaration. Finally, the proposed rule would
provide that Governor-designated covered areas will be added to the
HUBZone Map after SBA approves a petition in accordance with Sec.
126.104 and will expire on the effective date of the 5-year HUBZone Map
update
[[Page 68289]]
following the approval, or one year after the petition is approved,
whichever is later.
Sections 126.200(b)(1), 127.200(e), and 128.204(a)
Section 126.200 sets forth the requirements a concern must meet to
be eligible as a certified HUBZone small business concern. Pursuant to
Sec. 126.200(b)(1), a concern, together with its affiliates, must
qualify as a small business concern under the size standard
corresponding to any NAICS code listed in its profile in SAM. This
paragraph does not, however, explain how SBA will determine whether a
business concern qualifies as small. Some have questioned whether SBA
performs a formal size determination with respect to each application.
That is not the case. In determining whether a concern seeking to be a
certified HUBZone small business qualifies as small under the size
standard corresponding to a specific NAICS code, SBA will accept the
concern's size representation in SAM, unless there is evidence to the
contrary. SBA will request a formal size determination pursuant to
Sec. 121.1001(b)(8) of this chapter where any information it possesses
calls into question the concern's SAM size representation. The proposed
rule would clarify SBA's intent in this regard. The proposed rule would
also provide the same guidance for WOSB/EDWOSB certifications by adding
a new Sec. 127.200(e) and to VOSB/SDVOSB certifications by revising
Sec. 128.204(a).
Section 126.200
The proposed rule would revise Sec. 126.200(c)(1) to incorporate
policy updates to the ``long-term investment'' provision, which was
implemented through SBA's final rule published on November 26, 2019 (84
FR 65222). This provision incentivizes firms to make long-term
investments in qualifying HUBZones by allowing them to maintain their
principal office for up to 10 years and continue to be considered to
meet the principal office requirement even if the area loses its
HUBZone designation.
First, the proposed rule would provide that the 10-year ``clock''
starts to run on the firm's HUBZone certification date (if the
investment was made prior to the firm's certification) or on the firm's
recertification date that follows the execution of the lease or deed
(if the investment was made after the firm's certification). For
example, if a firm was certified on May 1, 2020, and purchased a
building on December 1, 2020, the 10-year clock would start when the
firm recertifies prior to May 1, 2023.
Second, the proposed rule would clarify SBA's current policy that a
firm is not eligible to take advantage of the long-term investment
provision if its principal office is in a Redesignated Area or a
Qualified Disaster Area at the time of the investment. Redesignated
Areas and Qualified Disaster Areas are areas that have already lost
their designation as Qualified Census Tracts or Qualified Non-
Metropolitan Counties because the income, poverty, and/or unemployment
levels of those tracts/counties have improved beyond the statutory
levels necessary to qualify as HUBZones. SBA does not believe it would
be in line with the purpose of the HUBZone program--to encourage
investment in low-income and high-unemployment areas--to encourage
firms to invest in areas that have already surpassed the HUBZone
thresholds for these socioeconomic indicators. SBA notes that if a
firm's principal office is in a location that falls within both a
qualifying area (i.e., Qualified Census Tract, Qualified Non-
Metropolitan County, Governor-Designated Covered Area, Qualified Base
Closure Area) and a non-qualifying area (e.g., Redesignated Area that
was previously a Qualified Non-Metropolitan County) at the time of the
investment, the firm would be eligible for this provision. In addition,
the proposed rule would provide that this provision would not apply to
an investment made within 180 days of the expiration of an area's
designation as a Qualified Census Tract, Qualified Non-Metropolitan
County, Governor-Designated Covered Area, or Qualified Base Closure
Area.
Third, the proposed rule would provide that a firm is not eligible
for this provision if its principal office is owner-occupied (e.g., a
location that also serves as a residence). In such a case, SBA does not
believe that the investment in the HUBZone was primarily to develop a
certified HUBZone small business.
The proposed rule would revise Sec. 126.200(d)(1) to clarify that
if a firm has one employee, that employee must reside in a HUBZone for
the firm to be eligible for HUBZone certification. That has always been
SBA's interpretation of the HUBZone requirements, and the proposed rule
merely makes that explicit.
The proposed rule would revise Sec. 126.200(d)(3), which addresses
``Legacy HUBZone Employees'' to: clarify the amount of time an
individual must reside in a HUBZone in order to qualify as a Legacy
HUBZone Employee; specify that residence in a Redesignated Area does
not qualify someone for this provision; and to implement limits on the
number of Legacy HUBZone Employees a firm may have.
First, the proposed rule would provide that a Legacy HUBZone
Employee is an individual who: (a) resided in a HUBZone (other than a
Redesignated Area) for at least 90 days preceding, and 180 days
following, the concern's HUBZone certification date or most recent
recertification date, and (b) remains an employee at the time of the
concern's current recertification date.
Second, the proposed rule would clarify that an individual cannot
reside in a Redesignated Area and qualify as a Legacy HUBZone Employee.
This does not mean to imply that an individual who resided in a HUBZone
when a firm was first certified as a HUBZone eligible firm and
continued to live at that same location while the area transitioned to
a Redesignated Area cannot be considered a Legacy HUBZone Employee if
that individual moves to a non-HUBZone area. The proposed rule intends
to clarify that an individual who qualifies as a HUBZone employee for
the first time while living in a Redesignated Area cannot later be
deemed a Legacy HUBZone Employee.
Third, the proposed rule would provide that a certified HUBZone
small business may only have one legacy HUBZone employee at a given
time. SBA supports the growth of individual HUBZone employees and
allowing such employees to improve their personal residential
situation. However, SBA is concerned that the Legacy HUBZone Employee
concept could be abused. Without a limit on the number of Legacy
HUBZone Employees permitted by SBA, a firm could potentially move all
individuals into a HUBZone for a one-year period and qualify all of
those individuals as Legacy HUBZone Employees without those individuals
ever intending to live long-term in the HUBZone area. SBA seeks
comments on what the limit on Legacy HUBZone Employees should be and
whether there should be any other limitations. Specifically, SBA
requests comments on the following: whether SBA should limit the
duration of Legacy HUBZone employee status to a certain number of
years, and if so, how many years would be appropriate; whether
individuals who were students when they resided in a HUBZone should be
eligible for treatment as Legacy HUBZone Employees; whether Legacy
Employees should be limited to full-time employees only; and whether an
owner of the concern should be able to qualify as a Legacy HUBZone
Employee. SBA is concerned that not imposing some
[[Page 68290]]
restrictions on Legacy Employees could open the provision to abuse. The
purpose of this provision is to allow HUBZone firms to retain employees
who have managed to improve their position and move out of a HUBZone.
This purpose is not relevant to many owners of HUBZones because they
are not at risk of being fired for moving out of a HUBZone.
The proposed rule would revise Sec. 126.200(e), which addresses
the ``attempt to maintain'' requirement. The proposed rule would
clarify when HUBZone firms must certify that they will attempt to
maintain compliance with the 35% HUBZone residency requirement during
the performance of a HUBZone contract. The rule would provide that
firms must make this certification when they apply for HUBZone
certification, at the time they complete their recertification, and at
the time of offer for any HUBZone contract.
Similarly, the proposed rule would amend Sec. 126.200(f) to
provide that HUBZone firms must certify that they will comply with the
applicable limitations on subcontracting requirements when they apply
for HUBZone certification, and at the time they complete their annual
recertification. Certified HUBZone small business concerns also agree
to comply with the limitations on subcontracting requirements under FAR
clause 52.219-14, Limitations on Subcontracting, by submitting an
offeror for and executing a HUBZone contract.
Finally, the proposed rule would revise Sec. 126.200(g) to clarify
that neither a concern nor any of its owners may have an active
exclusion in SAM at the time of application or at any time while the
concern is HUBZone-certified.
Section 126.201
The proposed rule would amend Sec. 126.201 by rephrasing the
language explaining the ownership requirements for HUBZone small
business concerns. The current regulations provide: ``An owner of a SBC
seeking HUBZone certification or a qualified HUBZone SBC is a person
who owns any legal or equitable interest in such SBC.'' The proposed
rule would rephrase this sentence to read: ``For purposes of qualifying
for HUBZone certification, SBA considers any person who owns any legal
or equitable interest in a concern to be an owner of the concern.''
This change is intended only to make this section clearer and easier to
read, without changing the meaning or intent of the provision.
Section 126.204
The proposed rule would revise Sec. 126.204(a) to specify that a
HUBZone firm can have affiliates, so long as the firm and its
affiliates in the aggregate qualify as small in at least one NAICS code
listed in the HUBZone firm's SAM profile. This clarification is
necessary because the current regulation says only that the firm and
its affiliates in the aggregate must be small--without specifying that
the firms, together, must be small in at least one NAICS code listed in
the HUBZone-certified firm's SAM profile.
The proposed rule would amend Sec. 126.204(c) to clarify that SBA
reviews the ``totality of circumstances'' when determining whether to
aggregate the employees of affiliated companies for purposes of
calculating a firm's compliance with the 35% HUBZone residency and
principal office requirements. In addition, the proposed rule would add
a new paragraph (c)(4) clarifying SBA's current policy that if firms
are not considered affiliated for size purposes, their employees
generally will not be aggregated for HUBZone purposes.
Sections 124.203, 126.302, 126.303, 127.301, 127.302, 128.301
Sections 126.302 and 126.303 provide general guidance on applying
to SBA to be certified as a HUBZone small business concern. Section
124.203 provides similar guidance for applying to the 8(a) BD program;
sections 127.301 and 127.302 do so for the WOSB program and section
128.301 does the same for applying to the VetCert program. The current
regulations for the 8(a) BD, HUBZone and WOSB programs require that an
application must be electronically signed by a specified individual (by
each individual claiming social and economic disadvantage status for
the 8(a) BD program and by an officer of the concern who is authorized
to represent the concern for the HUBZone and WOSB programs). This
proposed rule would change that language to provide instead that the
individual(s) upon whom eligibility is based take responsibility for
the accuracy of all information submitted on behalf of the applicant.
The proposed rule would also add similar language to Sec. 128.301 for
the VetCert program.
Section 126.304(e)
The proposed rule would amend Sec. 126.304(e) to clarify the
records that HUBZone participants must maintain to ensure continued
eligibility. Specifically, the proposed rule would provide that HUBZone
small business concerns must retain documentation related to any
``Legacy HUBZone employees'' in order to demonstrate that individuals
being claimed as Legacy HUBZone employees meet the requirements (i.e.,
180 days of HUBZone residence after the firm's certification or
recertification date, and uninterrupted employment).
Section 126.306(h)
The proposed rule would amend Sec. 126.306 by adding a new
paragraph (h) to make clear that the D/HUB's decision to approve or
deny an application to the HUBZone program is the final agency
decision. This has been SBA's long-standing policy. There is no
reconsideration or appeal process because declined applicants are
permitted to reapply to the HUBZone program 90 days after receiving the
decline decision.
Sections 126.309, 126.803, 127.305, and 128.305
The proposed rule would revise Sec. 126.309, which describes when
a declined or decertified firm can re-apply for HUBZone certification.
The proposed rule would keep the 90-day wait period for firms whose
application has been declined, but would eliminate that wait period for
firms that have been decertified. When the HUBZone regulations were
first implemented, declined or decertified firms were required to wait
one year to reapply to the HUBZone program. At that time, SBA chose the
one-year period to give small businesses a reasonable period of time
within which to make the changes or modifications that are necessary to
enable them to qualify for the HUBZone program, and at the same time to
allow SBA to administer the HUBZone program effectively with available
resources. However, SBA found that in many cases, a small business only
had to hire a few additional HUBZone residents to come back into
compliance. SBA also found that after the 2010 census, many small
businesses had principal offices in HUBZone areas that were expiring
and some such businesses may be planning to move to newly-designated
HUBZone areas. SBA found that it would not serve the purposes of the
program to make such small businesses wait one year to reapply. Thus,
in 2011, SBA reduced the wait period to ninety (90) calendar days, to
encourage businesses to move into newly designated HUBZones and hire
HUBZone residents, which are the two purposes of the statute. SBA also
believed that it would create an incentive for small businesses that no
longer meet the HUBZone program
[[Page 68291]]
requirements to voluntarily decertify and then seek eligibility when
they come back into compliance.
At the present time, the HUBZone portfolio is once again being
significantly impacted by changes to the HUBZone Map caused by the
decennial census. When the HUBZone Map was updated on July 1, 2023,
many Redesignated Areas lost their HUBZone status, and thus many small
businesses with principal offices in those Redesignated Areas have
faced (or are facing) the decision to either relocate their principal
office or withdraw from the program. Given how many small businesses
are being affected by the expiration of the Redesignated Areas--whether
as a result of its principal office no longer being located in a
HUBZone or employees no longer residing in a HUBZone--SBA believes it
is best to eliminate the waiting period that currently applies after
decertification.
This rule proposes a corresponding change to Sec. 126.803, to
provide that a firm that is decertified for any reason (including based
on a protest or due to voluntarily withdrawing) can reapply immediately
after the decertification is effective.
In order to promote consistency across SBA's programs, the proposed
rule would make similar changes in Sec. 127.305 for the WOSB program
and in Sec. 128.305 for the VetCert program to eliminate the 90-day
wait time to reapply for certification in those programs after it has
been decertified.
Section 126.401
The proposed rule would revise Sec. 126.401, which explains what
program examinations are. The proposed rule would provide that a
program examination is an investigation by SBA officials, which
verifies the accuracy of any certification made or information provided
as part of the HUBZone application process, as part of the
recertification process, or in connection with a HUBZone contract. The
current regulation does not specify that program examinations may be
conducted to verify the accuracy of certifications made in connection
with HUBZone contracts. This proposed change would be necessary if SBA
implemented the proposed changes requiring a HUBZone small business
concern to meet the 35% HUBZone residency and principal office
requirements on the date it submits an offer for a HUBZone contract. In
light of this proposed requirement, proposed Sec. 126.401 would
provide that during a program examination, SBA ``may verify that the
concern met the program's eligibility requirements at the time of its
application for certification, at the time of any recertification, or
at the time of its offer for a HUBZone contract.''
Section 126.403
The proposed rule would amend Sec. 126.403(a) to clarify that a
program examination may include a site visit. The current regulations
describing program examinations provide that ``SBA may conduct a
program examination, or parts of an examination, at one or more of the
concern's offices.'' It is true that SBA may conduct a site visit to
one or more of a HUBZone concern's offices as part of a program
examination. However, site visits are just one potential facet of a
program examination and not all program examinations include site
visits.
Section 126.404
The proposed rule would amend Sec. 126.404 to clarify that where a
firm is found ineligible pursuant to a program examination, SBA will
decertify the firm by removing the firm's certification in DSBS for a
period of 30 calendar days, during which time the firm is ineligible to
submit offers for or be awarded HUBZone contracts. SBA may also
identify such decertification actions on its website to ensure that
relevant contracting officers are aware of any such decertification.
Decertification in this instance is a statutory requirement under
section 31(d)(6) of the Small Business Act. Prior to this rule, SBA has
not formally removed firms' HUBZone status in DSBS during this 30-day
period. However, SBA has determined that in order for the statutory
requirement to be enforceable, SBA must remove a firm's certification
in DSBS during the 30-day suspension period. In addition, the proposed
rule would provide that the firm must provide written notice of the
concern's ineligibility to the contracting officer for any pending
HUBZone award. During this 30-day period, the firm may submit
documentation showing that it was in fact eligible on its
recertification date. If the concern failed to submit documentation
sufficient to demonstrate its eligibility by the last day of the 30-day
period, the concern would remain decertified. If SBA overturned its
determination, SBA would reverse the firm's decertification and
reinstate its certification.
Sections 126.500 and 126.601
The proposed rule would revise Sec. Sec. 126.500 and 126.601 to
eliminate the one-year certification rule and instead require firms to
be eligible on the date of offer for HUBZone contracts and only
recertify once every three years. Currently, the HUBZone rules require
firms to annually recertify their HUBZone status to SBA. Under the
current rules, once a firm annually recertifies its HUBZone status, it
generally can submit offers for HUBZone contracts for one year without
being required to meet the 35% HUBZone residency and principal office
requirements at the time of offer. Thus, SBA's current regulations set
one point in time--the date of certification or the certification
anniversary date--as the time at which a firm must be eligible for a
HUBZone contract. Under the current regulations, if a firm is eligible
as of its certification or certification anniversary date, it remains
eligible for HUBZone contracts for a period of one year from that date
regardless of whether the firm falls out of compliance with the HUBZone
eligibility requirements throughout the year. SBA believes that the
current process can permit abuses that were not intended for the
program. A firm could hire one or more individuals who reside in a
HUBZone for four weeks prior to its application for certification and
immediately dismiss those individuals from its employ after becoming
certified and be eligible throughout the year for HUBZone contracts.
Similarly, a firm could again re-hire one or more individuals who
reside in a HUBZone for four weeks prior to its certification
anniversary date and immediately release those individuals after the
certification anniversary date and be eligible for additional HUBZone
contracts for another year. SBA believes that that was not the intent
of the program. Thus, proposed Sec. 126.601(a) would require a firm to
be both a certified HUBZone small business and one that continues to be
eligible as of the date of its offer for a HUBZone contract.
In light of this change, the rule also proposes to amend Sec.
126.500 to require firms to recertify to SBA every three years, rather
than annually. SBA believes annual recertification is not necessary,
and would impose undue burdens on HUBZone small businesses, if firms
are also required to be eligible at the time they submit offers on any
HUBZone contracts. Moreover, SBA believes that uniformity among its
contracting programs is an important goal, and SBA's WOSB and VetCert
programs require firms to be eligible at the time of offer for
contracts and to recertify to SBA every three years. Thus, returning to
triennial recertification, combined with the change to require HUBZone
firms to be eligible on the date of offer for HUBZone contracts, would
bring the HUBZone program
[[Page 68292]]
more in line with SBA's other socioeconomic contracting programs.
The proposed rule would clarify that an offeror on a competitively
awarded HUBZone contract need not be eligible on the date of award of
such contract. Prior to 2020, SBA's regulations required eligibility
for a competitively awarded HUBZone contract both at time of offer and
time of award. That caused problems with the procurement process where
a HUBZone employee that was counted on for HUBZone eligibility left the
firm in the time between the firm's offer and the date of award. The
firm could be in the process of hiring a new employee from a HUBZone
but if it had not done so by the date of award the firm would be
ineligible for award. SBA continues to believe that determining such a
firm ineligible for award is inappropriate. There must be certainty to
eligibility when a firm submits an offer. The proposed rule, however,
would provide that certainty. As long as a firm is eligible as of the
date of its offer for a competitively awarded HUBZone contract, it will
be eligible for award. This is similar to the size requirement where a
firm must also be small on the date of its offer but may grow to be
other than small between the date of its offer and the date of award.
However, the proposed rule would specify that there is an exception to
this rule for HUBZone sole source awards, for which a firm must be
HUBZone-certified at the time of award. SBA believes that sole source
procurements require stricter eligibility rules. In order to be
eligible for a sole source HUBZone award, a procuring activity must
conclude that the firm receiving the award is the only certified
HUBZone small business concern that is capable of performing the
contract. That by itself is very restrictive, and SBA believes that
eligibility should also be restrictive. SBA does not believe that
Congress intended to allow a firm that no longer qualifies as a HUBZone
small business concern prior to award to be elevated to a status as the
only certified HUBZone small business concern that is capable of
performing the contract. In addition, this change would align HUBZone
sole source awards with how SBA treats sole source awards in the 8(a)
BD program.
The proposed rule would clarify that an offeror under a competitive
HUBZone contract must be identified as HUBZone-certified in DSBS when
it submits its initial offer. SBA proposes to add this to clarify that
for the HUBZone program, unlike the WOSB Program, a firm cannot submit
an offer on HUBZone contract while its application is still pending.
That is, a concern is only eligible to submit offers for HUBZone
contracts after SBA has formally approved its application and updated
DSBS (or successor system) showing that the concern is a certified
HUBZone small business concern. In addition, the proposed rule would
clarify that for a multiple award contract, where concerns are not
required to submit price as part of the offer for the contract, an
offeror must be identified as a certified HUBZone small business
concern in DSBS (or successor system) and meet the HUBZone requirements
in Sec. 126.200 on the date of initial offer, which may not include
price. This is consistent with SBA's size regulations at Sec.
121.404(a)(1)(iv).
SBA has also found that the HUBZone Program goals are not
sufficiently fulfilled by how the ``attempt to maintain'' requirement
is currently being implemented. Under the current rules, a HUBZone firm
can have less than 35% HUBZone residents at the time of its annual
recertification if the firm is performing a HUBZone contract. This
means that a firm being awarded HUBZone contracts in essence never has
to demonstrate that it is employing at least 35% HUBZone residents. SBA
believes this is contrary to the purpose of the HUBZone Program. SBA
believes it would make more sense to give firms a specific ``grace
period'' after they are awarded a HUBZone contract during which time
they can take the necessary steps to hire enough HUBZone residents to
get back up to 35% HUBZone residency. If a firm's recertification falls
within this grace period, then such firm's recertification would
require the firm to represent that it is ``attempting to maintain''
compliance with the 35% HUBZone residency requirement. After the grace
period, then such firm would have to be back up to 35% HUBZone
residency at the time of any recertification. This rule proposes that
the grace period be 12 months following the award of a HUBZone
contract. To implement this proposed change, proposed Sec.
126.500(a)(1)(i) would provide that, in order to recertify, a HUBZone
firm that did not receive a HUBZone contract during the year preceding
its recertification date must represent that, at the time of its
recertification, at least 35% of its employees reside in HUBZones and
the concern's principal office is located in a HUBZone. Proposed Sec.
126.500(a)(1)(ii), on the other hand, would provide that a HUBZone firm
that was awarded a HUBZone contract during the year preceding its
recertification date would have to represent that, at the time of its
recertification, it is attempting to maintain compliance with the 35%
HUBZone residency requirement and the concern's principal office is
located in a HUBZone.
Proposed Sec. 126.500(a)(2) would provide that a concern's
recertification must be submitted within 90 calendar days before the
triennial anniversary of its HUBZone certification date. This 90-day
window mirrors the VetCert regulations and thus creates additional
uniformity among SBA's programs.
Proposed Sec. 126.500(a)(3) would provide that a firm that fails
to recertify will be proposed for decertification. However, SBA is
seeking comments on whether such firms should be decertified
automatically within a certain timeframe (such as 30 days) of failing
to recertify.
Proposed Sec. 126.500(b) would explain that SBA will conduct a
program examination of each certified HUBZone small business concern at
least once every three years to ensure continued program eligibility,
using a risk-based analysis. The proposed rule would further provide
that SBA may conduct more frequent program examinations using a risk-
based analysis to select which concerns are examined. This is SBA's
current policy, and this rule would make these policies clearer.
Section 126.501
The proposed rule would revise Sec. 126.501 in its entirety. The
proposed section would address a certified HUBZone small business
concern's ongoing obligations to SBA (which is what this section
addressed prior to the 2019 rule change). First, the proposed rule
would provide that a certified HUBZone small business concern that
acquires, is acquired by, or merges with another business entity must
provide evidence to SBA, within 30 calendar days of the transaction
becoming final, that the concern continues to meet the HUBZone
eligibility requirements. The proposed section would provide that a
concern that no longer meets the requirements may voluntarily withdraw
from the program or it will be removed by SBA pursuant to program
decertification procedures. This is SBA's current policy, but the
current regulations only require a firm to notify SBA via email where
it is involved in a merger or acquisition and do not explain what
happens after such notification.
Second, proposed Sec. 126.501(b) would provide that a certified
HUBZone small business concern that is performing a HUBZone contract
and fails to ``attempt to maintain'' the minimum employee HUBZone
residency requirement must notify SBA notify SBA via email to
[[Page 68293]]
<a href="/cdn-cgi/l/email-protection#4a223f283025242f0a39282b642d253c"><span class="__cf_email__" data-cfemail="bed6cbdcc4d1d0dbfecddcdf90d9d1c8">[email protected]</span></a> within 30 calendar days of such occurrence. A concern
that cannot meet the requirement may voluntarily withdraw from the
program or it will be removed by SBA pursuant to program
decertification procedures.
Section 126.503
The proposed rule would add a new paragraph (d) to Sec. 126.503,
clarifying that SBA will decertify a HUBZone small business concern
that is debarred from federal contracting without first proposing the
firm for decertification. This is merely a clarification of an existing
policy. Once a firm has been debarred, it is ineligible for all federal
contracts and subcontracts and thus there is no benefit to being
HUBZone-certified.
Section 126.504
The proposed rule would amend Sec. 126.504(a) to add that SBA will
remove a firm's HUBZone designation if the firm has been debarred from
government contracting pursuant to the procedures in FAR 9.4. This
change would be consistent with the addition of a new paragraph (d) to
Sec. 126.503, discussed above.
The proposed rule would revise Sec. 126.504(c) by renumbering the
introductory language as paragraph (c)(1), changing paragraph (c)(1) to
paragraph (c)(2), and eliminating current paragraph (c)(2) as
unnecessary. The proposed rule would then amend renumbered Sec.
126.504(c)(1) by clarifying that a firm is ineligible to submit offers
for HUBZone contracts at the time SBA decertifies the firm. The current
regulations provide that a firm is ineligible when it is ``removed as a
certified HUBZone small business concern in DSBS.'' However, there are
occasional lags between SBA's decertification action and updates to
DSBS, as well as potential errors in updates to DSBS. SBA may identify
such decertification actions on its website to address the occasional
lags.
The proposed rule would amend renumbered Sec. 126.504(c)(2) by
clarifying that a firm must be HUBZone-certified at the time of its
initial offer for a HUBZone contract, and it must be able to
demonstrate its compliance with the HUBZone requirements (e.g., the 35%
HUBZone residency requirement and the principal office requirement) as
of the date of its offer. This provision would continue to provide that
HUBZone eligibility is determined at the time of offer, and not at the
time of award, but eligibility would no longer relate back to the
firm's certification anniversary date.
Section 126.600
The proposed rule would amend Sec. 126.600 to clarify that
qualifying joint ventures may be considered HUBZone small business
concerns for HUBZone contracts and to clarify that the rules in Part
126 apply to HUBZone prime contracts, not subcontracts awarded to
HUBZone small businesses. The proposed rule would add a new paragraph
(e) clarifying that orders awarded to certified HUBZone small business
concerns under set-aside Multiple Award Contracts are HUBZone
contracts.
Section 126.602
The proposed rule would amend the requirements relating to how a
certified HUBZone small business concern ``attempts to maintain''
having at least 35% of its employees reside in a HUBZone during the
performance of a HUBZone contract. Specifically, the proposed rule
would revise Sec. 126.602 to provide that a certified HUBZone small
business concern that has received a HUBZone contract must be
``attempting to maintain'' the 35% HUBZone residency requirement
(including by having at least 20% of its employees reside in a HUBZone)
on the first certification anniversary date after being awarded a
HUBZone contract and at least 35% of its employees reside in a HUBZone
on each certification anniversary date thereafter. SBA does not believe
that the 35% HUBZone residency requirement should be watered down to as
low as 20% over the course of a firm's participation in the HUBZone
program merely because a HUBZone small business concern received one or
more HUBZone contracts. However, SBA also believes that it must give
some meaning to the ``attempt to maintain'' statutory language, which
is why allowing a firm to drop below the 35% residency requirement (but
no lower than 20%) for a year makes sense to SBA. SBA believes that
giving a firm an additional year to come back into compliance with the
35% residency requirement after being awarded a HUBZone contract is a
good balance between the two statutory requirements. However, SBA
requests comments on how to implement this requirement where a HUBZone
firm receives multiple HUBZone awards in successive years.
Section 126.605
The proposed rule would amend Sec. 126.605 to clarify that this
section describes circumstances under which a contracting officer is
prohibited from soliciting a requirement as a HUBZone contract. The
proposed rule changes the words ``may not'' to ``shall not'' to clarify
that a contracting officer does not have discretion to award a HUBZone
contract in those specified instances.
Section 126.612
The proposed rule would amend Sec. 126.612 by adding a new
paragraph (f) providing that the awardee of a HUBZone sole source
contract must be a certified HUBZone small business concern on the date
of award. This has always been the policy for the 8(a) Business
Development program (see Sec. 124.501(h)), and SBA is trying to make
its socioeconomic programs as consistent as possible.
Section 126.613
The proposed rule would amend Sec. 126.613, which addresses the
HUBZone price evaluation preference (PEP), to clarify how the HUBZone
PEP should be applied. The proposed rule would revise paragraph (a) and
the examples. The proposed rule would provide that to apply the HUBZone
PEP, a contracting officer must add 10% to the offer of the otherwise
successful large business offeror. Then, if the certified HUBZone small
business concern's offer is lower than that of the large business after
the HUBZone PEP is applied, the certified HUBZone small business
concern must be deemed the lowest-priced offeror. The proposed rule
would add a sentence specifying that the HUBZone price evaluation
preference does not apply where the initial lowest responsive and
responsible offeror is a small business concern.
The proposed rule would add clarifying language to Example 1
explaining that a non-HUBZone small business concern is not affected by
the application of the HUBZone PEP where such non-HUBZone small
business is not the lowest offeror prior to the application of the
preference. This is because the HUBZone PEP is intended neither to harm
nor to benefit a non-HUBZone small business.
The proposed rule would amend Example 2 by specifying that, in the
example, after the application of the HUBZone PEP, the HUBZone small
business concern's offer is not lower than the offer of the large
business (i.e., $103 is not lower than $102.3 ($93 x 110%)).
The proposed rule would amend Example 3 to clarify that a
contracting officer should not apply the HUBZone PEP where the lowest,
responsive, responsible offeror is a small business concern, even if a
large business concern submitted an offer.
[[Page 68294]]
In addition, the proposed rule would clarify how the PEP should be
applied to a procurement using trade off procedures. The proposed rule
would provide that for a procurement using trade off procedures, the CO
must first apply the 10% price preference to the offers of any large
businesses and then determine which offeror represents the best value
to the Government, in accordance with the terms of the solicitation.
Where, after considering the price adjustment, the total evaluation
points received by a certified HUBZone small business concern is equal
to or greater than the total evaluation points received by a large
business, award shall be made to the certified HUBZone small business
concern.
Section 126.615
The proposed rule would amend Sec. 126.615 by adding a reference
to Sec. 125.9, to clarify that large businesses may participate in
HUBZone procurements by serving as SBA-approved mentors under SBA's
mentor-prot[eacute]g[eacute] program, and by correcting the cross-
reference to the limitations on subcontracting.
Section 126.616
The proposed rule would amend Sec. 126.616, which describes the
circumstances under which a joint venture can be awarded a HUBZone
contract. The proposed rule would delete language from current Sec.
126.616(a)(1) stating that a ``joint venture itself need not be a
certified HUBZone small business concern.'' SBA proposes to delete this
language because it implies that a joint venture could be HUBZone-
certified, when in fact the HUBZone program does not certify joint
ventures under any circumstances. Instead, proposed Sec. 126.616(a)(1)
would clarify that SBA does not certify HUBZone joint ventures, but
provide that a joint venture should be designated as a HUBZone joint
venture in SAM (or successor system), with the HUBZone-certified joint
venture partner identified. The proposed rule would add a new paragraph
(k) to provide that a procuring agency may only receive HUBZone credit
for an award to a HUBZone joint venture where the joint venture
complies with the requirements in Sec. 126.616.
Section 126.619
As noted above, this rule proposes to move recertification
requirements for size and socioeconomic status to a new Sec. 125.12. A
revised Sec. 126.12 would refer to the requirements set forth inSec.
125.12 as applying to recertifications of HUBZone status.
Section 126.701
The proposed rule would amend Sec. 126.701 by removing the words
``these subcontracting percentages'' in the section heading and adding
in their place the words ``the limitations on subcontracting'' to
clarify the content of the section.
Section 126.800
The proposed rule would amend Sec. 126.800 by removing the
paragraph subheadings and incorporating them into the text of the
regulation, to make the section more readable. In addition, the
proposed rule would clarify that interested parties may protest a
HUBZone joint venture offeror's eligibility for award of a HUBZone
contract. Finally, the proposed rule would add a new paragraph (c)
providing that for contracts other than HUBZone contracts, SBA may
protest an apparent successful offeror's status as a certified HUBZone
small business concern. SBA believes that where there is evidence that
the prospective awardee does not meet the HUBZone requirements, the
agency needs to be able to protest a firm's HUBZone status, even for a
non-HUBZone award. This would prevent an agency from receiving HUBZone
credit where the awardee is not eligible for the program.
Section 126.801
In response to the change made to Sec. 126.601(a) requiring a
HUBZone small business to be eligible for a HUBZone contract as of the
date of its initial offer including price, the proposed rule would
first align the protest procedures to recognize that the date of offer
would be the relevant date for protesting a HUBZone small business
concern's eligibility for award of a HUBZone contract.
Section 126.803
SBA proposes to amend Sec. 126.803 by revising paragraph (a),
which explains the date that will be used to determine a firm's HUBZone
eligibility if it is the subject of a HUBZone status protest. As
explained above, this proposed rule would require HUBZone firms to be
eligible at the time of offer for competitively awarded HUBZone
contracts. Consistent with this proposed change, proposed Sec.
126.803(a) would provide that for all HUBZone contracts other than
HUBZone sole source awards, SBA shall determine a protested firm's
HUBZone eligibility as of the date of its initial offer that includes
price. For HUBZone sole source awards, SBA would determine a protested
firm's HUBZone eligibility as of the date of award.
SBA also proposes to redesignate paragraphs (c), (d), and (e) as
paragraphs (d), (e), and (f), and to add a new paragraph (c) to Sec.
126.803. Proposed Sec. 126.803(c) would provide that the burden of
proof to demonstrate eligibility is on the protested concern. The
section would explain that if a concern does not provide information
requested by SBA within the allotted time provided, or if it submits
incomplete information, SBA may draw an adverse inference and presume
that the information that the applicant failed to provide would
demonstrate ineligibility and sustain the protest on that basis. These
policies are explained in SBA's protest notification letters, and SBA
believes it makes sense to add them to the protest regulations.
Section 126.900
The proposed rule would amend Sec. 126.900 by adding a new
paragraph (e)(4) providing that if SBA discovers that false or
misleading information has been knowingly submitted by a certified
small business concern in order to obtain or maintain HUBZone
certification, the D/HUB will propose the firm for decertification.
Sections 127.200 and 128.200
In order to be eligible for the 8(a) BD program, SBA requires
socially and economically disadvantaged individuals to reside in the
United States. See 13 CFR 124.101. There currently is not a similar
requirement for the WOSB or VetCert programs. SBA believes that
qualifying individuals should reside in the United States to more
adequately advance the purposes of the programs. The proposed rule
would add a United States residency requirement for qualifying
individuals in the WOSB and VetCert programs.
Section 127.400
Section 127.400 provides guidance as to how a concern can maintain
its WOSB or EDWOSB certification. Current Sec. 127.400(b) specifies
that a concern must either request a program examination from SBA or
notify SBA that it has requested a program examination from a third-
party certifier no later than 30 days prior to its certification
anniversary. In order to provide consistency between the programs, the
proposed rule would state that a concern must either recertify with SBA
or notify SBA that it has completed a program examination from a third
party certifier in the 90 calendar days prior to its certification
anniversary. The
[[Page 68295]]
proposed rule would also revise the example set forth in the
regulations to take into account the change from 30 days to 90 days.
Section 134.1104
Section 134.1104 sets forth the time limits a VOSB or SDVOSB must
appeal an adverse determination finding it ineligible for the VetCert
program to SBA's Office of Hearings and Appeals (OHA). Currently, Sec.
134.1104 requires an appeal to be filed within 10 business days of
receipt of the denial. When an application for the 8(a) BD program is
denied, a firm has 45 days from the date it receives the Agency
decision to file an appeal with OHA. See 13 CFR 124.206(b). SBA is in
the process of establishing a uniform application processing system.
That system will allow a firm to simultaneously apply for multiple
certifications for which it believes it is eligible. If a firm applied
for 8(a) and VetCert certification at the same time and was denied for
both programs, the current regulations would require the firm to appeal
its VetCert denial withing 10 days while not being required to file its
8(a) eligibility appeal for 45 days. SBA believes that may be confusing
to affected applicants and that there should be consistency in the
appeal process. As such, this proposed rule would change the time to
file an appeal for the VetCert program to 45 days.
Compliance With Executive Orders 12866, 12988, 13132, 13563, the
Congressional Review Act (5 U.S.C. 801-808), the Paperwork Reduction
Act (44 U.S.C. Ch. 35), and the Regulatory Flexibility Act (5 U.S.C.
601-612)
Executive Orders 12866, 13563 and 14904
Executive Order 12866, ``Regulatory Planning and Review,'' directs
agencies to assess all costs and benefits of available regulatory
alternatives and, if regulation is necessary, to select regulatory
approaches that maximize net benefits (including potential economic,
environmental, public health and safety effects, distributive impacts,
and equity). Executive Order 13563, ``Improving Regulation and
Regulatory Review,'' emphasizes the importance of quantifying both
costs and benefits, of reducing costs, of harmonizing rules, and of
promoting flexibility. Executive Order 14094, ``Modernizing Regulatory
Review,'' amends section 3(f) of Executive Order 12866 and supplements
and reaffirms the principles, structures and definitions governing
contemporary regulatory review established in Executive Order 12866 and
Executive Order 13563. The OMB Office of Information and Regulatory
Affairs (OIRA) has determined that this rule is a significant
regulatory action and, therefore, it was reviewed under subsection 6(b)
of E.O. 12866.
Regulatory Impact Analysis
1. Is there a need for the regulatory action?
This regulatory action clarifies and streamlines SBA's regulations
governing the HUBZone Program and other contracting assistance
programs. In 2019, SBA published a comprehensive revision to the
HUBZone Program regulations, which implemented changes intended to make
these regulations easier to understand and implement. This proposed
rule is intended to further clarify and improve policies surrounding
some of those changes to ensure that the HUBZone program fulfills its
statutory purpose. In addition, SBA has heard from small businesses of
a desire for consistency among its contracting assistance programs in
order to relieve burdens associated with compliance with multiple
programs. As a result, the proposed rule would make several
improvements to create uniformity among the programs, including
deleting the program-specific recertification requirements contained
separately in SBA's size, 8(a) BD, HUBZone, WOSB, and VetCert and
moving them to a new section that would cover all size and status
recertification requirements.
2. What are the incremental benefits and costs of this regulatory
action?
The proposed rule benefits program participants by reducing burdens
and increasing consistency with other contracting programs while
changing or adding some compliance requirements that strengthen the
program's impact and reduce the potential for business policies and
practices that are contrary to the goals of the HUBZone program. The
reduction of burdens includes the decrease in the time of proof of
residence for employees, removal of the 90-day wait period for
reapplication after decertification, revisions to the part of the rule
that addresses Governor-designated covered areas, a change in the
negative-control rule in SBA's affiliation rule, deletion of program-
specific requirements for certification, and triennial instead of
annual recertification. Additionally, the proposed rule adds a telework
provision. Proposed compliance requirements include limits on the
number of Legacy Employees, revised requirements for the use of the
``attempt to maintain'' statutory language, possible minimum thresholds
for number of hours worked, and proof of eligibility at the time of
offer of a HUBZone contract. These proposed compliance measures are
consistent with the program's goal of promotion of growth and impact of
small businesses in historically underutilized areas and SBA believes,
as outlined below, that they are not substantial burdens.
Benefits
The decrease from 180 days to 90 days for proof of employees'
residency allows for firms to enter the HUBZone program more quickly
and increases opportunities for newly-hired employees. Both of these
results increase accessibility of the program's opportunities. Removal
of the 90-day wait period for decertified firms also promotes the
program's accessibility because SBA has found that a shorter wait
period is consistent with firms' ability to qualify or return to
compliance by hiring HUBZone residents or by moving to a newly-
designated HUBZone.
The restatement of Sec. 126.104 clarifies existing policy on
Governor-designated covered areas, including the condition for annual
petitions and a statement of no need for SBA's approval of previously
designated covered areas. This restatement decreases uncertainty for
firms that participate or plan to participate in the program. The
restatement also authorizes the Associate Administrator for Government
Contracting and Business Development, or designee, instead of the
Administrator to approve covered areas, which SBA believes would reduce
time to approve a petition and facilitate entry into the program.
Amendments to regulations on affiliation will remove
inconsistencies with other programs' regulations. The benefit of the
amendments is more certainty on measures that minority-share investors
can include to protect their investments without a finding of control.
This proposed rule further reduces uncertainty in this matter by
applying the same language to the 8(a) BD, WOSB and VetCert programs.
SBA expects the changes in regulations on affiliation and control and
increased consistency among programs to improve the environment for
access to capital for small businesses in contracting assistance
programs.
The proposed rule returns the HUBZone program to triennial
recertification and deletes program-specific recertification
requirements. Both of these changes alleviate the burden associated
with recertification.
[[Page 68296]]
With recertification taking about an hour to complete, SBA estimates
that the change to triennial recertification will result in an annual
reduction in the time burden from recertification of approximately
2,468 hours and about $326,911 in annual savings.\4\ SBA has seen a
downward trend in the number of HUBZone firms over the years, with
lateness in annual recertification as one reason for the trend, so a
reduction in this recertification burden may increase the number of
HUBZone program participants and, consequently, the savings from this
change in the future, in addition to the wider economic benefits
generated by more HUBZone firms in communities. Deletion of program-
specific recertification requirements would also reduce time in
recertification. In 2023, SBA sampled several years of data to estimate
that about 10% of the firms in the HUBZone program were also in the
WOSB program and 15% in the 8(a) program. The eliminated
recertification procedures from uniform certification could reduce the
time burden by an estimated 617 hours and generate an additional
$81,728 in annual savings.\5\
---------------------------------------------------------------------------
\4\ The calculation assumes that with triennial recertification,
two-thirds of the number of program participants, which is now 3,700
firms, will not recertify each year. Using 3,700 for this
calculation, with the value of an hour at $132.46 per hour, which is
the mean hourly wage of $66.23 plus 100 percent for overhead and
benefits for Management Occupation (from Management Occupations
(<a href="http://bls.gov">bls.gov</a>), retrieved April 16, 2024), savings for about 2,468 small
business is $326,912.
\5\ The calculation assumes that with triennial recertification,
two-thirds of the 10 percent of HUBZone firms that are in WOSB and
15% of the HUBZone firms that are in 8(a) will not engage in
program-specific recertification procedures in a given year. A small
number of firms participated in all three of these contracting
programs. Using the current number of about 3,700 small businesses
in the HUBZone program, with the value of an hour at $132.46 per
hour, which is the mean hourly wage of $66.23 plus 100 percent for
overhead and benefits for Management Occupation (from Management
Occupations (<a href="http://bls.gov">bls.gov</a>), retrieved April 16, 2024), savings for about
247 small business in HUBZone program and WOSB and 370 small
business in HUBZone and 8(a) amounts to $81,728. SBA notes that this
would be a low estimate of relief of recertification burden because
it does not include HUBZone firms that also participate in other
contracting programs like VetCert.
---------------------------------------------------------------------------
The proposed rule recognizes the increased importance of telework
and allows small businesses with 100 percent of its employees to
participate in the HUBZone program but with the condition that at least
51 percent of the employees work from HUBZone locations. This provision
enables program participants to use the benefits of telework for
recruitment and flexibility while addressing the program's goals of
stimulating economic activity in HUBZone areas.
Revisions in Compliance Measures
The proposed rule revises Sec. 126.200(d)(3) to allow HUBZone
firms to retain employees who have move out of a HUBZone but proposes a
limitation on the number of these Legacy HUBZone Employees. This is an
attempt to balance the needs of employees who move for personal reasons
or for professional development with the aims of the program to promote
business activity in specific areas. The limitation is a potential
source of burden on small business entities and SBA is seeking comments
on aspects of limiting the number of Legacy Employees.
SBA is also adjusting the threshold of 20 percent of employees for
``attempt to maintain'' currently in Sec. 126.500(a)(2) with 35
percent. This increased threshold is a stronger standard but the
procedures for demonstrating compliance are not different. Any
resulting costs should be balanced against SBA's assessment that
HUBZone goals are not sufficiently fulfilled by implementation of the
current requirement of 20 percent.
Currently, Sec. 126.103 specifies that an individual who works 40
hours in a four-week period is an employee. SBA proposes to increase
the number of hours worked to 80 but seeks comments on whether this
level is appropriate. This proposal is a revised and stricter
compliance requirement but is one that SBA believes better promotes the
purpose of the program and the need for a firm's legitimate presence in
the HUBZone area. SBA expects that the increase in hours of gainful
employment would be matched with increased output and therefore the
additional hours would not impose a burden on employers. Recognizing
some employers' and employees' needs for fewer hours per period, SBA
seeks comments on a minimum number of hours for some individuals.
This rule proposes to require any certified HUBZone small business
to be eligible as of the date of offer for any HUBZone contract. In
Federal Procurement Data System (FPDS) data from previous years,
approximately 2,100 new HUBZone contracts were awarded in a fiscal
year. SBA estimates it takes approximately 1 hour for a firm to gather
proof that it is eligible at the time of offer. Thus, this proposed
rule will increase the burden on HUBZone small business concerns by
approximately 2,100 hours for an estimated annual cost of $278,166.\6\
SBA notes that the number of firms in the program has decreased over
the past few years and this number of 2,100 may therefore be too high.
SBA also notes that a specific small business entity incurs this burden
only when a contract is offered and that, in the aggregate, the burden
is balanced by the benefits of consistency of this provision with other
contracting programs and maintenance of standards for the integrity of
the HUBZone program.
---------------------------------------------------------------------------
\6\ This calculation is 2,100 multiplied by the value of an hour
of $132.46 per hour, which is the mean hourly wage of $66.23 for
Management Occupation (from Management Occupations (<a href="http://bls.gov">bls.gov</a>),
retrieved April 16, 2024) plus 100 percent for overhead and
benefits.
---------------------------------------------------------------------------
Summary
The proposed changes clarify and streamline regulations and
increase consistency with other contracting programs. Many of the
benefits are not quantifiable, but SBA estimates annual savings of
about $408,639 from reduced frequency of recertification. Benefits from
the proposed changes regarding affiliation and control reduce
uncertainty for investors and may therefore have a significant impact
on access to capital. The rule contains measures that introduce or
strengthen some compliance requirements but these are balanced by the
need to maintain the goals and integrity of the program. The one
quantifiable burden noted in these proposed compliance measures is
proof of eligibility at the time of offer and this is a cost only when
the benefit of the offer is present.
3. What are the alternatives to this rule?
SBA considered alternatives to each of the significant changes made
by this rule. Instead of requiring HUBZone firms to recertify every
three years and be eligible at the time of offer, SBA considered
maintaining the current requirement where annual recertification allows
a concern to seek and be eligible for HUBZone contracts for a year.
However, SBA has found that the annual recertification requirement does
not fulfill the purposes of the HUBZone program as effectively as
requiring firms to be eligible at the time of offer for HUBZone
contracts. Moreover, SBA believes that uniformity among its contracting
programs is an important goal, and returning to triennial
recertification and eligibility determinations based on the date of
offer would bring the HUBZone program much more in line with SBA's
other small business and socioeconomic contracting programs.
This regulatory action is needed to clarify and improve SBA's
regulations governing the HUBZone Program and SBA's other socioeconomic
contracting programs. In 2019, SBA published a
[[Page 68297]]
comprehensive revision to the HUBZone Program regulations, which
implemented changes intended to make the HUBZone Program more efficient
and effective. This proposed rule is intended to clarify and improve
policies surrounding some of those changes. The clarifications and
improvements are needed to ensure that the rules governing the HUBZone
program fulfill its statutory purpose. In addition, SBA has heard from
the small business community that improvements are needed to make its
socioeconomic contracting programs more uniform, in order to relieve
burdens associated with compliance with multiple programs. As a result,
the proposed rule would make several improvements to create uniformity
among the programs, including deleting the program specific
recertification requirements contained separately in SBA's size, 8(a)
BD, HUBZone, WOSB, and VetCert and moving them to a new section that
would cover all size and status recertification requirements.
Executive Order 13132
For the purposes of Executive Order 13132, Federalism, SBA has
determined that this rule would not have substantial, direct effects on
the States, on the relationship between the national government and the
States, or on the distribution of power and responsibilities among the
various levels of government. Therefore, for the purpose of Executive
Order 13132, Federalism, SBA has determined that this rule has no
federalism implications warranting preparation of a federalism
assessment.
Paperwork Reduction Act, 44 U.S.C. Ch. 35
This rule does not impose additional reporting or recordkeeping
requirements under the Paperwork Reduction Act, 44 U.S.C. Chapter 35.
In 2019, SBA revised its regulations to give contracting officers
discretion to request information demonstrating compliance with the
limitations on subcontracting requirements. See 84 FR 65647 (Nov. 29,
2019). In conjunction with this revision, SBA requested an Information
Collection Review by OMB (Limitations on Subcontracting Reporting, OMB
Control Number 3245-0400). OMB approved the Information Collection. The
proposed rule would not alter the contracting officer's discretion to
require a contractor to demonstrate its compliance with the limitations
on subcontracting at any time during performance and upon completion of
a contract. The estimated number of respondents, burden hours, and
costs remain the same as that identified by SBA in the previous
Information Collection. As such, SBA believes this provision is covered
by its existing Information Collection, Limitations on Subcontracting
Reporting.
Regulatory Flexibility Act, 5 U.S.C. 601-612
According to the Regulatory Flexibility Act (RFA), 5 U.S.C. 601,
when an agency issues a rulemaking, it must prepare a regulatory
flexibility analysis to address the impact of the rule on small
entities. However, section 605 of the RFA allows an agency to certify a
rule, in lieu of preparing an analysis, if the rulemaking is not
expected to have a significant economic impact on a substantial number
of small entities. The RFA defines ``small entity'' to include ``small
businesses,'' ``small organizations,'' and ``small governmental
jurisdictions.'' This proposed rule concerns various aspects of SBA's
HUBZone program, as well as its size, 8(a) BD, WOSB, and VetCert
programs. As such, the rule relates to small businesses but would not
affect ``small organizations'' or ``small governmental jurisdictions.''
The proposed changes clarify and streamline regulations and
increase consistency with other contracting programs. Many of the
benefits are not quantifiable, but SBA estimates annual savings of
about $408,639 from reduced frequency of HUBZone recertification. There
are approximately 5,000 small businesses that are listed as certified
HUBZone small businesses in DSBS, and under the proposed rule, these
firms would only need to recertify every three years, rather than every
year. Benefits from the proposed changes regarding affiliation and
control reduce uncertainty for investors and may therefore improve
access to capital. The rule contains measures that introduce or
strengthen some compliance requirements, but these are balanced by the
need to maintain the goals and integrity of the program. The one
quantifiable burden noted in these proposed compliance measures is
proof of HUBZone eligibility at the time of offer and this is a cost
only when the benefit of the offer is present. Moreover, this burden is
counterweighed by the benefit of making the HUBZone program more
consistent with SBA's other socioeconomic contracting programs, which
decreases the amount of regulations that small businesses must learn
and understand in order to participate in SBA's programs. The other
changes that make the programs more consistent, such as consolidating
the regulations related to recertification of size and status, only
serve to benefit the small businesses that participate in these
programs. Based on the foregoing, SBA does not believe that the
proposed amendments would have a disparate impact on small businesses
or would impose any additional significant costs. For the reasons
discussed, SBA certifies that this proposed rule would not have a
significant economic impact on a substantial number of small entities.
List of Subjects
13 CFR Part 121
Administrative practice and procedure, Government procurement,
Government property, Grant programs--business, Individuals with
disabilities, Loan programs--business, Small businesses.
13 CFR Part 124
Administrative practice and procedure, Government procurement,
Government property, Small businesses.
13 CFR Part 125
Government contracts, Government procurement, Reporting and
recordkeeping requirements, Small businesses, Technical assistance.
13 CFR Part 126
Administrative practice and procedure, Government procurement,
Penalties, Reporting and recordkeeping requirements, Small businesses.
13 CFR Part 127
Government contracts, Reporting and recordkeeping requirements,
Small businesses.
13 CFR Part 128
Government contracts, Government procurement, Reporting and
recordkeeping requirements, Small businesses Technical assistance,
Veterans.
13 CFR Part 134
Administrative practice and procedure; Claims Confidential business
information; Equal access to justice; Equal employment opportunity;
Lawyers; Organization and function (Government agencies).
Accordingly, for the reasons stated in the preamble, SBA proposes
to amend 13 CFR parts 121, 124, 125, 126, 127, 128, and 134 as follows:
PART 121--SMALL BUSINESS SIZE REGULATIONS
0
1. The authority citation for part 121 continues to read as follows:
[[Page 68298]]
Authority: 15 U.S.C. 632, 634(b)(6), 636(a)(36), 662, and
694a(9).
0
2. Amend Sec. 121.103 by revising paragraphs (a)(3), (h)(3)
introductory text, and (h)(3)(i), and adding a new adding paragraph
(h)(3)(v), to read as follows:
Sec. 121.103 How does SBA determine affiliation?
(a) * * *
(3) Control may be affirmative or negative. Negative control
includes, but is not limited to, instances where a minority shareholder
has the ability, under the concern's charter, by-laws, or shareholder's
agreement, to prevent a quorum or otherwise block action by the board
of directors or shareholders. However, SBA will not find that a
minority shareholder has negative control where such minority
shareholder has the authority to block action by the board of directors
or shareholders regarding the following extraordinary circumstances:
(i) Adding a new equity stakeholder;
(ii) Dissolution of the company;
(iii) Sale of the company or all assets of the company;
(iv) The merger of the company;
(v) The company declaring bankruptcy; and
(vi) Amendment of the company's corporate governance documents to
remove the shareholder's authority to block any of (1) through (5).
* * * * *
(h) * * *
(3) Ostensible subcontractors and unduly reliant managing joint
venture partners. (i) An offeror is ineligible as a small business
concern, an 8(a) small business concern, a certified HUBZone small
business concern, a WOSB/EDWOSB concern, or a VOSB/SDVOSB concern where
SBA determines there to be an ostensible subcontractor. An ostensible
subcontractor is a subcontractor that is not a similarly situated
entity, as that term is defined in Sec. 125.1 of this chapter, and
performs primary and vital requirements of a contract, or of an order,
or is a subcontractor upon which the prime contractor is unusually
reliant.
* * * * *
(v) A joint venture offeror is ineligible as a small business
concern, an 8(a) small business concern, a certified HUBZone small
business concern, a WOSB/EDWOSB concern, or a VO/SDVO small business
concern where SBA determines that the managing joint venture partner
will not perform 40% of the work to be performed by the joint venture,
where a joint venture partner that is not similarly situated to the
managing venturer performs primary and vital requirements of a
contract, or of an order, or where the managing venturer is unusually
reliant on such a joint venture partner.
* * * * *
0
3. Amend Sec. 121.104 by revising paragraph (a)(1) to read as follows:
Sec. 121.104 How does SBA calculate annual receipts?
(a) * * *
(1) SBA will consider a concern's Federal income tax return and any
amendments filed with the IRS on or before the date of self-
certification to determine the size status of the concern. SBA may also
consider other relevant information where it appears that the tax
return does not properly capture a concern's total revenue.
* * * * *
0
4. Revise Sec. 121.404 to read as follows:
Sec. 121.404 When is the size status of a business concern
determined?
(a) General. A concern, including its affiliates, must qualify as
small under the NAICS code assigned to a contract as of the date the
concern submits a written self-certification that it is small to the
procuring activity as part of its initial offer or response which
includes price. Once awarded a contract as a small business, a firm is
generally considered to be a small business throughout the life of that
contract.
(b) Multiple Award Contracts. (1) If a single NAICS code is
assigned to a multiple award contract as set forth in Sec.
121.402(c)(1)(i), SBA determines size status for the underlying
multiple award contract as of the date a business concern submits its
initial offer (or other formal response to a solicitation), which
includes price, for the contract based upon the size standard set forth
in the solicitation for the multiple award contract.
(2) When multiple NAICS codes are assigned to a multiple award
contract as set forth in Sec. 121.402(c)(1)(ii), SBA determines size
status for the underlying multiple award contract for each discrete
category for which an offer is submitted, by applying the size standard
corresponding to each discrete category, as of the date a business
concern submits its initial offer which includes price for the
contract.
(3) Where concerns are not required to submit price as part of the
initial offer for a multiple award contract, SBA determines size status
for the underlying multiple award contract as of the date a business
concern submits its initial offer for the contract, which may not
include price.
(c) Orders and Agreements Established Against Multiple Award
Contracts. (1) Unrestricted Contracts. Where an order is set-aside for
small business under an unrestricted multiple award contract, SBA
determines size status for each order placed against the multiple award
contract as of the date a business concern submits its initial offer
(or other formal response to a solicitation), which includes price, for
each order.
(2) Set-Aside or Reserved Contracts. Where an order is issued under
a multiple award contract that itself was set aside or reserved for
small business (i.e., small business set-aside, 8(a) small business,
service-disabled veteran-owned small business, HUBZone small business,
or women-owned/economically-disadvantaged women-owned small business),
SBA determines size status as of the date a business concern submits
its initial offer, which includes price, for the set-aside or reserved
multiple award contract, unless a contracting officer requests size
recertification with respect to a specific order.
(i) Where a contracting officer requests size recertification with
respect to a specific order, size is determined as of the date the
business concern submits its initial offer (or other formal response to
a solicitation), which includes price, for the order.
(ii) Where a contracting officer requests size recertification with
respect to a specific order, size is determined only with respect to
that order. Where a contract holder has grown to be other than small
and cannot recertify as small for a specific order for which a
contracting officer requested recertification, it may continue to
qualify as small for other orders issued under the contract where a
contracting officer does not request recertification.
(3) Agreements. With respect to agreements established under FAR
part 13, size is determined as of the date the business concern submits
its initial offer, which includes price, for the agreement. Because an
agreement is not a contract, the concern must also qualify as small as
of the date the concern submits of its initial offer, which includes
price, for each order issued pursuant to the agreement to be considered
small for the order.
(4) Exceptions. (i) For orders or BPAs to be placed against the GSA
Federal Supply Schedule (FSS) Multiple Award Schedule (MAS) contract,
size is determined as of the date the business concern submits its
initial offer, which includes price, for the GSA FSS MAS contract.
[[Page 68299]]
(ii) For 8(a) sole source orders issued under a multiple award
contract, size is determined in accordance with Sec. 124.503(i)(1)(iv)
of this chapter, as of the date the order is offered to the 8(a) BD
program, regardless of whether the multiple award contract is
unrestricted, set-aside, or the GSA FSS MAS contract.
(iii) Size is determined on the date of recertification when a
recertification is required pursuant to Sec. Sec. 125.12(a) and (b) of
this chapter, or on the date of initial offer which includes price if
requested by a contracting officer pursuant to Sec. 125.12(c). This
exception applies to all provisions of paragraphs 121.404(a), (b), (c),
and (d).
(d) Eligibility for SBA programs. A concern applying to be
certified as a Participant in SBA's 8(a) Business Development program
(under part 124, subpart A, of this chapter), as a HUBZone small
business concern (under part 126 of this chapter), as a women-owned
small business concern (under part 127 of this chapter), or as a
service-disabled veteran-owned small business concern (under part 128
of this chapter) must qualify as a small business as of the date of its
application and, where applicable, the date the SBA program office
requests a formal size determination in connection with a concern that
otherwise appears eligible for program certification. For the 8(a)
Business Development program, a concern must qualify as small under the
size standard corresponding to its primary industry classification. For
all other certification programs, a concern must qualify as small under
the size standard corresponding to any NAICS code listed in its SAM
profile. SBA will accept a concern's size representation in SAM, or
successor system, unless there is evidence indicating that the concern
is other than small. SBA will request a formal size determination
pursuant to Sec. 121.1001(b)(8) where any information it possesses
calls into question the <a href="http://SAM.gov">SAM.gov</a> size representation.
(e) Certificates of competency. The size status of an applicant for
a Certificate of Competency (COC) relating to an unrestricted
procurement is determined as of the date of the concern's application
for the COC.
(f) Nonmanufacturer rule, ostensible subcontractor rule, and joint
venture agreements. Compliance with the nonmanufacturer rule set forth
in Sec. 121.406(b)(1), the ostensible subcontractor rule set forth in
Sec. 121.103(h)(3), and the joint venture agreement requirements in
Sec. Sec. 124.513(c) and (d), Sec. Sec. 126.616(c) and (d), Sec.
127.506(c) and (d), and Sec. Sec. 125.8(b) and (c) of this chapter, as
appropriate, is determined as of the date of the final proposal
revision for negotiated acquisitions and final bid for sealed bidding.
(g) Subcontracting. For subcontracting purposes, a concern must
qualify as small as of the date that it certifies that it is small for
the subcontract. The applicable size standard is that which is set
forth in Sec. 121.410 and which is in effect at the time the concern
self-certifies that it is small for the subcontract. A prime contractor
may rely on the self-certification of a subcontractor provided it does
not have a reason to doubt the concern's self-certification.
(h) Two-step procurements. For purposes of architect-engineering,
design/build or two-step sealed bidding procurements, a concern must
qualify as small as of the date that it certifies that it is small as
part of its initial bid or proposal (which may or may not include
price).
(i) Recertification. See Sec. 125.12 for information on
recertification of size and status, and the effect of recertification.
None of the exceptions set forth in paragraph (c)(4) of this section
have an effect or serve as an exception to whether recertification is
required under Sec. 125.12.
(j) Follow-on contracts. A follow-on or renewal contract is a new
contracting action. As such, size is determined as of the date the
concern submits a written self-certification that it is small to the
procuring agency as part of its initial offer including price for the
follow-on or renewal contract.
0
5. Amend Sec. 121.702 by revising paragraph (c)(7) to read as follows:
Sec. 121.702 What size and eligibility standards are applicable to
the SBIR and STTR programs?
* * * * *
(c) * * *
(7) Affiliation based on the ostensible subcontractor rule. A
concern with an other than small ostensible subcontractor cannot be
considered a small business concern for SBIR and STTR awards. An
ostensible subcontractor is a subcontractor or subgrantee that performs
primary and vital requirements of a funding agreement (i.e., those
requirements associated with the principal purpose of the funding
agreement), or a subcontractor or subgrantee upon which the concern is
unusually reliant.
(i) All aspects of the relationship between the concern and the
subcontractor are considered, including, but not limited to, the terms
of the proposal (such as management, technical responsibilities, and
the percentage of subcontracted work) and agreements between the
concern and subcontractor or subgrantee (such as bonding assistance or
the teaming agreement).
(ii) To determine whether a subcontractor performs primary and
vital requirements of a funding agreement, SBA will also consider
whether the concern's proposal complies with the performance
requirements of the SBIR or STTR program.
(iii) The prime and any small business ostensible subcontractor
both must comply individually with the ownership and control
requirements in paragraphs (a) and (b) of this section, as applicable.
* * * * *
0
6. Amend Sec. 121.1001 by:
0
a. Adding paragraph (b)(2)(iii);
0
b. Redesignating paragraphs (b)(12) and (b)(13) as paragraphs (b)(14)
and (b)(15), respectively; and
0
c. Adding new paragraphs (b)(12) and (b)(13).
The revision and additions read as follows:
Sec. 121.1001 Who may initiate a size protest or request a formal
size determination?
* * * * *
(b) * * *
(2) * * *
(iii) Where SBA initially verified the eligibility of an 8(a)
Participant for the award of an 8(a) contract but subsequently receives
specific information that the Participant may be other than small and
consequently ineligible, the Associate Administrator for Business
Development or the Associate General Counsel for Procurement Law may
request a formal size determination.
* * * * *
(12) In connection with a size recertification relating to a
contract required by Sec. 125.12 of this chapter, the contracting
officer, the SBA program manager relating to the contract at issue
(i.e., the Director of Government Contracting, the Associate
Administrator for Business Development, or the Director of HUBZone, as
appropriate), or the Associate General Counsel for Procurement Law may
request a formal size determination.
(13) In connection with a size recertification relating to a
multiple award contract required by Sec. 125.12 of this chapter, any
contract holder on that multiple award contract may also request a
formal size determination concerning a recertifying concern's status as
a small business.
(i) A request for a formal size determination made by another
contract
[[Page 68300]]
holder on a multiple award contract must be sufficiently specific to
provide reasonable notice as to the grounds upon which the recertifying
concern's size is questioned. Some basis for the belief or allegation
that the recertifying concern does not continue to qualify as small
must be given.
(ii) SBA will dismiss as not sufficiently specific any request for
a formal size determination alleging merely that the recertifying
concern is not small or is affiliated with unnamed other concerns.
* * * * *
0
7. Amend Sec. 121.1010 by revising paragraph (b) to read as follows:
Sec. 121.1010 How does a concern become recertified as a small
business?
* * * * *
(b) Recertification will not be required nor will the prohibition
against future self-certification apply if the adverse SBA size
determination is based solely on a finding of affiliation limited to a
particular Government procurement or property sale, such as an
ostensible subcontracting relationship or non-compliance with the
nonmanufacturer rule.
* * * * *
PART 124--8(a) BUSINESS DEVELOPMENT/SMALL DISADVANTAGED BUSINESS
STATUS DETERMINATIONS
0
8. The authority citation for part 124 continues to read as follows:
Authority: 15 U.S.C. 634(b)(6), 636(j), 637(a), 637(d), 644, 42
U.S.C. 9815; and Pub. L. 99-661, 100 Stat. 3816; Sec. 1207, Pub. L.
100-656, 102 Stat. 3853; Pub. L. 101-37, 103 Stat. 70; Pub. L. 101-
574, 104 Stat. 2814; Sec. 8021, Pub. L. 108-87, 117 Stat. 1054; and
Sec. 330, Pub. L. 116-260.
0
9. Amend Sec. 124.3 by revising the definition of ``Community
Development Corporation or CDC'' to read as follows:
Sec. 124.3 What definitions are important in the 8(a) BD program?
* * * * *
Community Development Corporation or CDC means a nonprofit
organization responsible to residents of the area it serves which has
received financial assistance under 42 U.S.C. 9805, et
[…truncated; see source link]Indexed from Federal Register on August 23, 2024.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.