Consolidation of Mentor-Protégé Programs and Other Government Contracting Amendments
| Published date | 16 October 2020 |
| Citation | 85 FR 66146 |
| Record Number | 2020-19428 |
| Section | Rules and Regulations |
| Court | Small Business Administration |
Federal Register, Volume 85 Issue 201 (Friday, October 16, 2020)
[Federal Register Volume 85, Number 201 (Friday, October 16, 2020)]
[Rules and Regulations]
[Pages 66146-66199]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-19428]
[[Page 66145]]
Vol. 85
Friday,
No. 201
October 16, 2020
Part VISmall Business Administration-----------------------------------------------------------------------13 CFR Parts 121, 124, 125, et al.Consolidation of Mentor-Prot[eacute]g[eacute] Programs and Other
Government Contracting Amendments; Final Rule
Federal Register / Vol. 85 , No. 201 / Friday, October 16, 2020 /
Rules and Regulations
[[Page 66146]]
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SMALL BUSINESS ADMINISTRATION
13 CFR Parts 121, 124, 125, 126, 127, and 134
RIN 3245-AG94
Consolidation of Mentor-Prot[eacute]g[eacute] Programs and Other
Government Contracting Amendments
AGENCY: U.S. Small Business Administration.
ACTION: Final rule.
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SUMMARY: In response to President Trump's government-wide regulatory
reform initiative, the U.S. Small Business Administration (SBA)
initiated a review of its regulations to determine which might be
revised or eliminated. As a result, this rule merges the 8(a) Business
Development (BD) Mentor-Prot[eacute]g[eacute] Program and the All Small
Mentor-Prot[eacute]g[eacute] Program to eliminate confusion and remove
unnecessary duplication of functions within SBA. This rule also
eliminates the requirement that 8(a) Participants seeking to be awarded
an 8(a) contract as a joint venture submit the joint venture agreement
to SBA for review and approval prior to contract award, revises several
8(a) BD program regulations to reduce unnecessary or excessive burdens
on 8(a) Participants, and clarifies other related regulatory provisions
to eliminate confusion among small businesses and procuring activities.
In addition, in response to public comment, the rule requires a
business concern to recertify its size and/or socioeconomic status for
all set-aside orders under unrestricted multiple award contracts,
unless the contract authorized limited pools of concerns for which size
and/or status was required.
DATES: This rule is effective on November 16, 2020, except for Sec.
127.504 which is effective October 16, 2020.
FOR FURTHER INFORMATION CONTACT: Mark Hagedorn, U.S. Small Business
Administration, Office of General Counsel, 409 Third Street SW,
Washington, DC 20416; (202) 205-7625; [email protected].
SUPPLEMENTARY INFORMATION:
I. Background Information
On January 30, 2017, President Trump issued Executive Order 13771,
``Reducing Regulation and Controlling Regulatory Costs'', which is
designed to reduce unnecessary and burdensome regulations and to
control costs associated with regulations. In response to the
President's directive to simplify regulations, SBA initiated a review
of its regulations to determine which might be revised or eliminated.
Based on this analysis, SBA identified provisions in many areas of its
regulations that can be simplified or eliminated.
On November 8, 2019, SBA published in the Federal Register a
comprehensive proposal to merge the 8(a) Business Development (BD)
Mentor-Prot[eacute]g[eacute] Program and the All Small Mentor-
Prot[eacute]g[eacute] Program to eliminate confusion and remove
unnecessary duplication of functions within SBA; eliminate the
requirement that 8(a) Participants seeking to be awarded an 8(a)
contract as a joint venture submit the joint venture to SBA for review
and approval prior to contract award; revise several 8(a) BD program
regulations to reduce unnecessary or excessive burdens on 8(a)
Participants; and clarify other related regulatory provisions to
eliminate confusion among small businesses and procuring activities. 84
FR 60846. Some of the proposed changes involved technical issues.
Others were more substantive and resulted from SBA's experience in
implementing the current regulations. The proposed rule initially
called for a 70-day comment period, with comments required to be made
to SBA by January 17, 2020. SBA received several comments in the first
few weeks after the publication to extend the comment period.
Commenters felt that the nature of the issues raised in the rule and
the timing of comments during the holiday season required more time for
affected businesses to adequately review the proposal and prepare their
comments. In response to these comments, SBA published a notice in the
Federal Register on January 10, 2020, extending the comment period an
additional 21 days to February 7, 2020. 85 FR 1289.
As part of the rulemaking process, SBA also held tribal
consultations pursuant to Executive Order 13175, Tribal Consultations,
in Minneapolis, MN, Anchorage, AK, Albuquerque, NM and Oklahoma City,
OK to provide interested tribal representatives with an opportunity to
discuss their views on various 8(a) BD-related issues. See 84 FR 66647.
These consultations were in addition to those held by SBA before
issuing the proposed rule in Anchorage, AK (see 83 FR 17626),
Albuquerque, NM (see 83 FR 24684), and Oklahoma City, OK (see 83 FR
24684). SBA considers tribal consultation meetings a valuable component
of its deliberations and believes that these tribal consultation
meetings allowed for constructive dialogue with the Tribal community,
Tribal Leaders, Tribal Elders, elected members of Alaska Native
Villages or their appointed representatives, and principals of
tribally-owned and Alaska Native Corporation (ANC) owned firms
participating in the 8(a) BD Program. Additionally, SBA held a
Listening Session in Honolulu, HI to obtain comments and input from key
8(a) BD program stakeholders in the Hawaiian small business community,
including 8(a) applicants and Participants owned by Native Hawaiian
Organizations (NHOs).
During the proposed rule's 91-day comment period, SBA received 189
timely comments, with a high percentage of commenters favoring the
proposed changes. A substantial number of commenters applauded SBA's
effort to clarify and address misinterpretations of the rules. For the
most part, the comments supported the substantive changes proposed by
SBA.
This rule merges the 8(a) BD Mentor-Prot[eacute]g[eacute] Program
and the All Small Mentor-Prot[eacute]g[eacute] Program. The rule also
eliminates the requirement that 8(a) Participants seeking to be awarded
an 8(a) contract as a joint venture must submit the joint venture to
SBA for review and approval prior to contract award in every instance.
Additionally, the rule makes several other changes to the 8(a) BD
Program to eliminate or reduce unnecessary or excessive burdens on 8(a)
Participants.
The rule combines the 8(a) BD Mentor-Prot[eacute]g[eacute] Program
and the All Small Mentor-Prot[eacute]g[eacute] Program in order to
eliminate confusion regarding perceived differences between the two
Programs, remove unnecessary duplication of functions within SBA, and
establish one, unified staff to better coordinate and process mentor-
prot[eacute]g[eacute] applications. SBA originally established a
mentor-prot[eacute]g[eacute] program for 8(a) Participants a little
more than 20 years ago. 63 FR 35726, 35764 (June 30, 1998). The purpose
of that program was to encourage approved mentors to provide various
forms of business assistance to eligible 8(a) Participants to aid in
their development. On September 27, 2010, the Small Business Jobs Act
of 2010 (Jobs Act), Public Law 111-240 was enacted. The Jobs Act was
designed to protect the interests of small businesses and increase
opportunities in the Federal marketplace. The Jobs Act was drafted by
Congress in recognition of the fact that mentor-prot[eacute]g[eacute]
programs serve an important business development function for small
businesses and therefore included language authorizing SBA to establish
separate mentor-prot[eacute]g[eacute] programs for the Service-Disabled
Veteran-Owned Small Business Concern (SDVO SBC) Program, the HUBZone
Program, and the Women-Owned Small Business (WOSB)
[[Page 66147]]
Program, each of which was modeled on SBA's existing mentor-
prot[eacute]g[eacute] program available to 8(a) Participants. See
section 1347(b)(3) of the Jobs Act. Thereafter, on January 2, 2013, the
National Defense Authorization Act for Fiscal Year 2013 (NDAA 2013),
Public Law 112-239 was enacted. Section 1641 of the NDAA 2013
authorized SBA to establish a mentor-prot[eacute]g[eacute] program for
all small business concerns. This section further provided that a small
business mentor-prot[eacute]g[eacute] program must be identical to the
8(a) BD Mentor-Prot[eacute]g[eacute] Program, except that SBA could
modify each program to the extent necessary, given the types of small
business concerns to be included as prot[eacute]g[eacute]s.
Subsequently, SBA published a Final Rule in the Federal Register
combining the authorities contained in the Jobs Act and the NDAA 2013
to create a mentor-prot[eacute]g[eacute] program for all small
businesses. 81 FR 48558 (July 25, 2016).
The mentor-prot[eacute]g[eacute] program available to firms
participating in the 8(a) BD Program has been used as a business
development tool in which mentors provide diverse types of business
assistance to eligible 8(a) BD prot[eacute]g[eacute]s. This assistance
may include, among other things, technical and/or management
assistance; financial assistance in the form of equity investments and/
or loans; subcontracts; and/or assistance in performing Federal prime
contracts through joint venture arrangements. The explicit purpose of
the 8(a) BD Mentor-Prot[eacute]g[eacute] relationship has been to
enhance the capabilities of prot[eacute]g[eacute]s and to improve their
ability to successfully compete for both government and commercial
contracts. Similarly, the All Small Mentor-Prot[eacute]g[eacute]
Program is designed to require approved mentors to aid
prot[eacute]g[eacute] firms so that they may enhance their
capabilities, meet their business goals, and improve their ability to
compete for contracts. The purposes of the two programs are identical.
In addition, the benefits available under both programs are identical.
Small businesses and 8(a) Program Participants receive valuable
business development assistance and any joint venture formed between a
prot[eacute]g[eacute] firm and its SBA-approved mentor receives an
exclusion from affiliation, such that the joint venture will qualify as
a small business provided the prot[eacute]g[eacute] individually
qualifies as small under the size standard corresponding to the NAICS
code assigned to the procurement. A prot[eacute]g[eacute] firm may
enter a joint venture with its SBA-approved mentor and be eligible for
any contract opportunity for which the prot[eacute]g[eacute] qualifies.
If a prot[eacute]g[eacute] firm is an 8(a) Program Participant, a joint
venture between the prot[eacute]g[eacute] and its mentor could seek any
8(a) contract, regardless of whether the mentor-prot[eacute]g[eacute]
agreement was approved through the 8(a) BD Mentor-Prot[eacute]g[eacute]
Program or the All Small Mentor-Prot[eacute]g[eacute] Program.
Moreover, a firm could be certified as an 8(a) Participant after its
mentor-prot[eacute]g[eacute] relationship has been approved by SBA
through the All Small Mentor-Prot[eacute]g[eacute] Program and be
eligible for 8(a) contracts as a joint venture with its mentor once
certified.
Because the benefits and purposes of the two programs are
identical, SBA believes that having two separate mentor-
prot[eacute]g[eacute] programs is unnecessary and causes needless
confusion in the small business community. As such, this rule
eliminates a separate 8(a) BD Mentor-Prot[eacute]g[eacute] Program and
continues to allow any 8(a) Participant to enter a mentor-
prot[eacute]g[eacute] relationship through the All Small Mentor-
Prot[eacute]g[eacute] Program. Specifically, the rule revises Sec.
124.520 to merely recognize that an 8(a) Participant, as any other
small business, may participate in SBA's Small Business Mentor-
Prot[eacute]g[eacute] Program. In merging the 8(a) BD Mentor-
Prot[eacute]g[eacute] Program with the All Small Mentor-
Prot[eacute]g[eacute] Program, the rule also makes conforming
amendments to SBA's size regulations (13 CFR part 121), the joint
venture provisions (13 CFR 125.8), and the All Small Mentor-
Prot[eacute]g[eacute] Program regulations (13 CFR 125.9).
A mentor-prot[eacute]g[eacute] relationship approved by SBA through
the 8(a) BD Mentor-Prot[eacute]g[eacute] Program will continue to
operate as an SBA-approved mentor-prot[eacute]g[eacute] relationship
under the All Small Mentor-Prot[eacute]g[eacute] Program. It will
continue to have the same remaining time in the All Small Mentor-
Prot[eacute]g[eacute] Program as it would have had under the 8(a) BD
Mentor-Prot[eacute]g[eacute] Program if that Program continued. Any
mentor-prot[eacute]g[eacute] relationship approved under the 8(a) BD
Mentor-Prot[eacute]g[eacute] Program will count as one of the two
lifetime mentor-prot[eacute]g[eacute] relationships that a small
business may have under the All Small Mentor-Prot[eacute]g[eacute]
Program.
As stated previously, SBA has also taken this action partly in
response to the President's directive that each agency review its
regulations. Therefore, this rule also revises regulations pertaining
to the 8(a) BD and size programs in order to further reduce unnecessary
or excessive burdens on small businesses and to eliminate confusion or
more clearly delineate SBA's intent in certain regulations.
Specifically, this rule makes additional changes to the size and
socioeconomic status recertification requirements for orders issued
against multiple award contracts (MACs). A detailed discussion of these
changes is contained below in the Section-by-Section Analysis.
II. Section-by-Section Analysis
Section 121.103(b)(6)
The rule amends the references to SBA's mentor-
prot[eacute]g[eacute] programs in this provision, specifying that a
prot[eacute]g[eacute] firm cannot be considered affiliated with its
mentor based solely on assistance received by the prot[eacute]g[eacute]
under the mentor-prot[eacute]g[eacute] agreement. The rule eliminates
the cross-reference to the regulation regarding the 8(a) BD Mentor-
Prot[eacute]g[eacute] Program (13 CFR 124.520), leaving only the
reference to the regulation regarding the All Small Business Mentor-
Prot[eacute]g[eacute] Program.
Section 121.103(f)(2)(i)
Under Sec. 121.103(f)(2), SBA may presume an identity of interest
(and thus affiliate one concern with another) based upon economic
dependence if the concern in question derived 70 percent or more of its
receipts from another concern over the previous three fiscal years. The
proposed rule provided that this presumption may be rebutted by a
showing that despite the contractual relations with another concern,
the concern at issue is not solely dependent on that other concern,
such as where the concern has been in business for a short amount of
time and has only been able to secure a limited number of contracts or
where the contractual relations do not restrict the concern in question
from selling the same type of products or services to another
purchaser. Commenters supported this change, appreciating that SBA
seemed to be making economic dependence more about the issue of
control, where they thought it should be. SBA adopts this language as
final.
Section 121.103(g)
The rule amends the newly organized concern rule contained in Sec.
121.103(g) by clarifying that affiliation may be found where both
former and ``current'' officers, directors, principal stockholders,
managing members, or key employees of one concern organize a new
concern in the same or related industry or field of operation, and
serve as the new concern's officers, directors, principal stockholders,
managing members, or key employees. The rule merely adds the word
``current'' to the regulatory text to ensure that affiliation may arise
where the key individuals are still associated with the first company.
SBA believes that such a finding of affiliation has always been
authorized,
[[Page 66148]]
but merely seeks to clarify its intent to make sure there is no
confusion. Several commenters were concerned that the rule was not
clear with respect to entity-owned firms, specifically that the newly
organized concern rule should not apply to tribes, ANCs and NHOs. SBA
believes that entities and entity-owned firms are already excepted from
affiliation under the newly organized concern rule by Sec.
121.103(b)(2). A few commenters recommended that SBA put in clarifying
language to ensure that the rule cannot be read to contradict Sec.
124.109(c)(4)(iii), which permits a manager of a tribally-owned concern
to manage no more than two Program Participants at the same time. The
final rule adds such clarifying language.
Section 121.103(h)
The proposed rule sought to amend the introductory text to Sec.
121.103(h) to revise the requirements for joint ventures. SBA believes
that a joint venture is not an on-going business entity, but rather
something that is formed for a limited purpose and duration. If two or
more separate business entities seek to join together through another
entity on a continuing, unlimited basis, SBA views that as a separate
business concern with each partner affiliated with each other. To
capture SBA's intent on limited scope and duration, SBA's current
regulations provide that a joint venture is something that can be
formed for no more than three contracts over a two-year period. The
proposed rule sought to eliminate the three-contract limit for a joint
venture, but continue to prescribe that a joint venture cannot exceed
two years from the date of its first award. In addition, the proposed
rule clarified SBA's current intent that a novation to the joint
venture would start the two-year period if that were the first award
received by the joint venture. Commenters generally supported the
proposal to eliminate the three-contract limit, saying that the change
will eliminate significant and unnecessary confusion. Commenters also
believed that requiring partners to form a second or third joint
venture after they received three contract awards created an undue
administrative burden on joint ventures, and they viewed this change as
an elimination of an unnecessary burden. Several commenters recommended
further amending the rule to extend the amount of time that a joint
venture could seek contracts to some point greater than two years.
These commenters recommended two approaches, either allowing all joint
ventures to seek contracts for a period greater than two years or
allowing only joint ventures between a prot[eacute]g[eacute] and its
mentor to seek contracts beyond two years. In the mentor-
prot[eacute]g[eacute] context, commenters reasoned that a joint venture
between a prot[eacute]g[eacute] and its mentor should be either three
years (the length of the initial mentor-prot[eacute]g[eacute]
agreement) or six years (the total allowable length of time for a
mentor-prot[eacute]g[eacute] relationship to exist). It is SBA's view
that the requirements for all joint ventures should be consistent, and
that they should not be different with respect to joint ventures
between prot[eacute]g[eacute] firms and their mentors. One of the
purposes of this final rule is to remove inconsistencies and confusion
in the regulations. SBA believes that having differing requirements for
different types of joint ventures would add to, not reduce, the
complexity and confusion in the regulations. Regarding extending the
amount of time a joint venture could operate and seek additional
contracts generally, SBA opposes such an extension. As SBA noted in the
supplementary information to the proposed rule, SBA believes that a
joint venture should not be an on-going entity, but, rather, something
formed for a limited purpose with a limited duration. SBA believes that
allowing a joint venture to operate as an independent business entity
for more than two years erodes the limited purpose and duration
requirements of a joint venture. If the parties intend to jointly seek
work beyond two years from the date of the first award, the regulations
allow them to form a new joint venture. That new entity would then be
able to seek additional contracts over two years from the date of its
first award. Although requiring the formation of several joint venture
entities, SBA believes that is the correct approach. To do otherwise
would be to ignore what a joint venture is intended to do.
In addition, one commenter sought further clarification regarding
novations. The rule makes clear that where a joint venture submits an
offer prior to the two-year period from the date of its first award,
the joint venture can be awarded a contract emanating from that offer
where award occurs after the two-year period expires. The commenter
recommended that SBA add clarifying language that would similarly allow
a novation to occur after the two-year period if the joint venture
submits a novation package for contracting officer approval within the
two-year period. SBA agrees, and has added clarifying language to one
of the examples accompanying the regulatory text.
In the proposed rule, SBA also asked for comments regarding the
exception to affiliation for joint ventures composed of multiple small
businesses in which firms enter and leave the joint venture based on
their size status. In this scenario, in an effort to retain small
business status, joint venture partners expel firms that have exceeded
the size standard and then possibly add firms that qualify under the
size standard. This may be problematic where the joint venture is
awarded a Federal Supply Schedule (FSS) contract or any other MAC
vehicle. A joint venture that is awarded a MAC could receive many
orders beyond the two-year limitation for joint venture awards (since
the contract was awarded within that two-year period), and could remain
small for any order requiring recertification simply by exchanging one
joint venture partner for another (i.e., a new small business for one
that has grown to be other than small). SBA never intended for the
composition of joint ventures to be fluid. The joint venture generally
should have the same partners throughout its lifetime, unless one of
the partners is acquired. SBA considers a joint venture composed of
different partners to be a different joint venture than the original
one. To reflect this understanding, the proposed rule asked for
comments as to whether SBA should specify that the size of a joint
venture outside of the mentor-prot[eacute]g[eacute] program will be
determined based on the current size status and affiliations of all
past and present joint venture partners, even if a partner has left the
joint venture. SBA received several comments responding to this
provision on both sides of the issue. Several commenters believed that
SBA should not consider the individual size of partners who have left
the joint venture in determining whether the joint venture itself
continues to qualify as small. These commenters thought that permitting
substitution of joint venture partners allows small businesses to
remain competitive for orders under large, complex MACs. Other
commenters acknowledged that SBA has accurately recognized a problem
that gives a competitive advantage to joint ventures over individual
small businesses. They agreed that SBA likely did not contemplate a
continuous turnover of joint venture partners when it changed its
affiliation rules to allow a joint venture to qualify as small provided
that each of its partners individually qualified as small (instead of
aggregating the receipts or employees of all joint venture partners as
was previously the case). SBA notes that this really is an issue only
with respect to MACs. For a single award contract, size is
[[Page 66149]]
determined at one point in time--the date on which an offeror submits
its initial offer including price. Where an offeror is a joint venture,
it qualifies as small provided each of the partners to the joint
venture individually qualifies as small on the date of the offer. The
size of the joint venture awardee does not change if an individual
member of the joint venture grows to be other than small during the
performance of the contract. As detailed elsewhere in this rule, for a
MAC that is not set-aside for small business, however, size may be
determined as of the date a MAC holder submits its offer for a specific
order that is set-aside for small business. In such a case, if a
partner to the joint venture has grown to be other than small, the
joint venture would not be eligible as a small business for the order.
One commenter recommended that once a multi-small business joint
venture wins its first MAC, its size going forward (for future
contracts or any recertification required under the awarded MAC) should
be determined based on the size of the joint venture's present members
and any former members that were members as of the date the joint
venture received its first MAC. This would allow a joint venture to
remove members for legitimate reasons before the first award of the
first MAC, but not allow the joint venture to change members after such
an award just to be able to recertify as small for an order under the
MAC. SBA thoroughly considered all the comments in response to this
issue. After further considering the issue, SBA does not believe that
reaching back to consider the size of previous partners (who are no
longer connected to the joint venture) would be workable. A concern
that is no longer connected to the joint venture has no incentive to
cooperate and provide information relating to its size, even if it
still qualified individually as small. Thus, SBA is not making any
changes to the regulatory text to address this issue in this final
rule.
The rule also proposed to add clarifying language to the
introductory text of Sec. 121.103(h) to recognize that, although a
joint venture cannot be populated with individuals intended to perform
contracts awarded to the joint venture, the joint venture can directly
employ administrative personnel and such personnel may specifically
include Facility Security Officers. SBA received overwhelming support
of this change and adopts it as final in this rule.
The proposed rule also sought comments on the broader issue of
facility clearances with respect to joint ventures. SBA understands
that some procuring agencies will not award a contract requiring a
facility security clearance to a joint venture if the joint venture
itself does not have such clearance, even if both partners to the joint
venture individually have such clearance. SBA does not believe that
such a restriction is appropriate. Under SBA's regulations, a joint
venture cannot hire individuals to perform on a contract awarded to the
joint venture (the joint venture cannot be ``populated''). Rather, work
must be done individually by the partners to the joint venture so that
SBA can track who does what and ensure that some benefit flows back to
the small business lead partner to the joint venture. SBA proposed
allowing a joint venture to be awarded a contract where either the
joint venture itself or the lead small business partner to the joint
venture has the required facility security clearance. In such a case, a
joint venture lacking its own separate facility security clearance
could still be awarded a contract requiring such a clearance provided
the lead small business partner to the joint venture had the required
facility security clearance and committed to keep at its cleared
facility all records relating to the contract awarded to the joint
venture. Additionally, if it is established that the security portion
of the contract requiring a facility security clearance is ancillary to
the principal purpose of the procurement, then the non-lead partner to
the joint venture (which may include a large business mentor) could
possess such clearance. The majority of commenters supported this
proposal, agreeing that it does not make sense to require the joint
venture to have the necessary facility security clearance where the
joint venture entity itself is not performing the contract. These
commenters believed that as long as the joint venture partner(s)
performing the necessary security work had the required facility
security clearance, the Government would be adequately protected.
This rule also removes current Sec. 121.103(h)(3)(iii), which
provides that a joint venture between a prot[eacute]g[eacute] firm and
its mentor that was approved through the 8(a) BD Mentor-
Prot[eacute]g[eacute] Program is considered small provided the
prot[eacute]g[eacute] qualifies as individually small. Because this
rule eliminates the 8(a) BD Mentor-Prot[eacute]g[eacute] Program as a
separate program, this provision is no longer needed.
The proposed rule also clarified how to account for joint venture
receipts and employees during the process of determining size for a
joint venture partner. The joint venture partner must include its
percentage share of joint venture receipts and employees in its own
receipts or employees. The proposed rule provided that the appropriate
percentage share is the same percentage figure as the percentage figure
corresponding to the joint venture partner's share of work performed by
the joint venture. Commenters generally agreed with the proposed
treatment of receipts. Several commenters sought further clarification
regarding subcontractors, specifically asking how to treat revenues
generated through subcontracts from the individual partners. One
commenter recommended that the joint venture partner responsible for a
specific subcontract should take on that revenue as its share of the
contract's total revenues. As with all contracts, SBA does not exclude
revenues generated by subcontractors from the revenues deemed to be
received by the prime contractor. Where a joint venture is the prime
contractor, 100 percent of the revenues will be apportioned to the
joint venture partners, regardless of how much work is performed by
other subcontractors. The joint venture must perform a certain
percentage of the work between the partners to the joint venture
(generally 50 percent, but 15 percent for general construction). SBA
does not believe that it matters which partner to the joint venture the
subcontract flows through. Of the 50 percent of the total contract that
the joint venture partners must perform, SBA will look at how much is
performed by each partner. That is the percentage of total revenues
that will be attributed to each partner. This rule makes clear that
revenues will be attributed to the joint venture in the same percentage
as that of the work performed by each partner.
A few commenters thought that that same approach should not be
applied to the apportionment of employees. They noted that some or all
of the joint venture's employees may also be employed concurrently by a
joint venture partner. Without taking that into account, the proposed
methodology would effectively double count employees who were also
employed by one of the joint venture partners. In response, SBA has
amended this paragraph to provide that for employees, the appropriate
way to apportion individuals employed by the joint venture is the same
percentage of employees as the joint venture partner's percentage
ownership share in the joint venture, after first subtracting any joint
venture employee already accounted for in the employee count of one of
the partners.
[[Page 66150]]
Section 121.402
The proposed rule amended how NAICS codes are applied to task
orders to ensure that the NAICS codes assigned to specific procurement
actions, and the corresponding size standards, are an accurate
reflection of the contracts and orders being awarded and performed.
Consistent with the final rule for FAR Case 2014-002, 85 FR 11746 (Feb.
27, 2020), a contracting officer must assign a single NAICS code for
each order issued against a MAC, and that NAICS code must be a NAICS
code that is included in the underlying MAC and represents the
principal purpose of the order. SBA believes that the NAICS code
assigned to a task order must reflect the principal purpose of that
order. Currently, based on the business rules of the Federal
Procurement Data System (FPDS) and the FAR, all contracts including
MACs are restricted to only being assigned a single NAICS code, and if
a MAC is assigned a service NAICS code, then that service NAICS code
flows down to each individual order under that MAC. SBA does not
believe it is appropriate for a task order that is nearly entirely for
supplies to have a service NAICS code. In such a case, a firm being
awarded such an order would not have to comply with the nonmanufacturer
rule. In particular, set-aside orders should be assigned a
manufacturing/supply NAICS code, so that the nonmanufacturer rule will
apply to the order if it is awarded to a nonmanufacturer. Additionally,
the current method for NAICS code assignment can also be problematic
where a MAC is assigned a NAICS code for supplies but a particular
order under that MAC is almost entirely for services. In such a case,
firms that qualified as small for the larger employee-based size
standard associated with a manufacturing/supply NAICS code may not
qualify as small businesses under a smaller receipts-based services
size standard. As such, because the order is assigned the
manufacturing/supply NAICS code associated with the MAC, firms that
should not qualify as small for a particular procurement that is
predominantly for services may do so. SBA recognizes that Sec.
121.402(c) already provides for a solution that will ensure that NAICS
codes assigned to task and delivery orders accurately reflect the work
being done under the orders. Specifically, the requirement for certain
MACs to be assigned more than one NAICS code (e.g., service NAICS code
and supply NAICS code) will allow for orders against those MACs to
reflect both a NAICS code assigned to the MAC and also a NAICS code
that accurately reflects work under the order. The requirement to
assign certain MACs more than one NAICS code has already been
implemented in the FAR at 48 CFR 19.102(b)(2)(ii) but it will not go
into effect until October 1, 2022. The future effective date is when
FPDS is expected to implement the requirement and it allows all the
Federal agencies to budget and plan for internal system updates across
their multiple contracting systems to accommodate the requirement.
Thus, this rule makes only minor revisions to the existing regulations
to ensure that the NAICS codes assigned to specific procurement
actions, and the corresponding size standards, are an accurate
reflection of the contracts and orders being awarded and performed.
Commenters supported SBA's intent. They noted that allowing
contracting officers to assign a NAICS code to an order that differs
from the NAICS code(s) already contained in the MAC could unfairly
disadvantage contractors who did not compete for the MAC because they
did not know orders would be placed under NAICS codes not in the MAC's
solicitation. A commenter noted, however, that the proposed rule added
a new Sec. 121.402(c)(2)(ii) when it appears that a revision to Sec.
121.402(c)(2)(i) might be more appropriate. SBA agrees and has revised
Sec. 121.402(c)(2)(i) in this final rule to clarify that orders must
reflect a NAICS code assigned to the underlying MAC.
In addition, the rule makes a minor change to Sec. 121.402(e) by
removing the passive voice in the regulatory text. The rule also
clarifies that in connection with a size determination or size appeal,
SBA may supply an appropriate NAICS code designation, and accompanying
size standard, where the NAICS code identified in the solicitation is
prohibited, such as for set-aside procurements where a retail or
wholesale NAICS code is identified.
Sections 121.404(a)(1), 124.503(i), 125.18(d), and 127.504(c)
Size Status
SBA has been criticized for allowing agencies to receive credit
towards their small business goals for awards made to firms that no
longer qualify as small. SBA believes that much of this criticism is
misplaced. Where a small business concern is awarded a small business
set-aside contract with a duration of not more than five years and
grows to be other than small during the performance of the contract,
some have criticized the exercise of an option as an award to an other
than small business. SBA disagrees with such a characterization. Small
business set-aside contracts are restricted only to firms that qualify
as small as of the date of a firm's offer for the contract. A firm's
status as a small business is relevant to its qualifying for the award
of the contract. If a concern qualifies as small for a contract with a
duration of not more than five years, it is considered a small business
throughout the life of that contract. Even for MACs that are set-aside
for small business, once a concern is awarded a contract as a small
business it is eligible to receive orders under that contract and
perform as a small business. In such a case, size was relevant to the
initial award of the contract. Any competitor small business concern
could protest the size status of an apparent successful offeror for a
small business set-aside contract (whether single award or multiple
award), and render a concern ineligible for award where SBA finds that
the concern does not qualify as small under the size standard
corresponding to the NAICS code assigned to the contract. Furthermore,
firms awarded long-term small business set-aside contracts must
recertify their size status at five years and every option thereafter.
Firms are eligible to receive orders under that contract and perform as
a small business so long as they continue to recertify as small at the
required times (e.g., at five years and every option thereafter). Not
allowing a concern that legitimately qualified at award and/or
recertified later as small to receive orders and continue performance
as a small business during the base and option periods, even if it has
naturally grown to be other than small, would discourage firms from
wanting to do business with the Government, would be disruptive to the
procurement process, and would disincentivize contracting officers from
using small business set-asides.
SBA believes, however, that there is a legitimate concern where a
concern self-certifies as small for an unrestricted MAC and at some
point later in time when the concern no longer qualifies as small the
contracting officer seeks to award an order as a small business set-
aside and the firm uses its self-certification as a small business for
the underlying unrestricted MAC. A firm's status as a small business
does not generally affect whether the firm does or does not qualify for
the award of an unrestricted MAC contract. As such, competitors are
very unlikely to protest the size of a concern that self-certifies as
small for an unrestricted MAC. In SBA's view, where a contracting
officer sets aside an order for small business under
[[Page 66151]]
an unrestricted MAC, the order is the first time size status is
important. That is the first time that some firms will be eligible to
compete for the order while others will be excluded from competition
because of their size status. To allow a firm's self-certification for
the underlying MAC to control whether a firm is small at the time of an
order years after the MAC was awarded does not make sense to SBA.
In considering the issue, SBA looked at the data for orders that
were awarded as small business set-asides under unrestricted base
multiple award vehicles in FY 2018. In total, 8,666 orders were awarded
as small business set-asides under unrestricted MACs in FY 2018. Of
those set-aside orders, 10 percent are estimated to have been awarded
to firms that were no longer small in SAM under the NAICS code size
standard at the time of the order award. Further, it is estimated that
7.0 percent of small business set-aside orders under the FSS were
awarded to firms that were no longer small in SAM under the NAICS code
size standard at the time of the order (510 out of 7,266 orders). That
amounted to 12.6 percent of the dollars set-aside for small business
under the FSS ($129.6 million to firms that were no longer small in SAM
out of a total of $1.0723 billion in small business set-aside orders).
Whereas, it is estimated that 49.4 percent of small business set-aside
orders under government-wide acquisition contracts (GWACs) were awarded
to firms that were no longer small in SAM under the NAICS code size
standard at the time of the order (261 out of 528 orders). That
amounted to 67 percent of the dollars set-aside for small business
under GWACs ($119.6 million to firms that were no longer small in SAM
out of a total of $178.6 million in small business set-aside orders).
SBA then considered the number and dollar value of new orders that were
awarded as small business set-asides under unrestricted base multiple
award vehicles in FY 2018 using the size standard ``exceptions'' that
apply in some of SBA's size standards (e.g., the IT Value-Added
Reseller exception to NAICS 541519). Taking into account all current
size standards exceptions, which allow a firm to qualify under an
alternative size standard for certain types of contracts, it is
estimated that 6.4 percent of small business set-aside orders under the
FSS were awarded to firms that were no longer small in SAM at the time
of the order (468 out of 7,266 orders). That amounted to 11.3 percent
of the dollars set-aside for small business under the FSS ($120.7
million to firms that were no longer small in SAM out of a total of
$1.0723 billion in small business set-aside orders). Considering
exceptions for set-aside orders under GWACs, it is estimated that 11.6
percent were awarded to firms that were no longer small in SAM at the
time of the order (61 out of 528 orders). That amounted to 39.5 percent
of the dollars set-aside for small business under GWACs ($70.5 million
to firms that were no longer small in SAM out of a total of $178.6
million in small business set-aside orders). It is not possible to tell
from FPDS whether the ``exception'' size standard applied to the
contract or whether the agency applied the general size standard for
the identified NAICS code. Thus, all that can be said with certainty is
that for small business set-aside orders under the FSS, between 11.3
percent and 12.1 percent of the order dollars set-aside for small
business were awarded to firms that were no longer small in SAM. This
amounted to somewhere between $120.7 million and $129.6 that were
awarded to firms that were no longer small in SAM. For GWACs, the
percentage of orders and order dollars being awarded to firms that no
longer qualify as small is significantly greater. Between 39.5 percent
and 67.0 percent of the order dollars set-aside for small business
under GWACs were awarded to firms that were no longer small in SAM.
This amounted to somewhere between $70.5 million and $119.6 million
that were awarded to firms that were no longer small in SAM.
Because discretionary set-asides under the FSS programs have proven
effective in making awards to small business under the program and SBA
did not want to add unnecessary burdens to the program that might
discourage the use of set-asides, the proposed rule provided that,
except for orders or Blanket Purchase Agreements issued under any FSS
contract, if an order under an unrestricted MAC is set-aside
exclusively for small business (i.e., small business set-aside, 8(a)
small business, service-disabled veteran-owned small business, HUBZone
small business, or women-owned small business), a concern must
recertify its size status and qualify as such at the time it submits
its initial offer, which includes price, for the particular order.
SBA received a significant number of comments on this issue. Many
commenters supported the proposed language as a needed approach to
ensure that firms that are not small do not receive orders set-aside
for small businesses and procuring agencies do not inappropriately take
credit for awards to small business when the awardees are not in fact
small. Many of these commenters believed that it was not fair to them
as small businesses to have to compete for small business set-aside
orders under unrestricted MACs with concerns that did not currently
qualify as small and may not have done so for several years. Other
commenters opposed the proposal for various reasons. Some believed that
the regulations should be intended to foster and promote growth in
small businesses and that the recertification requirement could stifle
that growth. Others believed that the proposal undermines the general
rule that a concern maintains its small business status for the life of
a contract. SBA does not believe that a rule that requires a concern to
actually be what it claims to be (i.e., a small business) in any way
stifles growth. Of course, SBA supports the growth of small businesses
generally. SBA encourages concerns to grow naturally and permits
concerns that have been awarded small business set-aside contracts to
continue to perform those contracts as small businesses throughout the
life of those contracts (i.e., for the base and up to four additional
option years). This rule merely responds to perceptions that SBA has
permitted small business awards to concerns that do not qualify as
small. As noted above, it is intended to apply only to unrestricted
procurements where size and status were not relevant to the award of
the underlying MAC. SBA also disagrees that this provision is
inconsistent with the general rule that once a concern qualifies as
small for a contract it can maintain its status as a small business
throughout the life of that contract. SBA does not believe that a
representation of size or status that does not affect the concern's
eligibility to be awarded a contract should have the same significance
as one that does.
Several commenters agreed with SBA's intent but believed that the
rule needed to more accurately take into account today's complex
acquisition environment. These commenters noted that many MACs now seek
to make awards to certain types of business concerns (i.e., small,
8(a), HUBZone, WOSB, SDVO) in various reserves or ``pools,'' and that
concerns may be excluded from a particular pool if they do not qualify
as eligible for the pool. These commenters recommended that a concern
being awarded a MAC for a particular pool should be able to carry the
size and/or status of that pool to each order made to the pool. SBA
agrees. As noted above, SBA proposed recertification in connection with
orders
[[Page 66152]]
set-aside for small business under an unrestricted MAC because that is
the first time that some firms will be eligible to compete for the
order while others will be excluded from competition because of their
size and/or status. However, where a MAC solicitation seeks to make
awards to reserves or pools of specific types of small business
concerns, the concerns represent that they are small or qualify for the
status designated by the pool and having that status or not determines
whether the firm does or does not qualify for the award of a MAC
contract for the pool. In such a case, SBA believes that size and
status should flow from the underlying MAC to individual orders issued
under that MAC, and the firm can continue to rely on its
representations for the MAC itself unless a contracting officer
requests recertification of size and/or status with respect to a
specific order. SBA makes that revision in this final rule.
Many commenters also believed that there was no legitimate
programmatic reason for excluding the FSS program from this
recertification requirement. The commenters, however, miss that the FSS
program operates under a separate statutory authority and that set-
asides are discretionary, not mandatory under this authority. SBA and
GSA worked closely together to stand up and create this discretionary
authority and it has been very successful. This discretionary set-aside
authority was authorized by the Small Business Jobs Act of 2010 (Pub.
L. 111-240) and implemented in FAR 8.405-5 in November 2011. As a
result, benefits to small businesses have been significant. The small
business share of GSA Schedule sales rose from 30% in fiscal year 2010
(the last full fiscal year before the authority was implemented) to 39%
in fiscal year 2019. That equates to an additional $1 billion going to
small businesses in fiscal year 2019. Although SBA again considered
applying the recertification requirement to the FSS program (and allow
the FSS, as with any other MAC, to establish reserves or pools for
business concerns with a specified size or status), SBA believes that
is unworkable at this time. Consequently, consistent with the proposed
rule, this final rule does not apply the modified recertification
requirement to the FSS program. Doing so would pose an unnecessary risk
to a program currently yielding good results for small business.
For a MAC that is set aside for small business (i.e., small
business set-aside, 8(a) small business, SDVO small business, HUBZone
small business, or WOSB), the rule generally sets size status as of the
date of the offer for the underlying MAC itself. A concern that is
small at the time of its offer for the MAC will be considered small for
each order issued against the contract, unless a contracting officer
requests a size recertification in connection with a specific order. As
is currently the case, a contracting officer has the discretion to
request recertification of size status on MAC orders. If that occurs,
size status would be determined at the time of the order. That would
not be a change from the current regulations.
Socioeconomic Status
Where the required status for an order differs from that of the
underlying contract (e.g., the MAC is a small business set-aside award,
and the procuring agency seeks to restrict competition on the order to
only certified HUBZone small business concerns), SBA believes that a
firm must qualify for the socioeconomic status of a set-aside order at
the time it submits an offer for that order. Although size may flow
down from the underlying contract, status in this case cannot. Similar
to where a procuring agency seeks to compete an order on an
unrestricted procurement as a small business set-aside and SBA would
require offerors to qualify as small with respect to that order,
(except for orders under FSS contracts),), SBA believes that where the
socioeconomic status is first required at the order level, an offeror
seeking that order must qualify for the socioeconomic status of the
set-aside order when it submits its offer for the order.
Under current policy and regulations, where a contracting officer
seeks to restrict competition of an order under an unrestricted MAC to
eligible 8(a) Participants only, the contracting officer must offer the
order to SBA to be awarded through the 8(a) program, and SBA must
accept the order for the 8(a) program. In determining whether a concern
is eligible for such an 8(a) order, SBA would apply the provisions of
the Small Business Act and its current regulations which require a firm
to be an eligible Program Participant as of the date set forth in the
solicitation for the initial receipt of offers for the order.
This final rule makes these changes in Sec. 121.404(a)(1) for
size, Sec. 124.503(i) for 8(a) BD eligibility, Sec. 125.18(d) for
SDVO eligibility, and Sec. 127.504(c) for WOSB eligibility.
Several commenters voiced concern with allowing the set-aside of
orders to a smaller group of firms than all holders of a MAC. They
noted that bid and proposal preparation costs can be significant and a
concern that qualified for the underlying MAC as a small business or
some other specified type of small business could be harmed if every
order was further restricted to a subset of small business. For
example, where a MAC is set-aside for small business and every order
issued under that MAC is set-aside for 8(a) small business concerns,
SDVO small business concerns, HUBZone small business concerns and
WOSBs, those firms that qualified only as small business concerns would
be adversely affected. In effect, they would be excluded from competing
for every order. SBA agrees that is a problem. That is not what SBA
intended when it authorized orders issued under small business set-
aside contracts to be further set-aside for a specific type of small
business. SBA believes that an agency should not be able to set-aside
all of the orders issued under a small business set-aside MAC for a
further limited specific type of small business. As such, this final
rule provides that where a MAC is set-aside for small business, the
procuring agency can set-aside orders issued under the MAC to a more
limited type of small business. Contracting officers are encouraged to
review the award dollars under the MAC and to aim to make available for
award at least 50 percent of the award dollars under the MAC to all
contract holders of the underlying MAC.
In addition, a few commenters asked for further clarification as to
whether orders issued under a MAC set-aside for 8(a) Participants,
HUBZone small business concerns, SDVO small business concerns or WOSBs/
EDWOSBs could be further set aside for a more limited type of small
business. These commenters specifically did not believe that allowing
the further set-aside of orders issued under a multiple award set-aside
contract should be permitted in the 8(a) context. The commenters noted
that the 8(a) program is a business development program of limited
duration (i.e., nine years), and felt that it would be detrimental to
the business development of 8(a) Participants generally if an agency
could issue an order set-aside exclusively for 8(a) HUBZone small
business concerns, 8(a) SDVO small business concerns, or 8(a) WOSBs.
The current regulatory text of Sec. 125.2(e)(6)(i) provides that a
``contracting officer has the authority to set aside orders against
Multiple Award Contracts, including contracts that were set aside for
small business,'' for small and subcategories of small businesses. SBA
intended to allow a contracting officer to issue orders for
subcategories of small businesses only under small
[[Page 66153]]
business set-aside contracts. This rule clarifies that intent.
Section 121.404
In addition to the revision to Sec. 121.404(a)(1) identified
above, the rule makes several other changes or clarifications to Sec.
121.404. In order to make this section easier to use and understand,
the rule adds headings to each subsection, which identify the subject
matter of the subsection.
The proposed rule amended Sec. 121.404(b), which requires a firm
applying to SBA's programs to qualify as a small business for its
primary industry classification as of the date of its application. The
proposed rule eliminated references to SBA's small disadvantaged
business (SDB) program as obsolete, and added a reference to the WOSB
program. SBA received no comments on these edits and adopts them as
final in this rule.
The proposed rule also amended Sec. 121.404(d) to clarify that
size status for purposes of compliance with the nonmanufacturer rule,
the ostensible subcontractor rule and joint venture agreement
requirements is determined as of the date of the final proposal
revision for negotiated acquisitions and final bid for sealed bidding.
Currently, only compliance with the nonmanufacturer rule is
specifically addressed in this paragraph, but SBA's policy has been to
apply the same rule to determine size with respect to the ostensible
subcontractor rule and joint venture agreement requirements. This would
not be a change in policy, but rather a clarification of existing
policy. Several commenters misconstrued this to be a change in policy
or believed that this would be a departure from the snapshot in time
rule for determining size as of the date a concern submits its initial
offer including price. As noted, SBA has intended this to be the
current policy and is merely clarifying it in the regulatory text. In
addition, SBA does not view this as a departure from the snapshot in
time rule. The receipts/employees are determined at one specific point
in time--the date on which a concern submits its initial offer
including price. SBA believes that compliance with the nonmanufacturer
rule, the ostensible subcontractor rule and joint venture agreement
requirements can justifiably change during the negotiation process. If
an offer changes during negotiations in a way that would make a large
business mentor joint venture partner be in control of performance, for
example, SBA does not believe that the joint venture should be able to
point back to its initial offer in which the small business
prot[eacute]g[eacute] partner to the joint venture appeared to be in
control.
The proposed rule also added a clarifying sentence to Sec.
121.404(e) that would recognize that prime contractors may rely on the
self-certifications of their subcontractors provided they do not have a
reason to doubt any specific self-certification. SBA believes that this
has always been the case, but has added this clarifying sentence,
nevertheless, at the request of many prime contractors. SBA received
positive comments on this change and adopts it as final in this rule.
The proposed rule made several revisions to the size
recertification provisions in Sec. 121.404(g). First, the
recertification rule pertaining to a joint venture that had previously
received a contract as a small business was not clear. If a partner to
the joint venture has been acquired, is acquiring or has merged with
another business entity, the joint venture must recertify its size
status. In order to remain small, however, it was not clear whether
only the partner which has been acquired, is acquiring or has merged
with another business entity needed to recertify its size status or
whether all partners to the joint venture had to do so. The proposed
rule clarified that only the partner to the joint venture that has been
acquired, is acquiring, or has merged with another business entity must
recertify its size status in order for the joint venture to recertify
its size. Commenters generally supported this revision. One commenter
believed that a joint venture should be required to recertify its size
only where the managing venture, or the small business concern upon
which the joint venture's eligibility for the contract was based, is
acquired by, is acquiring, or has merged with another business entity.
SBA disagrees. SBA seeks to make the size rules pertaining to joint
ventures similar to those for individual small businesses. Where an
individual small business awardee grows to be other than small, its
performance on a small business contract continues to count as an award
to small business. Similarly, where a joint venture partner grows to be
other than small naturally, that should not affect the size of the
joint venture. However, under SBA's size rules, in order for a joint
venture to be eligible as small, each partner to the joint venture must
individually qualify as small. Size is not determined solely by looking
at the size of the managing venture. Just as an individual small
business awardee must recertify its size if it is acquired by, is
acquiring, or has merged with another business entity, so too should
the partner to a joint venture that is acquired by, is acquiring, or
has merged with another business entity. As such, SBA adopts the
proposed language as final in this rule.
Additionally, the proposed rule clarified that if a merger or
acquisition causes a firm to recertify as an other than small business
concern between time of offer and award, then the recertified firm is
not considered a small business for the solicitation. Under the
proposed rule, SBA would accept size protests with specific facts
showing that an apparent awardee of a set-aside has recertified or
should have recertified as other than small due to a merger or
acquisition before award. SBA received comments on both sides of this
issue. Some commenters supported the proposed provision as a way to
ensure that procuring agencies do not make awards to firms who are
other than small. They thought that such awards could be viewed as
frustrating the purpose of small business set-asides. Other commenters
opposed the proposed change. A few of these commenters believed that a
firm should remain small if it was small at the time it submitted its
proposal. SBA wants to make it clear that is the general rule. Size is
generally determined only at the date of offer. If a concern grows to
be other than small between the date of offer and the date of award
(e.g., another fiscal year ended and the revenues for that just
completed fiscal year render the concern other than small), it remains
small for the award and performance of that contract. The proposed rule
dealt only with the situation where a concern merged with or was
acquired by another concern after offer but before award. As stated in
the supplementary information to the proposed rule, SBA believes that
situation is different than natural growth. Several other commenters
opposing the proposed rule believed such a policy could adversely
affect small businesses due to the often lengthy contract award
process. Contract award can often occur 18 months or more after the
closing date for the receipt of offers. A concern could submit an offer
and have no plans to merge or sell its business at that time. If a
lengthy amount of time passes, these commenters argued that the concern
should not be put in the position of declining to make a legitimate
business decision concerning the possible merger or sale of the concern
simply because the concern is hopeful of receiving the award of a
contract as a small business. Several commenters recommended an
intermediate position where recertification must occur if the merger or
acquisition occurs within a certain amount of time from either the
concern's offer or the date for the receipt
[[Page 66154]]
of offers set forth in the solicitation. This would allow SBA to
prohibit awards to concerns that may appear to have simply delayed an
action that was contemplated prior to submitting their offers, but at
the same time not prohibit legitimate business decisions that could
materialize months after submitting an offer. Commenters recommended
requiring recertification when merger or acquisition occurs within 30
days, 90 days and 6 months of the date of an offer. SBA continues to
believe that recertification should be required when it occurs close in
time to a concern's offer, but agrees that it would not be beneficial
to discourage legitimate business transactions that arise months after
an offer is submitted. In response, the final rule continues to provide
that if a merger, sale or acquisition occurs after offer but prior to
award the offeror must recertify its size to the contracting officer
prior to award. If the merger, sale or acquisition (including
agreements in principal) occurs within 180 days of the date of an
offer, the concern will be ineligible for the award of the contract. If
it occurs after 180 days, award can be made, but it will not count as
an award to small business.
The proposed rule also clarified that recertification is not
required when the ownership of a concern that is at least 51 percent
owned by an entity (i.e., tribe, ANC, or Community Development
Corporation (CDC)) changes to or from a wholly-owned business concern
of the same entity, as long as the ultimate owner remains that entity.
When the small business continues to be owned to the same extent by the
tribe, ANC or CDC, SBA does not believe that the real ownership of the
concern has changed, and, therefore, that recertification is not
needed. Commenters overwhelmingly supported this change, and SBA adopts
it as final in this rule. The rule makes this same change to Sec.
121.603 for 8(a) contracts as well.
Finally, the proposed rule sought to amend Sec. 121.404(g)(3) to
specifically permit a contracting officer to request size
recertification as he or she deems appropriate at any point in a long-
term contract. SBA believes that this authority exists within the
current regulatory language but is merely articulating it more clearly
in this rule. Several commenters opposed this provision, believing that
it would undermine the general rule that a concern's size status should
be determined as of the date of its initial offer. They believe that
establishing size at one point in time provides predictability and
consistency to the procurement process. SBA agrees that size for a
single award contract that does not exceed five years should not be
reexamined during the life of a contract. SBA believes, however, that
the current regulations allow a contracting officer to seek
recertifications with respect to MACs. Pursuant to Sec. 121.404(g),
``if a business concern is small at the time of offer for a Multiple
Award Contract . . ., then it will be considered small for each order
issued against the contract with the same NAICS code and size standard,
unless a contracting officer requests a new size certification in
connection with a specific order.'' (Emphasis added). The regulations
at Sec. 121.404(g)(3) also provide that for a MAC with a duration of
more than five years, a contracting officer must request that a
business concern recertify its small business size status no more than
120 days prior to the end of the fifth year of the contract, and no
more than 120 days prior to exercising any option thereafter. Under
this provision, a business concern is not required to recertify its
size status until prior to the end of the fifth year of that contact.
However, SBA also interprets Sec. 121.404(g)(3) as not prohibiting a
contracting officer from requesting size recertification prior to the
120-day point in the fifth year of the long-term contract. As noted
above, the general language of Sec. 121.404(g) allows a contracting
officer to request size recertification with respect to each order. SBA
believes that the regulations permit a contracting officer the
discretion to request size recertification at the contract level prior
to the end of the fifth year if explicitly requested for the contract
at issue and if requested of all contract holders. In this respect, the
authority to request size recertification at the contract level prior
to the fifth year is an extension of the authority to request
recertification for subsequent orders. As such, this final rule
clarifies that a contracting officer has the discretion to request size
recertification as he or she deems appropriate at any point only for a
long-term MAC.
Section 121.406
The rule merely corrects a typographical error by replacing the
word ``provided'' with the word ``provide.''
Section 121.702
The proposed rule clarified the size requirements applicable to
joint ventures in the Small Business Innovation Research (SBIR)
program. Although the current regulation authorizes joint ventures in
the SBIR program and recognizes the exclusion from affiliation afforded
to joint ventures between a prot[eacute]g[eacute] firm and its SBA-
approved mentor, it does not specifically apply SBA's general size
requirements for joint ventures to the SBIR program. The proposed rule
merely sought to apply the general size rule for joint ventures to the
SBIR program. In other words, a joint venture for an SBIR award would
be considered a small business provided each partner to the joint
venture, including its affiliates, meets the applicable size standard.
In the case of the SBIR program, this means that each partner does not
have more than 500 employees. Comments favored this proposal and SBA
adopts it as final in this rule.
Section 121.1001
SBA proposed to amend Sec. 121.1001 to provide authority to SBA's
Associate General Counsel for Procurement Law to independently initiate
or file a size protest, where appropriate. Commenters supported this
provision, and SBA adopts it as final in this rule. In response to a
comment, the final rule also revises Sec. 121.1001(b) to reflect which
entities can request a formal size determination. Specifically, a
commenter pointed out that although Sec. 121.1001(b) gave applicants
for and participants in the HUBZone and 8(a) BD programs the right to
request formal size determinations in connection with applications and
continued eligibility for those programs, it did not provide that same
authority to WOSBs/EDWOSBs and SDVO small business concerns in
connection with the WOSB and SDVO programs. The final rule harmonizes
the procedures for SBA's various programs as part of the Agency's
ongoing effort to promote regulatory consistency.
Sections 121.1004, 125.28, 126.801, and 127.603
This rule adds clarifying language to Sec. 121.1004, Sec. 125.28,
Sec. 126.801, and Sec. 127.603 regarding size and/or socioeconomic
status protests in connection with orders issued against a MAC.
Currently, the provisions authorize a size protest where an order is
issued against a MAC if the contracting officer requested a
recertification in connection with that order. This rule specifically
authorizes a size protest relating to an order issued against a MAC
where the order is set-aside for small business and the underlying MAC
was awarded on an unrestricted basis, except for orders or Blanket
Purchase Agreements issued under any FSS contract. The rule also
specifically authorizes a socioeconomic protest relating to set-aside
orders based on a different socioeconomic status from the underlying
set-aside MAC.
[[Page 66155]]
Section 121.1103
An explanation of the change is provided with the explanation for
Sec. 134.318.
Section 124.3
In response to concerns raised to SBA by several Program
Participants, the proposed rule added a definition of what a follow-on
requirement or contract is. Whether a procurement requirement may be
considered a follow-on procurement is important in several contexts
related to the 8(a) BD program. First, SBA's regulations provide that
where a procurement is awarded as an 8(a) contract, its follow-on or
renewable acquisition must remain in the 8(a) BD program unless SBA
agrees to release it for non-8(a) competition. 13 CFR 124.504(d)(1).
SBA's regulations also require SBA to conduct an adverse impact
analysis when accepting requirements into the 8(a) BD program. However,
an adverse impact analysis is not required for follow-on or renewal
8(a) acquisitions or for new requirements. 13 CFR 124.504(c). Finally,
SBA's regulations provide that once an applicant is admitted to the
8(a) BD program, it may not receive an 8(a) sole source contract that
is a follow-on procurement to an 8(a) contract that was performed
immediately previously by another Participant (or former Participant)
owned by the same tribe, ANC, NHO, or CDC. 13 CFR 124.109(c)(3)(ii),
124.110(e) and 124.111(d).
In order to properly assess what each of these regulations
requires, the proposed rule defined the term ``follow-on requirement or
contract''. The definition identified certain factors that must be
considered in determining whether a particular procurement is a follow-
on requirement or contract: (1) Whether the scope has changed
significantly, requiring meaningful different types of work or
different capabilities; (2) whether the magnitude or value of the
requirement has changed by at least 25 percent; and (3) whether the end
user of the requirement has changed. These considerations should be a
guide, and not necessarily dispositive of whether a requirement
qualifies as ``new.'' Applying the 25 percent rule contained in this
definition rigidly could permit procuring agencies and entity-owned
firms to circumvent the intent of release, sister company restriction,
and adverse impact rules.
For example, a procuring agency may argue that two procurement
requirements that were previously awarded as individual 8(a) contracts
can be removed from the 8(a) program without requesting release from
SBA because the value of the combined requirement would be at least 25
percent more than the value of either of the two previously awarded
individual 8(a) contracts, and thus would be considered a new
requirement. Such an application of the new requirement definition
would permit an agency to remove two requirements from the 8(a) BD
program without requesting and receiving SBA's permission for release
from the program. We believe that would be inappropriate and that a
procuring agency in this scenario must seek SBA's approval to release
the two procurements previously awarded through the 8(a) BD program.
Likewise, if an entity-owned 8(a) Participant previously performed two
sole source 8(a) contracts and a procuring agency sought to offer a
sole source requirement to the 8(a) BD program on behalf of another
Participant owned by the same entity (tribe, ANC, NHO, or CDC) that, in
effect, was a consolidation of the two previously awarded 8(a)
procurements, we believe it would be inappropriate for SBA to accept
the offer on behalf of the sister company. Similarly, if a small
business concern previously performed two requirements outside the 8(a)
program and a procuring agency wanted to combine those two requirements
into a larger requirement to be offered to the 8(a) program, SBA should
perform an adverse impact analysis with respect to that small business
even though the combined requirement had a value that was greater than
25 percent of either of the previously awarded contracts.
SBA received a significant number of comments regarding what a
follow-on requirement is and how SBA's rules regarding what a follow-on
contract is should be applied to the three situations identified above.
Many commenters believed that the proposed language was positive
because it will help alleviate confusion in determining whether a
requirement should be considered a follow-on or not. In terms of taking
requirements or parts of requirements that were previously performed
through the 8(a) program out of the program, commenters overwhelmingly
supported SBA's involvement in the release process. Commenters were
concerned that agencies have increased the value of procurement
requirements marginally by 25 percent merely to call the procurements
new and remove them from the 8(a) program without going through the
release process. These commenters were particularly concerned where the
primary and vital requirements of a procurement remained virtually
identical and an agency merely intended to add ancillary work in order
to freely remove the procurement from the 8(a) BD program. A few
commenters also recommended that SBA provide clear guidance when the
contract term of the previously awarded 8(a) contract is different than
that of a successor contracting action. Specifically, these commenters
believed that an agency should not be able to compare a contract with
an overall $2.5 million value (consisting of a one year base period and
four one-year options each with a $500,000 value) with a successor
contract with an overall value of $1.5 million (consisting of a one
year base period and two one-year options each with a $500,000 value)
and claim it to be new. In such a case, the yearly requirement is
identical and commenters believed the requirement should not be removed
without going through the release process. SBA agrees. The final rule
clarifies that equivalent periods of performance relative to the
incumbent or previously-competed 8(a) requirement should be compared.
Many commenters agreed that the 25 percent rule should not be
applied rigidly, as that may open the door for the potential for (more)
contracts to be taken out of the 8(a) BD program. Commenters also
believed that SBA should be more involved in the process, noting that
firms currently performing 8(a) contracts often do not discover a
procuring agency's intent to reprocure that work outside the 8(a) BD
program by combining it with other work and calling it a new
requirement until very late in the procurement process. Once a
solicitation is issued that combines work previously performed through
an 8(a) contract with other work, it is it difficult to reverse even
where SBA believes that the release process should have been followed.
Several commenters recommended adding language that would require a
procuring agency to obtain SBA concurrence that a procurement
containing work previously performed through an 8(a) contract does not
represent a follow-on requirement before issuing a solicitation for the
procurement. Although SBA does not believe that concurrence should be
required, SBA does agree that a procuring activity should notify SBA if
work previously performed through the 8(a) program will be performed
through a different means. A contracting officer will make the
determination as to whether a requirement is new, but SBA should be
given the opportunity to look at the procuring activity's strategy and
supply input where appropriate. SBA has added such language to Sec.
124.504(d) in this final rule.
[[Page 66156]]
Several commenters supported the proposed definition of a follow-on
procurement for release purposes where they agreed that a procuring
agency should not be able to remove two requirements from the 8(a)
program merely by combining them and calling the consolidated
requirement new because it exceeds the 25 percent increase in
magnitude. These commenters, however, recommended that the 25 percent
change in magnitude be a ``bright-line rule'' with respect to whether a
requirement should be considered a follow-on requirement to an 8(a)
contract that was performed immediately previously by another
Participant (or former Participant) owned by the same tribe, ANC,
Native Hawaiian Organization (NHO), or CDC. SBA understands the desire
to have clear, objective rules. However, as noted previously, SBA
opposes a bright-line 25 percent change in magnitude rule in connection
with release. In addition, because SBA does not believe that it is good
policy to have one definition of what a follow-on requirement is for
one purpose and have a different definition for another purpose, SBA
opposes having a bright-line 25 percent change in magnitude rule in
determining whether to allow a sister company to perform a particular
sole source 8(a) contract and then provide discretion only in the
context of whether certain work can be removed from the 8(a) program.
SBA continues to believe that the language as proposed that allows
discretion when appropriate is the proper alternative. In the context
of determining whether to allow a sister company to perform a
particular sole source 8(a) contract, SBA agrees that a 25 percent
change in magnitude should be sufficient for SBA to approve a sole
source contract to a sister company. It would be the rare instance
where that is not the case.
Section 124.105
The proposed rule amended Sec. 124.105(g) to provide more clarity
regarding situations in which an applicant has an immediate family
member that has used his or her disadvantaged status to qualify another
current or former Participant. The purpose of the immediate family
member restriction is to ensure that one individual does not unduly
benefit from the 8(a) BD program by participating in the program beyond
nine years, albeit through a second firm. This most often happens when
a second family member in the same or similar line of business seeks
8(a) BD certification. However, it is not necessarily the type of
business which is a problem, but, rather, the involvement in the
applicant firm of the family member that previously participated in the
program. The current regulatory language requires an applicant firm to
demonstrate that ``no connection exists'' between the applicant and the
other current or former Participant. SBA believes that requiring no
connections is a bit extreme. If two brothers own two totally separate
businesses, one as a general construction contractor and one as a
specialty trade construction contractor, in normal circumstances it
would be completely reasonable for the brother of the general
construction firm to hire his brother's specialty trade construction
firm to perform work on contracts that the general construction firm
was doing. Unfortunately, if either firm was a current or former
Participant, SBA's rules prevented SBA from certifying the second firm
for participation in the program, even if the general construction firm
would pay the specialty trade firm the exact same rate that it would
have to pay to any other specialty trade construction firm. SBA does
not believe that makes sense. An individual should not be required to
avoid all contact with the business of an immediate family member. He
or she should merely have to demonstrate that the two businesses are
truly separate and distinct entities.
To this end, SBA proposed that an individual would not be able to
use his or her disadvantaged status to qualify a concern for
participation in the 8(a) BD program if that individual has an
immediate family member who is using or has used his or her
disadvantaged status to qualify another concern for the 8(a) BD program
and the concerns are connected by any common ownership or management,
regardless of amount or position, or the concerns have a contractual
relationship that was not conducted at arm's length. In the first
instance, if one of the two family members (or business entities owned
by the family member) owned any portion of the business owned by the
other family member, the second in time family member could not qualify
his or her business for the 8(a) BD program. Similarly, if one of the
two family members had any role as a director, officer or key employee
in the business owned by the other family member, the second in time
family member could not qualify his or her business for the 8(a) BD
program. In the second instance, the second in time family member could
not qualify his or her business for the 8(a) BD program if it received
or gave work to the business owned by the other family member at other
than fair market value. With these changes, SBA believes that the rule
more accurately captures SBA's intent not to permit one individual from
unduly benefitting from the program, while at the same time permitting
normal business relations between two firms. Commenters generally
supported this change. A few commenters supported the provision but
believed that an additional basis for disallowing a new immediate
family member applicant into the 8(a) BD program should be where the
applicant shared common facilities with a current or former Participant
owned and controlled by an immediate family member. SBA agrees that an
applicant owned by an immediate family member of a current or former
Participant should not be permitted to share facilities with that
current or former Participant. This rule adds that situation as a basis
for declining an applicant. Several commenters sought further
clarification as to whether a presumption against immediate family
members in the same or similar line of business would continue from the
previous regulations into this revised provision, and whether some sort
of waiver will be needed to allow an immediate family member applicant
to be certified into the 8(a) BD program. In particular, a few
commenters were concerned that if an immediate family member attempted
to certify an applicant concern in the same primary NAICS as the
current or former Participant and the individual applying for
certification has no management or technical experience in that NAICS
code, that the owner/manager of the current or former Participant would
play a significant role in the applicant concern even though a formal
role was not identified. As noted above, SBA believes that the rules
pertaining to immediate family members seeking to participate in the
8(a) BD program have been too harsh. The rule seeks to allow an
applicant owned and controlled by an immediate family member of current
or former Participant into the program, even in the same or similar
line of business, provided certain conditions do not exist. SBA agrees
with the comments that an individual seeking to certify an applicant
concern in a primary NAICS code that is the same primary NAICS code of
a current or former Participant operated by an immediate family member
must have management or technical experience in that primary NAICS
code. SBA agrees that without such a requirement, there is a risk that
the owner/manager of the current or former Participant would have some
role in the management or control of the applicant concern. This
[[Page 66157]]
rule adds a requirement that an individual applying in the same primary
NAICS code as an immediate family member must have management or
technical experience in that primary NAICS code, which would include
experience acquired from working for an immediate family member's
current or former Participant. Aside from that refinement, there is no
presumption against such an applicant. The applicant must, however,
demonstrate that there is no common ownership, control or shared
facilities with the current or former Participant, and that any
contractual relations between the two companies are arm's length
transactions. One commenter questioned whether the revised requirement
in proposed Sec. 124.105(g)(2) that SBA would annually assess whether
the two firms continue to ``operate independently'' of one another
after being admitted to the program was inconsistent with the language
in Sec. 124.105(g)(1) that allows fair market contractual relations
between the two firms. That language was not meant to imply that those
arm's length transactions cannot occur once the second firm is admitted
to the program. As part of an annual review, SBA will determine that
ownership, management, and facilities continue to be separate and that
any contractual relations are at fair market value. SBA would not
initiate termination proceedings merely because the two firms entered
into fair market value contracts after the second firm is admitted to
the program. One commenter recommended that SBA should place a limit on
the amount of contractual, arm's length transactions that have occurred
between the firms (either dollar value or percentage of revenue). SBA
disagrees. SBA does not believe a firm should be penalized for having
an immediate family member participate in the 8(a) BD program. It does
not make sense that a business concern owned by one family member
cannot hire the business concern owned by another family member as a
subcontractor at the same rate that it could hire any other business
concern. Business relationships are often built upon trust. If a
subcontractor has done a good job at a fair price, it is likely that
the prime contractor will hire that firm again when the need arises to
do that kind of work. Based upon the comments received in response to
proposed Sec. 121.103(f) (which loosened the presumption of economic
dependence where one concern derived at least 70 percent of its
revenues from one other business concern), most commenters believed
there should not be a hard restriction on the amount of work one
business concern should be able to do with another. SBA believes the
same should apply in the immediate family member context as long as a
clear line of fracture exists between the two business concerns. As
such, SBA does not adopt this recommendation in this final rule.
The proposed rule also amended the 8(a) BD change of ownership
requirements in Sec. 124.105(i). First, the proposed rule lessened the
burden on 8(a) Participants seeking minor changes in ownership by
providing that prior SBA approval is not needed where a previous owner
held less than a 20 percent interest in the concern both before and
after the transaction. This is a change from the previous requirement
which allows a Participant to change its ownership without SBA's prior
approval where the previous owner held less than a 10 percent interest.
This change from 10 percent to 20 percent permits Participants to make
minor changes in ownership more frequently without requiring them to
wait for SBA approval.
In addition, the proposed rule eliminated the requirement that all
changes of ownership affecting the disadvantaged individual or entity
must receive SBA prior approval before they can occur. Specifically,
proposed revisions to Sec. 124.105(i)(2) provided that prior SBA
approval is not needed where the disadvantaged individual (or entity)
in control of the Participant will increase the percentage of his or
her (its) ownership interest. SBA believes that prior approval is not
needed in such a case because if SBA determined that an individual or
entity owned and controlled a Participant before a change in ownership
and the change in ownership only increases the ownership interest of
that individual or entity, there could be no question as to whether the
Participant continues to meet the program's ownership and control
requirements. This change will decrease the amount of times and the
time spent by Participant firms seeking SBA approval of a change in
ownership. SBA received unanimous support on these provisions and
adopts them as final in this rule.
Section 124.109
In order to eliminate confusion, this rule clarifies several
provisions relating to tribally-owned (and ANC-owned) 8(a) applicants
and Participants. First, SBA amends Sec. 124.109(a)(7) and Sec.
124.109(c)(3)(iv) to clarify that a Participant owned by an ANC or
tribe need not request a change of ownership from SBA where the ANC or
tribe merely reorganizes its ownership of a Participant in the 8(a) BD
program by inserting or removing a wholly-owned business entity between
the ANC/tribe and the Participant. SBA believes that a tribe or ANC
should be able to replace one wholly-owned intermediary company with
another without going through the change of ownership process and
obtaining prior SBA approval. In each of these cases, SBA believes that
the underlying ownership of the Participant is not changing
substantively and that requiring a Participant to request approval from
SBA is unnecessary. The recommendation and approval process for a
change of ownership can take several months, so this change will
relieve Participants owned by tribes and ANCs from this unnecessary
burden and allow them to proactively conduct normal business operations
without interruption.
Second, the rule amends Sec. 124.109(c)(3)(ii) to clarify the
rules pertaining to a tribe/ANC owning more than one Participant in the
8(a) BD program. The rule adds two subparagraphs and an example to
Sec. 124.109(c)(3)(ii) for ease of use and understanding. In addition,
SBA clarifies that if the primary NAICS code of a tribally-owned
Participant is changed pursuant to Sec. 124.112(e), the tribe could
immediately submit an application to qualify another of its firms for
participation in the 8(a) BD program under the primary NAICS code that
was previously held by the Participant whose primary NAICS code was
changed. A change in a primary NAICS code under Sec. 124.112(e) should
occur only where SBA has determined that the greatest portion of a
Participant's revenues for the past three years are in a NAICS code
other than the one identified as its primary NAICS code. In such a
case, SBA has determined that in effect the second NAICS code really
has been the Participant's primary NAICS code for the past three years.
Commenters supported these provisions, and SBA adopts them as final.
The rule also clarifies SBA current policy that because an
individual may be responsible for the management and daily business
operations of two tribally-owned concerns, the full-time devotion
requirement does not apply to tribally-owned applicants and
Participants. This flows directly from the statutory provision which
allows an individual to manage two tribally-owned firms. Commenters
supported this change, noting that if statutory and regulatory
requirements explicitly allow an individual to manage two 8(a) firms,
[[Page 66158]]
then it would be illogical to impose the full-time work requirement on
such a manager. This rule adopts the proposed language as final.
Finally, the proposed rule clarified the 8(a) BD program admission
requirements governing how a tribally-owned applicant may demonstrate
that it possesses the necessary potential for success. SBA's
regulations previously permitted the tribe to make a firm written
commitment to support the operations of the applicant concern to
demonstrate a tribally-owned firm's potential for success. Due to the
increased trend of tribes establishing tribally-owned economic
development corporations to oversee tribally owned businesses, SBA
recognizes that in some circumstances it may be adequate to accept a
letter of support from the tribally-owned economic development company
rather than the tribal leadership. The proposed rule permitted a
tribally-owned applicant to satisfy the potential for success
requirements by submitting a letter of support from the tribe itself, a
tribally-owned economic development corporation or another relevant
tribally-owned holding company. In order for a letter of support from
the tribally-owned holding company to be sufficient, there must be
sufficient evidence that the tribally-owned holding company has the
financial resources to support the applicant and that the tribally-
owned company is controlled by the tribe. Commenters supported this
change. They noted that an economic development corporation or
tribally-owned holding company is authorized to act on behalf of the
tribe and is essentially an economic arm of the tribe, and that
oftentimes due to the size of the tribe it can be difficult and take
significant amounts of time and resources to obtain a commitment letter
from the tribe itself. SBA adopts this provision as final in this rule.
Section 124.110
The proposed rule would make some of the same changes to Sec.
124.110 for applicants and Participants owned and controlled by NHOs as
it would to Sec. 124.109 for tribally-owned applicants and
Participants. Specifically, the proposed rule would subdivide Sec.
124.110(e) for ease of use and understanding and would clarify that if
the primary NAICS code of an NHO-owned Participant is changed pursuant
to Sec. 124.112(e), the NHO could submit an application and qualify
another firm owned by the NHO for participation in the 8(a) BD program
under the NAICS code that was the previous primary NAICS code of the
Participant whose primary NAICS code was changed.
Section 124.111
The proposed rule made the same change for CDCs and CDC-owned firms
as for tribes and ANCs mentioned above. It clarified that a Participant
owned by a CDC need not request a change of ownership from SBA where
the CDC merely reorganizes its ownership of a Participant in the 8(a)
BD program by inserting or removing a wholly-owned business entity
between the CDC and the Participant. It also subdivided the current
subparagraph (d) into three smaller paragraphs for ease of use and
understanding, and clarified that if the primary NAICS code of a CDC-
owned Participant is changed pursuant to Sec. 124.112(e), the CDC
could submit an application and qualify another firm owned by the CDC
for participation in the 8(a) BD program under the NAICS code that was
the previous primary NAICS code of the Participant whose primary NAICS
code was changed. SBA did not receive any comments in response to these
changes. As such, SBA adopts them as final in this rule.
Section 124.112
SBA proposed to amend Sec. 124.112(d)(5) regarding excessive
withdrawals in connection with entity-owned 8(a) Participants. The
proposed rule permitted an 8(a) Participant that is owned at least 51
percent by a tribe, ANC, NHO or CDC to make a distribution to a non-
disadvantaged individual that exceeds the applicable excessive
withdrawal limitation dollar amount if it is made as part of a pro rata
distribution to all shareholders. Commenters supported this change as a
needed clarification to allow an entity-owned firm to increase its
distribution to the tribe, ANC, NHO or CDC, and thus enable it to
provide additional resources to the tribal or disadvantaged community.
A few commenters were concerned with having dollar numbers in the
examples set forth in the regulatory text. They were concerned that $1
million would become the default unless done in pro rata share. SBA
believes these commenters misunderstood the intent of this provision.
The example in the regulation provides that where a tribally-owned
Participant pays $1,000,000 to a non-disadvantaged manager that was not
part of a pro rata distribution to all shareholders, SBA would consider
that to be an excessive withdrawal. SBA continues to believe that a $1
million payout to a non-disadvantaged individual in that context is
excessive. If a tribe, ANC, NHO, or CDC owns 100 percent of an 8(a)
Participant and wants to give back to the native or underserved
community, nothing in this regulation would prohibit it from doing so.
That Participant could give a distribution of $1 million or more back
to the tribe, ANC, NHO, or CDC in order to ensure that the native or
underserved community receives substantial benefits. The clarification
regarding pro rata distributions was intended to allow greater
distributions to tribal communities, not to restrict such
distributions. The final rule adopts that provision.
In 2016, SBA amended Sec. 124.112(e) to implement procedures to
allow SBA to change the primary NAICS code of a Participant where SBA
determined that the greatest portion of the Participant's total
revenues during a three-year period have evolved from one NAICS code to
another. 81 FR 48558, 48581 (July 25, 2016). The procedures require SBA
to notify the Participant of its intent to change the Participant's
primary industry classification and afford the Participant the
opportunity to submit information explaining why such a change would be
inappropriate. The proposed rule authorized an appeal process, whereby
a Participant whose primary NAICS code was changed by its servicing
district office could seek further review of that determination at a
different level. Commenters supported this provision and SBA adopts it
as final in this rule.
Section 124.201
The proposed rule did not amend Sec. 124.201. However, SBA sought
comments as to whether SBA should add a provision that would require a
small business concern that seeks to apply for participation in the
8(a) BD program to first take an SBA-sponsored preparatory course
regarding the requirements and expectations of the 8(a) BD program.
Commenters were split on this proposal. Some felt it would be helpful
to those firms who did not have a clear understanding of the
expectations of participating in the 8(a) BD program. Others thought it
would merely delay their participation in the program needlessly. Some
commenters were concerned that there might be time commitments and
travel expenses if a live course were required and recommended having
the option to provide such training via a web-based platform.
Commenters also noted that for entity-owned applicants, this
requirement should not apply beyond the entity's first company to enter
the 8(a) BD program. After reviewing the
[[Page 66159]]
comments, SBA believes that such a preparatory course should be an
option, but not a requirement. As such, SBA does not believe that the
regulatory text needs to be revised in this final rule.
Section 124.203
Section 124.203 requires applicants to the 8(a) BD program to
submit certain specified supporting documentation, including financial
statements, copies of signed Federal personal and business tax returns
and individual and business bank statements. In 2016, SBA removed the
requirement that an applicant must submit a signed Internal Revenue
Service (IRS) Form 4506T, Request for Copy or Transcript of Tax Form,
in all cases. 81 FR 48558, 48569 (July 25, 2016). At that time, SBA
agreed with a commenter to the proposed rule that questioned the need
for every applicant to submit IRS Form 4506T. In eliminating that
requirement for every applicant, SBA reasoned that it always has the
right to request any applicant to submit specific information that may
be needed in connection with a specific application. As long as SBA's
regulations clearly provide that SBA may request any additional
documents SBA deems necessary to determine whether a specific applicant
is eligible to participate in the 8(a) BD program, SBA will be able to
request that a particular firm submit IRS Form 4506T where SBA believes
it to be appropriate. SBA proposed to amend Sec. 124.203 to add back
the requirement that every applicant to the 8(a) BD program submit IRS
Form 4506T (or when available, IRS Form 4506C) because not having the
Form readily available when needed has unduly delayed the application
process for those affected applicants. In addition, SBA believed that
requiring Form 4506T in every case would serve as a deterrent to firms
that may think it is not necessary to fully disclose all necessary
financial information.
However, during the comment period SBA determined that neither Form
is a viable option for independent personal income verification
purposes at this time. On July 1, 2019, the IRS removed the third-party
mailing option from the Form 4506T after it was determined that this
delivery method presents a risk to sensitive taxpayer information. As a
result, the IRS will no longer send tax return transcripts directly to
SBA; rather, transcripts must be mailed to the taxpayer's address of
record. Because SBA may not receive tax return transcripts directly
from the IRS under Form 4506T, the Agency no longer believes it is an
effective tool for independent income verification. In addition,
current IRS guidance indicates that Form 4506C is available only to
industry lenders participating in the Income Verification Express
Service program.
SBA nevertheless continues to recognize the importance of obtaining
authorization to receive taxpayer information at the time of
application. It is SBA's understanding that the IRS is currently
developing a successor form or program through which SBA and other
Federal agencies may directly receive a taxpayer's tax return
information for income verification purposes. As such, the final rule
provides that each individual claiming disadvantaged status must
authorize SBA to request and receive tax return information directly
from the IRS if such authorization is required. Although SBA does not
anticipate using this authorization often to verify an applicant's
information, SBA believes that this additional requirement imposes a
minimal burden on 8(a) BD program applicants. Additionally, SBA
believes that this required authorization will help to maintain the
integrity of the program.
Section 124.204
This rule provides that SBA will suspend the time to process an
8(a) application where SBA requests clarifying, revised or other
information from the applicant. While SBA is waiting on the applicant
to provide clarifying or responsive information, the Agency is not
continuing to process the application. This is not a change in policy,
but rather a clarification of existing policy. Commenters did not have
any issue with this change, believing that it already is SBA's existing
practice and that the regulatory change will simply clarify/formalize
this practice. As such, SBA adopts it as final in this rule.
Sections 124.205, 124.206 and 124.207
The proposed rule amended Sec. 124.207 to allow a concern that has
been declined for 8(a) BD program participation to submit a new
application 90 days after the date of the Agency's final decision to
decline. Under the current regulations, a firm is required to wait 12
months from the date of the final agency decision to reapply. SBA
believes that this change will reduce the number of appeals to SBA's
Office of Hearings and Appeals (OHA) and greatly reduce the costs
associated with appeals borne by disappointed applicants. In addition,
because a firm that is declined could submit a new application 90 days
after the decline decision, SBA requested comments on whether the
current reconsideration process should be eliminated. Commenters
enthusiastically supported the proposed change to allow firms to remedy
eligibility deficits and reapply after 90 days instead of one year. In
conjunction with this proposed change, many commenters supported
eliminating the reconsideration process as unnecessary due to the
shorter reapplication time period. A few commenters supported both the
reduction in time to reapply and elimination of the reconsideration
process, but asked SBA to ensure that SBA provide comprehensive denial
letters to fully apprise applicants of any issues or shortcomings with
their applications. SBA agrees that denial letters must fully inform
applicants of any issues with their applications, and will continue to
explain as specifically as possible the shortcomings in any declined
application. Several commenters opposed changing the current
reconsideration process because they believed that it could take longer
for an applicant to ultimately be admitted to the program if all it had
to do was change one or two minor things, and that doing so during
reconsideration would be quicker than SBA looking at a re-application
anew. Contrary to what some commenters believed, SBA looks at all
eligibility criteria during reconsideration and may find additional
reasons to decline an application during reconsideration that were not
clearly identified in the initial application process. Where that
occurs, a firm may be entitled to an additional reconsideration process
which may potentially prolong the review process even further. SBA
believes reducing the timeframe to address identified deficits and
reapply from one year to 90 days will obviate the need for a separate,
possibly drawn-out reconsideration process. One commenter believed that
allowing the shortened 90-day waiting period to re-apply to the 8(a) BD
program would encourage concerns that are clearly ineligible to
repeatedly apply for certification. Although SBA does not believe that
this would be a significant problem, SBA does understand that its
limited resources could be overburdened if clearly ineligible business
concerns are able to re-apply to the program every 90 days. As such,
this final rule amends Sec. 124.207 to incorporate a 90-day wait
period to reapply generally, but adds language that provides that where
a concern has been declined three times within 18 months of the date of
the first final agency decision finding the concern ineligible, the
concern cannot submit a new application for admission to the
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program until 12 months from the date of the third final Agency decline
decision. The final rule also amends Sec. 124.205 to eliminate a
separate reconsideration process and Sec. 124.206 to delete paragraph
(b) as unnecessary.
Section 124.300 and 124.301
The proposed rule redesignated the current Sec. 124.301 (which
discusses the various ways a business may leave the 8(a) BD program) as
Sec. 124.300 and added a new Sec. 124.301 to specifically enunciate
the voluntary withdrawal and early graduation procedures. The rule set
forth SBA's current policy that a Participant may voluntarily withdraw
from the 8(a) BD program at any time prior to the expiration of its
program term. In addition, where a Participant believes it has
substantially achieved the goals and objectives set forth in its
business plan, the Participant may elect to voluntarily early graduate
from the 8(a) BD program. That too is SBA's current policy, and the
proposed rule merely captured it in SBA's regulations.
The proposed rule, however, changed the level at which voluntary
withdrawal and voluntary early graduation could be finalized by SBA.
Prior to this final rule, a firm submitted its request to voluntarily
withdraw or early graduate to its servicing SBA district office. Once
the district office concurs, the request was sent to the Associate
Administrator for Business Development (AA/BD) for final approval. SBA
believes that requiring several layers of review to permit a concern to
voluntarily exit the 8(a) BD program is unnecessary. SBA proposed that
a Participant must still request voluntary withdrawal or voluntary
early graduation from its servicing district office, but the action
would be complete once the District Director recognizes the voluntary
withdrawal or voluntary early graduation. SBA believes this will
eliminate unnecessary delay in processing these actions. Commenters
supported giving voluntary withdrawal and voluntary early graduation
decisions to the district office level, agreeing with SBA that the
change will assist in reducing processing times. As such, SBA adopts
the proposed changes as final.
Section 124.304
The proposed rule clarified the effect of a decision made by the
AA/BD to terminate or early graduate a Program Participant. Under SBA's
current procedures, once the AA/BD renders a decision to early graduate
or terminate a Participant from the 8(a) BD program, the affected
Participant has 45 days to appeal that decision to SBA's OHA. If no
appeal is made, the AA/BD's decision becomes the final agency decision
after that 45-day period. If the Participant appeals to OHA, the final
agency decision will be the decision of the administrative law judge at
OHA. There has been some confusion as to what the effect of the AA/BD
decision is pending the decision becoming the final agency decision.
The proposed rule clarified that where the AA/BD issues a decision
terminating or early graduating a Participant, the Participant would be
immediately ineligible for additional program benefits. SBA does not
believe that it would make sense to allow a Participant to continue to
receive program benefits after the AA/BD has terminated or early
graduated the firm from the program. If OHA ultimately overrules the
AA/BD decision, SBA would treat the amount of time between the AA/BD's
decision and OHA's decision on appeal similar to how it treats a
suspension. Upon OHA's decision overruling the AA/BD's determination,
the Participant would immediately be eligible for program benefits and
the length of time between the AA/BD's decision and OHA's decision on
appeal would be added to the Participant's program term. Commenters
generally supported this clarification. One commenter opposed the
change, believing ineligibility or suspension should not be automatic,
but rather, occur only where SBA ``determines that suspension is needed
to protect the interests of the Federal Government, such as because
where information showing a clear lack of program eligibility or
conduct indicating a lack of business integrity exists'' as set forth
in Sec. 124.305(a). SBA believes this comment misses the point. The
suspension identified in Sec. 124.305(a) is an interim determination
pending a final action by the AA/BD as to whether a Participant should
be terminated from the program. The suspension identified here flows
from the AA/BD's final decision that termination is appropriate. As
noted above, SBA believes it is contradictory to allow a Participant to
continue to receive program benefits after the AA/BD has terminated or
early graduated the firm from the program. As such, SBA adopts the
proposed language as final in this rule.
Sections 124.305 and 124.402
Section 124.402 requires each firm admitted to the 8(a) BD program
to develop a comprehensive business plan and to submit that business
plan to SBA. Currently, Sec. 124.402(b) provides that a newly admitted
Participant must submit its business plan to SBA as soon as possible
after program admission and that the Participant will not be eligible
for 8(a) BD benefits, including 8(a) contracts, until SBA approves its
business plan. Several firms have complained that they missed contract
opportunities because SBA did not approve their business plans before
procuring agencies sought to award contracts to fulfill certain
requirements. The proposed rule amended Sec. 124.402(b) to eliminate
the provision that a Participant cannot receive any 8(a) BD benefits
until SBA has approved its business plan. Instead, the proposed rule
provided that SBA would suspend a Participant from receiving 8(a) BD
program benefits if it has not submitted its business plan to the
servicing district office and received SBA's approval within 60 days
after program admission. A firm coming in to the 8(a) BD program with
commitments from one or more procuring agencies will immediately be
able to be awarded one or more 8(a) contracts. Commenters appreciated
SBA's recognition of the delays and possible missed opportunities
caused by the current requirements and supported this change. They
believed that the change will enable Participants to start receiving
the benefits of the program in a more timely manner and enjoy their
full nine-year term. A few commenters recommended that a new
Participant should not be suspended where it has submitted its business
plan within 60 days of being certified into the program but SBA has not
approved it within that time. These commenters believed that a
Participant should be suspended in this context only for actions within
the Participant's control (i.e., where the Participant did not submit
its business plan within 60 days, not where SBA has not approved it
within that time). That is SBA's intent. The proposed rule provided
that SBA will suspend a Participant from receiving 8(a) BD program
benefits, including 8(a) contracts, if it has not submitted its
business plan to the servicing district office within 60 days after
program admission. As long as a Participant has submitted its business
plan to SBA within the 60-day timeframe, it will not be suspended. SBA
believes that is clear in the regulatory text as proposed and that no
further clarification is needed. As such, SBA adopts the proposed
language as final in this rule.
This rule also corrects a typographical error contained in Sec.
124.305(h)(1)(ii). Under Sec. 124.305(h)(1)(ii), an 8(a) Participant
can elect to be suspended from the 8(a) program where a disadvantaged
individual who is involved in controlling the day-to-day
[[Page 66161]]
management and control of the Participant is called to active military
duty by the United States. Currently, the regulation states that the
Participant may elect to be suspended where the individual's
participation in the firm's management and daily business operations is
critical to the firm's continued eligibility, and the Participant
elects not to designate a non-disadvantaged individual to control the
concern during the call-up period. That should read where the
Participant elects not to designate another disadvantaged individual to
control the concern during the call-up period. It was not SBA's intent
to allow a non-disadvantaged individual to control the firm during the
call-up period and permit the firm to continue to be eligible for the
program. Finally, one commenter questioned why SBA required a
suspension action to generally be initiated simultaneous with or after
the initiation of a BD program termination action. The commenter
believed that if the Government's interests needed to be protected
quickly, SBA should be able to suspend a particular Program Participant
without also simultaneously initiating a termination proceeding. The
commenter argued that the Government should be able to stop
inappropriate or fraudulent conduct immediately. Although SBA envisions
initiating a termination proceeding simultaneously with a suspension
action in most cases, SBA concurs that immediate suspension without
termination may be needed in certain cases. As such, the final rule
amends Sec. 124.305(a) to allow the AA/BD to immediately suspend a
Participant when he or she determines that suspension is needed to
protect the interests of the Federal Government.
Sections 124.501 and 124.507
Section 124.501 is entitled ``What general provisions apply to the
award of 8(a) contracts?'' SBA must determine that a Participant is
eligible for the award of both competitive and sole source 8(a)
contracts. However, the requirement that SBA determine eligibility is
currently contained only in the 8(a) competitive procedures at Sec.
124.507(b)(2). Although SBA determines eligibility for sole source 8(a)
awards at the time it accepts a requirement for the 8(a) BD program,
that process is not specifically stated in the regulations. The
proposed rule moved the eligibility determination procedures for
competitive 8(a) contracts from Sec. 124.507(b)(2) to the general
provisions of Sec. 124.501 and specifically addressed eligibility
determinations for sole source 8(a) contracts. To accomplish this, the
proposed rule revised current Sec. 124.501(g). Commenters did not
object to this clarification. One commenter sought further
clarification regarding eligibility for 8(a) sole source contracts. The
commenter noted that for a sole source 8(a) procurement, SBA determines
eligibility of a nominated 8(a) firm at the time of acceptance. The
commenter recommended that the regulation clearly notify 8(a) firms and
procuring agencies that if a firm graduates from the program before
award occurs, the award cannot be made. Although SBA believes that is
currently included within Sec. 124.501(g), this final rule adds
additional clarifying language to remove any confusion. One commenter
also sought further clarification for two-step competitive procurements
to be awarded through the 8(a) BD program. The commenter noted that the
solicitation has two dates, and asked SBA to clarify which date
controls for eligibility for the 8(a) competitive award. In response,
this final rule adds a new Sec. 124.507(d)(3) that provides that for a
two-step design-build procurement to be awarded through the 8(a) BD
program, a firm must be a current Participant eligible for award of the
contract on the initial date specified for receipt of phase one offers
contained in the contract solicitation.
Similarly, SBA believes that the provisions requiring a bona fide
place of business within a particular geographic area for 8(a)
construction awards should also appear in the general provisions
applying to 8(a) contracts set forth in Sec. 124.501. Section 8(a)(11)
of the Small Business Act, 15 U.S.C. 637(a)(11), requires that to the
maximum extent practicable 8(a) construction contracts ``shall be
awarded within the county or State where the work is to be performed.''
SBA has implemented this statutory provision by requiring a Participant
to have a bona fide place of business within a specific geographic
location. Currently, the bona fide place of business rules appear only
in the procedures applying to competitive 8(a) procurements in Sec.
124.507(c)(2). The proposed rule moved those procedures to a new Sec.
124.501(k) to clearly make them applicable to both sole source and
competitive 8(a) awards. Based on the statutory language, SBA believes
that the requirement to have a bona fide place of business in a
particular geographic area currently applies to both sole source and
competitive 8(a) procurements, but moving the requirement to the
general applicability section removes any doubt or confusion.
Commenters did not object to these changes and SBA adopts them as final
in this rule.
In response to concerns raised by Participants, the proposed rule
also imposed time limits within which SBA district offices should
process requests to add a bona fide place of business. SBA has heard
that several Participants missed out on 8(a) procurement opportunities
because their requests for SBA to verify their bona fide places of
business were not timely processed. In order to alleviate this
perceived problem, SBA proposed to provide that in connection with a
specific 8(a) competitive solicitation, the reviewing office will make
a determination whether or not the Participant has a bona fide place of
business in its geographical boundaries within 5 working days of a site
visit or within 15 working days of its receipt of the request from the
servicing district office if a site visit is not practical in that
timeframe. SBA also requested comments on whether a Participant that
has filed a request to have a bona fide place of business recognized by
SBA in time for a particular 8(a) construction procurement may submit
an offer for that procurement where it has not received a response from
SBA before the date offers are due. Commenters supported imposing time
limits in the regulations for SBA to process requests to establish bona
fide places of business. Commenters also supported Participants being
able to presume approval and submit an offer as an eligible Participant
where SBA has not issued a decision within the specified time limits.
One commenter asked SBA to clarify what happens if a Participant
submits an offer based on this presumption and SBA later does not
verify the Participant's bona fide place of business. SBA does not
believe that verification will not occur before award. The final rule
allows a Participant to presume that SBA has approved its request for a
bona fide place of business if SBA does not respond in the time
identified. This allows a Participant to submit an offer where a bona
fide place of business is required. However, clarification is added at
124.501(k)(2)(iii)(B) that in order to be eligible for award, SBA must
approve the bona fide place of business prior to award. If SBA has not
acted prior to the time that a Participant is identified as the
apparent successful offeror, SBA will make such a determination within
5 days of receiving a procuring activity's request for an eligibility
determination unless the procuring activity grants additional time for
review.
Several commenters recommended that SBA broaden the geographic
[[Page 66162]]
boundaries as to what it means to have a bona fide place of business
within a particular area. As identified above, the bona fide place of
business concept evolved from the statutory requirement that to the
maximum extent practicable 8(a) construction contracts must be awarded
within the county or State where the work is to be performed.
Commenters believed that strict state line boundaries may not be
appropriate where a given area is routinely served by more than one
state. A commenter recommended that SBA use Metropolitan Statistical
Areas (MSAs) to better define the area within which a business should
be located in order to be deemed to have a bona fide place of business
in the area. The Office of Management and Budget has defined an MSA as
``A Core Based Statistical Area associated with at least one urbanized
area that has a population of at least 50,000. The MSA comprises the
central county or counties containing the core, plus adjacent outlying
counties having a high degree of social and economic integration with
the central county or counties as measured through commuting.'' 2010
Standards for Delineating Metropolitan and Micropolitan Statistical
Areas, 75 FR 37246-37252 (June 28, 2010). The commenter noted that
metropolitan areas frequently do not fit within one state and believed
that a state does not always represent a single geography or economy.
As an example, the commenter pointed to the Philadelphia, Pennsylvania
MSA, which includes counties in four states, Delaware, Maryland, New
Jersey and Pennsylvania. This MSA represents one regional economy, but
is serviced by four different SBA District Offices: Baltimore,
Philadelphia, Delaware and New Jersey. SBA believes that such an
expansion makes sense in today's complex business environment. However,
the use of MSAs will mostly impact the more densely populated coasts of
the country, and not necessarily more rural or less populated areas.
SBA believes the same rationale could be used in those areas, but
instead use contiguous counties. A Participant located on the other
side of a state border may be closer to the construction site than a
Participant located in the same state as the construction site. It does
not make sense to exclude a Participant immediately across the border
from where construction work is to be done merely because that
Participant is serviced by a different SBA district office, but to
allow another Participant that may be located on the other side of the
state where construction work is to be done (and be hundreds of miles
further away from the construction site than the Participant in the
other state) to be eligible because it is serviced by the correct SBA
district office. As such this final rule defines bona fide place of
business to be the geographic area serviced by the SBA district office,
a MSA, or a contiguous county to (whether in the same or different
state) where the work will be performed.
Section 124.503
The proposed rule amended Sec. 124.503(e) to clarify SBA's current
policy regarding what happens if after SBA accepts a sole source
requirement on behalf of a particular Participant the procuring agency
determines, prior to award, that the Participant cannot do the work or
the parties cannot agree on price. In such a case, SBA allows the
agency to substitute one 8(a) Participant for another if it believes
another Participant could fulfill its needs. If the procuring agency
and SBA agree that another Participant cannot fulfill its needs, the
procuring agency may withdraw the original offering letter and fulfill
its needs outside the 8(a) BD program. This change to the regulatory
text was merely an attempt to codify existing procedures to make the
process more transparent. No one objected to this provision, and SBA
adopts it as final in this rule.
Currently, Sec. 124.503(g) provides that a Basic Ordering
Agreement (BOA) is not a contract under the Federal Acquisition
Regulation (FAR). Rather, each order to be issued under the BOA is an
individual contract. As such, a procuring activity must offer, and SBA
must accept, each task order under a BOA in addition to offering and
accepting the BOA itself. Once a Participant leaves the 8(a) BD program
or otherwise becomes ineligible for future 8(a) contracts (e.g.,
becomes other than small under the size standard assigned to a
particular contract) it cannot receive further 8(a) orders under a BOA.
Similarly, a blanket purchase agreement (BPA) is also not a contract. A
BPA under FAR part 13 is not a contract because it neither obligates
funds nor requires placement of any orders against it. Instead, it is
an understanding between an ordering agency and a contractor that
allows the agency to place future orders more quickly by identifying
terms and conditions applying to those orders, a description of the
supplies or services to be provided, and methods for issuing and
pricing each order. The government is not obligated to place any
orders, and either party may cancel a BPA at any time.
Although current Sec. 124.503(g) addresses BOAs, it does not
specifically mention BPAs. This rule amends Sec. 124.503 to merely
specifically recognize that BPAs are also not contracts and should be
afforded the same treatment as BOAs.
Section 124.504
SBA proposed several changes to Sec. 124.504.
The proposed rule amended Sec. 124.504(b) to alter the provision
prohibiting SBA from accepting a requirement into the 8(a) BD program
where a procuring activity competed a requirement among 8(a)
Participants prior to offering the requirement to SBA and receiving
SBA's formal acceptance of the requirement. SBA believes that the
restriction as written is overly harsh and burdensome to procuring
agencies. Several contracting officers have not offered a follow-on
procurement to the 8(a) program prior to conducting a competition
restricted to eligible 8(a) Participants because they believed that
because a follow-on requirement must be procured through the 8(a)
program, such offer and SBA's acceptance were not required. They issued
solicitations identifying them as competitive 8(a) procurements,
selected an apparent successful offeror and then sought SBA's
eligibility determination prior to making an award. A strict
interpretation of the current regulatory language would prohibit SBA
from accepting such a requirement. Such an interpretation could
adversely affect an agency's procurement strategy in a significant way
by unduly delaying the award of a contract. That was never SBA's
intent. As long as a procuring agency clearly identified a requirement
as a competitive 8(a) procurement and the public fully understood it to
be restricted only to eligible 8(a) Participants, SBA should be able to
accept that requirement regardless of when the offering occurred.
Commenters supported this change as a logical remedy to an unintended
consequence, and SBA adopts it as final in this rule.
The proposed rule clarified SBA's intent regarding the requirement
that a procuring agency must seek and obtain SBA's concurrence to
release any follow-on procurement from the 8(a) BD program. This is not
a change in policy, but rather a clarification of SBA's current policy
and the position SBA has taken in several protests before the
Government Accountability Office. Some agencies have attempted to
remove a follow-on procurement from
[[Page 66163]]
the incumbent 8(a) contractor and re-procure the requirement through a
different contract vehicle (a MAC or Government-wide Acquisition
Contract (GWAC) that is not an 8(a) contract) without seeking release
by saying that they intend to issue a competitive 8(a) order off the
other contract vehicle. In other words, because the order under a MAC
or GWAC would be offered to and accepted for award through the 8(a) BD
program and the follow-on work would be performed through the 8(a) BD
program, some procuring agencies believe that release is not needed.
SBA does not agree. In such a case, the underlying contract is not an
8(a) contract. The procuring agency may be attempting to remove a
requirement from the 8(a) program to a contract that is not an 8(a)
contract. That is precisely what release is intended to apply to.
Moreover, because Sec. 124.504(d)(4) provides that the requirement to
seek release of an 8(a) requirement from SBA does not apply to orders
offered to and accepted for the 8(a) program where the underlying MAC
or GWAC is not itself an 8(a) contract, allowing a procuring agency to
move an 8(a) contract to an 8(a) order under a non-8(a) contract
vehicle would allow the procuring agency to then remove the next
follow-on to the 8(a) order out of the 8(a) program entirely without
any input from SBA. A procuring agency could take an 8(a) contract with
a base year and four one-year option periods, turn it into a one-year
8(a) order under a non-8(a) contract vehicle, and then remove it from
the 8(a) program entirely after that one-year performance period. That
was certainly not the intent of SBA's regulations.
SBA has received additional comments recommending that release
should also apply even if the underlying pre-existing MAC or GWAC to
which a procuring agency seeks to move a follow-on requirement is
itself an 8(a) contract. These commenters argue that an 8(a) incumbent
contractor may be seriously hurt by moving a procurement from a general
8(a) competitive procurement to an 8(a) MAC or GWAC to which the
incumbent is not a contract holder. In such a case, the incumbent would
have no opportunity to win the award for the follow-on contract, and,
would have no opportunity to demonstrate that it would be adversely
impacted or to try to dissuade SBA from agreeing to release the
procurement. Commenters believe that this directly contradicts the
business development purposes of the 8(a) BD program. In response, the
rule provides that a procuring activity must notify SBA where it seeks
to re-procure a follow-on requirement through a limited contracting
vehicle which is not available to all 8(a) BD Program Participants
(e.g., any multiple award or Governmentwide acquisition contract,
whether or not the underlying MAC or GWAC is itself an 8(a) contract).
If an agency seeks to re-procure a current 8(a) requirement as a
competitive 8(a) award for a new 8(a) MAC or GWAC vehicle, SBA's
concurrence will not be required because such a competition would be
available to all 8(a) BD Program Participants.
The proposed rule also clarified that in all cases where a
procuring agency seeks to fulfill a follow-on requirement outside of
the 8(a) BD program, except where it is statutorily or otherwise
required to use a mandatory source (see FAR subpart 8.6 and 8.7), it
must make a written request to and receive the concurrence of SBA to do
so. In such a case, the proposed rule would require a procuring agency
to notify SBA that it will take a follow-on procurement out of the 8(a)
procurement because of a mandatory source. Such notification would be
required at least 30 days before the end of the contract period to give
the 8(a) Participant the opportunity to make alternative plans.
In addition, SBA does not typically consider the value of a bridge
contract when determining whether an offered procurement is a new
requirement. A bridge contract is meant to be a temporary stop-gap
measure intended to ensure the continuation of service while an agency
finalizes a long-term procurement approach. As such, SBA does not
typically consider a bridge contract as part of the new requirement
analysis, unless there is some basis to believe that the agency is
altering the duration of the option periods to avoid particular
regulatory requirements. Whether to consider the bridge contract is
determined on a case-by-case basis given the facts of the procurement
at issue. SBA sought comments as to whether this long-standing policy
should also be incorporated into the regulations. Although SBA did not
receive many comments on this issue, those who did comment believed it
made sense to clarify this in the regulatory text. This final rule does
so.
Section 124.505
As noted above, SBA received a significant number of comments
recommending more transparency in the process by which procuring
agencies seek to remove follow-on requirements from the 8(a) BD
program. In particular, commenters believed SBA should be able to
question whether a requirement is new or a follow-on to a previously
awarded contract. In response, the final rule adds language to Sec.
124.505(a) authorizing SBA to appeal a decision by a contracting
officer that a particular procurement is a new requirement that is not
subject to the release requirements set forth in Sec. 124.504(d).
Section 124.509
The proposed rule revised Sec. 124.509(e), regarding how a
Participant can obtain a waiver to the requirement prohibiting it from
receiving further sole source 8(a) contracts where the Participant does
not meet its applicable non-8(a) business activity target. Currently,
the regulations require the AA/BD to process a Participant's request
for a waiver in every case. The proposed rule substituted SBA for the
AA/BD to allow flexibility to SBA to determine the level of processing
in a standard operating procedure outside the regulations. SBA believes
that at least at some level, the district office should be able to
process such requests for waiver.
The current regulation also requires the SBA Administrator on a
non-delegable basis to decide requests for waiver from a procuring
agency. In other words, if the Participant itself does not request a
waiver to the requirement prohibiting it from receiving further sole
source 8(a) contracts, but an agency does so because it believes that
the award of a sole source contract to the identified Participant is
needed to achieve significant interests of the Government, the SBA
Administrator must currently make that determination. Requiring such a
request to be processed by several levels of SBA reviewers and then by
the Administrator slows down the processing. If a procuring agency
truly needs something quickly, it could be harmed by the processing
time. The proposed rule changed the Administrator from making these
determinations to SBA. Commenters believed that waiver requests should
be processed at the district office level, as adding additional layers
of review significantly delays the processing time, which harms both
the Participant and the procuring agency and causes additional work for
SBA. SBA has adopted these changes as final in this rule. This should
allow these requests to be processed more quickly.
SBA also received a few comments regarding the business activity
targets contained in Sec. 124.509. Commenters supported the proposed
revisions that changed requiring Participants to make ``maximum
efforts'' to obtain business outside the 8(a) BD program, and
[[Page 66164]]
``substantial and sustained efforts'' to attain the targeted dollar
levels of non-8(a) revenue, to requiring them to make good faith
efforts. These commenters also felt that the non-8(a) business activity
target percentages for firms in the transitional stage of program
participation are too high. The commenters noted that the Small
Business Act did not require any specific percentages of non-8(a) work
and believed that SBA was free to adjust them in order to promote the
business development purposes of the program. They also believed that
the current rules rigidly apply sole source restrictions without taking
into account extenuating circumstances such as a reduction in
government funding, continuing resolutions and budget uncertainties,
increased competition driving prices down, and having prime contractors
award less work to small business subcontractors than originally
contemplated. They recommended that the sole source restrictions should
be discretionary, depending upon circumstances and efforts made by the
Participant to obtain non-8(a) revenues. SBA first notes that although
the Small Business Act itself does not establish specific non-8(a)
business activity targets, the conference report to the Business
Opportunity Development Reform Act of 1988, Public Law 100-656, which
established the competitive business mix requirement, did recommend
certain non-8(a) business activity targets. That report noted that
Congress intended that the non-8(a) business activity targets should
generally require about 25 percent of revenues from sources other than
8(a) contracts in the fifth and sixth years of program participation
and about 50 percent in the seventh and eighth years of program
participation. H. Rep. No. 100-1070, at 63 (1988), as reprinted in 1988
U.S.C.C.A.N. 5485, 5497. In response to the comments, this rule
slightly adjusts the non-8(a) business activity targets to be more in
line with the Congressional intent. In addition, SBA believes that the
strict application of sole source restrictions may be inappropriate in
certain extenuating circumstances. That same conference report provides
that SBA ``should consider a full range of options to encourage firms
to achieve the competitive business targets,'' and that these options
might ``include conditioning the award of future sole-source contracts
or business development assistance on the firm's taking specified
steps, such as changes in marketing or financing strategies.'' Id. In
addition, the conference report provides that SBA should take
appropriate remedial actions, ``including reductions in sole-source
contracting,'' to ensure that firms complete the program with optimum
prospects for success in a competitive business environment. Id. Thus,
Congress intended SBA to place conditions on firms to allow then to
continue to receive one or more future 8(a) contracts and that sole
source ``reductions'' should be an alternative. It appears that a
strict ban on receiving any future 8(a) contracts is not appropriate in
all instances. SBA believes that may make sense as a remedial measure
if a particular Participant has made no efforts to seek non-8(a)
awards, but it should not automatically occur if a firm fails to meet
its applicable non-8(a) business activity target. The final rule
recognizes 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. Where a Participant has not met its
applicable non-8(a) business activity target, however, SBA will
condition the eligibility for new sole source 8(a) contracts on the
Participant taking one or more specific actions, which may include
obtaining business development assistance from an SBA resource partner
such as a Small Business Development Center. The final rule also
rearranges several current provisions for ease of use.
Section 124.513
Currently, Sec. 124.513(e) provides that SBA must approve a joint
venture agreement prior to the award of an 8(a) contract on behalf of
the joint venture. This requirement applies to both competitive and
sole source 8(a) procurements. SBA does not approve joint venture
agreements in any other context, including a joint venture between an
8(a) Participant and its SBA-approved mentor (which may be other than
small) in connection with a non-8(a) contract (i.e., small business
set-aside, HUBZone, SDVO small business, or WOSB contract). In order to
be considered an award to a small disadvantaged business (SDB) for a
non-8(a) contract, a joint venture between an 8(a) Participant and a
non-8(a) Participant must be controlled by the 8(a) partner to the
joint venture and otherwise meet the provisions of Sec. 124.513(c) and
(d). If the non-8(a) partner to the joint venture is also a small
business under the size standard corresponding to the NAICS code
assigned to the procurement, the joint venture could qualify as small
if the provisions of Sec. 124.513(c) and (d) were not met (see Sec.
121.103(h)(3)(i), where a joint venture can qualify as small as long as
each party to the joint venture individually qualifies as small), but
the joint venture could not qualify as an award to an SDB in such case.
If the joint venture were between an 8(a) Participant and its large
business mentor, the joint venture could not qualify as small if the
provisions of Sec. 124.513(c) and (d) were not met. The size of a
joint venture between a small business prot[eacute]g[eacute] and its
large business mentor is determined without looking at the size of the
mentor only when the joint venture complies with SBA's regulations
regarding control of the joint venture. Where another offeror believes
that a joint venture between a prot[eacute]g[eacute] and its large
business mentor has not complied with the applicable control
regulations, it may protest the size of the joint venture. The
applicable Area Office of SBA's Office of Government Contracting would
then look at the joint venture agreement to determine if the small
business is in control of the joint venture within the meaning of SBA's
regulations. If that Office determines that the applicable regulations
were not followed, the joint venture would lose its exclusion from
affiliation, be found to be other than small, and, thus, ineligible for
an award as a small business. This size protest process has worked well
in ensuring that small business joint venture partners do in fact
control non-8(a) contracts with their large business mentors. Because
size protests are authorized for competitive 8(a) contracts, SBA
believes that the size protest process could work similarly for
competitive 8(a) contracts. As such, the proposed rule eliminated the
need for 8(a) Participants to seek and receive approval from SBA of
every initial joint venture agreement and each addendum to a joint
venture agreement for competitive 8(a) contracts. Commenters supported
this change, noting that this will eliminate an unnecessary burden and
noting that this will also eliminate the significant expense firms
often incur during the SBA approval process. SBA believes that this
will significantly lessen the burden imposed on 8(a) small business
Participants. Participants will not be required to submit additional
paperwork to SBA and will not have to wait for SBA approval in order to
seek competitive 8(a) awards. This rule finalizes that change.
Section 124.515
The proposed rule amended Sec. 124.515 regarding the granting of a
waiver to the statutorily mandated termination for
[[Page 66165]]
convenience requirement where the ownership or control of an 8(a)
Participant performing an 8(a) contract changes. The statute and
regulations allow the ownership and control of an 8(a) Participant
performing one or more 8(a) contracts to pass to another 8(a)
Participant that would otherwise be eligible to receive the 8(a)
contracts directly. Specifically, the proposed rule amended Sec.
124.515(d) to provide that SBA determines the eligibility of an
acquiring Participant by referring to the items identified in Sec.
124.501(g) and deciding whether at the time of the request for waiver
(and prior to the transaction) the acquiring Participant is an eligible
concern with respect to each contract for which a waiver is sought. As
part of the waiver request, the acquiring concern must certify that it
is a small business for the size standard corresponding to the NAICS
code assigned to each contract for which a waiver is sought. SBA will
not grant a waiver for any contract if the work to be performed under
the contract is not similar to the type of work previously performed by
the acquiring concern. A few commenters objected to this last provision
in the context of an entity-owned firm seeking to acquire an 8(a)
Participant currently performing one or more 8(a) contracts. These
commenters believed that this provision should not apply to entity-
owned Participants because prior performance in a specific industry is
not required for entity-owned firms seeking to enter the program. SBA
disagrees. Those are two entirely separate requirements. In the case of
program entry, SBA allows an entity-owned applicant to be eligible for
the program where the entity (tribe, ANC, NHO or CDC) demonstrates a
firm commitment to back the applicant concern. In other words, SBA will
waive the general potential for success provision requiring an
applicant to have at least two years of business in its primary NAICS
code where the entity represents that it will support the applicant
concern. In such case, SBA is assured that the applicant concern will
be able to survive despite having little or no experience in its
designated primary NAICS code. The termination for convenience and
waiver provisions are statutory and serve an entirely different
purpose. The general rule is that an 8(a) contract must be performed by
the 8(a) Participant to which that contract was initially awarded.
Where the ownership or control of the Participant awarded an 8(a)
contract changes, the statute requires a procuring agency to terminate
that contract unless the SBA Administrator grants a waiver based on one
of five statutory reasons. One of those reasons is where the ownership
and control of an 8(a) Participant will pass to another otherwise
eligible 8(a) Participant. The proposed rule merely clarifies SBA's
current policy that in order to be an ``eligible'' Participant, the
acquiring firm must be responsible to perform the contract, and
responsibility is determined prior to the transfer, just as
responsibility is determined prior to the award of any contract. This
has nothing to do with the entity-owned firm's potential for success in
the program, but, rather, whether that firm would be deemed a
responsible contractor and whether a procuring agency contracting
officer would find the firm capable of performing the work required
under the contract before any change of ownership or control occurs.
Because SBA believes that this responsibility issue is relevant of all
Participants acquiring another Participant that has been awarded one or
more 8(a) contracts, the final rule adopts the language as proposed.
Section 124.518
The final rule clarifies when one 8(a) Participant can be
substituted for another in order to complete performance of an 8(a)
contract without receiving a waiver to the termination for convenience
requirement set forth in of Sec. 124.515. Specifically, the rule
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 the contract where a procuring activity
contracting officer demonstrates to SBA that the Participant that was
awarded an 8(a) contract is unable to complete performance, where an
8(a) contract will otherwise be terminated for default, or where SBA
determines that substitution would serve the business development needs
of both 8(a) Participants.
Section 124.519
Section 124.519 limits the ability of 8(a) Participants to obtain
additional sole source 8(a) contracts once they have reached a certain
dollar level of overall 8(a) contracts. Currently, for a firm having a
receipts-based size standard corresponding to its primary NAICS code,
the limit above which a Participant can no longer receive sole source
8(a) contracts is five times the size standard corresponding to its
primary NAICS code, or $100,000,000, whichever is less. For a firm
having an employee-based size standard corresponding to its primary
NAICS code, the limit is $100,000,000. In order to simplify this
requirement, this proposed rule provided that a Participant may not
receive sole source 8(a) contract awards where it has received a
combined total of competitive and sole source 8(a) contracts in excess
of $100,000,000 during its participation in the 8(a) BD program,
regardless of its primary NAICS code. In addition, the proposed rule
clarified that in determining whether a Participant has reached the
$100 million limit, SBA would consider only the 8(a) revenues a
Participant has actually received, not projected 8(a) revenues that a
Participant might receive through an indefinite delivery or indefinite
quantity contract, a multiple award contract, or options or
modifications. Finally, the proposed rule amended what types of small
dollar value 8(a) contracts should not be considered in determining
whether a Participant has reached the 8(a) revenue limit. Currently,
SBA does not consider 8(a) contracts awarded under $100,000 in
determining whether a Participant has reached the applicable 8(a)
revenue limit. The proposed rule replaced the $100,000 amount with a
reference to the Simplified Acquisition Threshold (SAT). SBA has
delegated to procuring agencies the ability to award sole source 8(a)
contracts without offer and acceptance for contracts valued at or below
the SAT. Because SBA does not accept such procurements into the 8(a) BD
program, it is difficult for SBA to monitor these awards. The proposed
rule merely aligned the 8(a) revenue limit with that authority.
Commenters generally supported each of these changes. SBA adopts them
as final in this rule.
Section 125.2
The proposed rule added a new paragraph (g) requiring contracting
officers to consider the capabilities and past performance of first
tier subcontractors in certain instances. This consideration is
statutorily required for bundled or consolidated contracts (15 U.S.C.
644(e)(4)(B)(i)) and for multiple award contracts valued above the
substantial bundling threshold of the Federal agency (15 U.S.C.
644(q)(1)(B)). Following the statutory provisions, the proposed rule
required a contracting officer to consider the past performance and
experience of first tier subcontractors in those two categories of
contracts. The proposed rule did not require a contracting officer to
consider the past performance, capabilities and experience of each
first tier subcontractor as the capabilities and past performance of
the small business prime contractor in other instances. Instead, it
provided discretion to
[[Page 66166]]
contracting officers to consider such past performance, capabilities
and experience of each first tier subcontractor where appropriate. SBA
specifically requested comments as to whether as a policy matter such
consideration should be required in all cases, or limited only to the
statutorily required instances as proposed. The comments overwhelmingly
supported the same treatment for all contracts. Most commenters
believed that there was a valid policy reason to consider the
capabilities and past performance of first tier subcontractors in every
case since it is clear that those identified subcontractors will be
responsible for some performance of the contract should the
corresponding prime contractor be awarded the contract. Some commenters
believed that small businesses may have the necessary capabilities,
past performance and experience to perform smaller, non-bundled
contracts on their own. Therefore, these commenters felt that it may
not be necessary for an agency to consider the capabilities and past
performance of first tier subcontractors in all cases. SBA believes
that first tier subcontractors should be considered if the capabilities
and past performance of the small business prime contractor does not
demonstrate capabilities and past performance for award. As such this
final rule adds language requiring a procuring agency to consider the
capabilities and past performance of first tier subcontractors where
the first-tier subcontractors are specifically identified in the
proposal and the capabilities and past performance of the small
business prime do not independently demonstrate capabilities and past
performance necessary for award.
Section 125.3
The Small Business Act explicitly prohibits the Government from
requiring small businesses to submit subcontracting plans. 15 U.S.C.
637(d)(8). This prohibition is set forth in Sec. 125.3(b) of SBA's
regulations and in FAR 19.702(b)(1). Under the Alaska Native Claims
Settlement Act (ANCSA), a contractor receives credit towards the
satisfaction of its small or small disadvantaged business
subcontracting goals when contracting with an ANC-owned firm. 43 U.S.C.
1626(e)(4)(B). There has been some confusion as to whether an ANC-owned
firm that does not individually qualify as small but counts as a small
business or a small disadvantaged business for subcontracting goaling
purposes under 43 U.S.C. 1626(e)(4)(B) must itself submit a
subcontracting plan. SBA believes that such a firm is not currently
required to submit a subcontracting plan, but proposed to add
clarifying language to Sec. 125.3(b) to clear up any confusion. The
proposed rule clarified that all firms considered to be small
businesses, whether the firm qualifies as a small business concern for
the size standard corresponding to the NAICS code assigned to the
contract or is deemed to be treated as a small business concern by
statute, are not be required to submit subcontracting plans. Commenters
supported this provision and this rule adopts it as final.
The final rule also fixes typographical errors contained in
paragraphs 125.3(c)(1)(viii) and 125.3(c)(1)(ix).
Section 125.5
The proposed rule clarified that SBA does not use the certificate
of competency (COC) procedures for 8(a) sole source contracts. This has
long been SBA's policy. See 62 FR 43584, 43592 (Aug. 14, 1997). Instead
of using SBA COC procedures, an agency that finds a potential 8(a) sole
source awardee to be non-responsible should proceed through the
substitution or withdrawal procedures in the proposed Sec. 124.503(e).
SBA did not receive any comments on this provision and adopts it as
final in this rule.
Section 125.6
The final rule first fixes a typographical error contained in the
introductory text of Sec. 125.6(a). It also amends Sec. 125.6(b).
Section 125.6(b) provides guidance on which limitation on
subcontracting requirement applies to a ``mixed contract.'' The section
currently refers to a mixed contract as one that combines both services
and supplies. SBA inadvertently did not include the possibility that a
mixed contract could include construction work, although in practice
SBA has applied this section to a contract requiring, for example, both
services and construction work. The proposed rule merely recognized
that a mixed contract is one that integrates any combination of
services, supplies, or construction. A contracting officer would then
select the appropriate NAICS code, and that NAICS code is determinative
as to which limitation on subcontracting and performance requirement
applies. SBQ did not receive any comments on this change, and adopts it
as final in this rule.
SBA also asked for comments in the proposed rule regarding how the
nonmanufacturer rule should be applied in multiple item procurements
(reference Sec. 125.6(a)(2)(ii)). Currently, for a multiple item
procurement where a nonmanufacturer waiver is granted for one or more
items, compliance with the limitation on subcontracting requirement
will not consider the value of items subject to a waiver. As such, more
than 50 percent of the value of the products to be supplied by the
nonmanufacturer that are not subject to a waiver must be the products
of one or more domestic small business manufacturers or processors. The
regulation gives an example where a contract is for $1,000,000 and
calls for the acquisition of 10 items. Market research shows that nine
of the items can be sourced from small business manufacturers and one
item is subject to an SBA class waiver. The projected value of the item
that is waived is $10,000. Under the current regulatory language, at
least 50 percent of the value of the items not subject to a waiver, or
$495,000 (50 percent of $990,000), must be supplied by one or more
domestic small business manufacturers, and the prime small business
nonmanufacturer may act as a manufacturer for one or more items.
Several small business nonmanufacturers have disagreed with this
provision. They believe that in order to qualify as a small business
nonmanufacturer, at least 50 percent of the value of the contract must
come from either small business manufacturers or from any businesses
for items which have been granted a waiver (or that small business
manufacturers plus waiver must equal at least 50 percent). In other
words, in the above example, $500,000 (50 percent of the value of the
contract) must come from small business manufacturers or be subject to
a waiver. If items totaling $10,000 are subject to a waiver, then only
$490,000 worth of items must come from small business manufacturers,
thus requiring $5,000 less from small business manufacturers. The
proposed rule asked for comments on whether this approach makes sense.
Several commenters supported the change outlined in the proposed rule,
believing that implementation of the change will provide less confusion
to both small businesses and procuring agencies as the math is easier
to understand. One commenter believed that was how the nonmanufacturer
rule was already being applied in multiple item procurements, was
concerned others too may have misinterpreted the rule, and, thus,
supported the change. The final rule provides that a procurement should
be set aside where at least 50 percent of the value of the contract
comes from either small business manufacturers or from any business
where a nonmanufacturer rule
[[Page 66167]]
waiver has been granted (or, in other words, a set aside should occur
where small plus waiver equals at least 50 percent).
Section 125.8
The proposed rule made conforming changes to Sec. 125.8 in order
to take into account merging the 8(a) BD Mentor-Prot[eacute]g[eacute]
Program with the All Small Mentor-Prot[eacute]g[eacute] Program. The
comments supported these changes, and those changes are finalized in
this rule.
Proposed Sec. 125.8(b)(2)(iv) permitted the parties to a joint
venture to agree to distribute profits from the joint venture so that
the small business participant(s) receive profits from the joint
venture that exceed the percentage commensurate with the work performed
by them. Although several commenters questioned whether mentors would
be willing to agree to distribute profits in such a manner, most
commenters supported this proposed change. As such, SBA adopts it as
final in this rule.
In response to the proposed rule, SBA also received comments
seeking clarification of certain other requirements applicable to joint
ventures. First, commenters sought guidance regarding the performance
of work or limitation on subcontracting requirements in Sec. 125.8(c).
Specifically, commenters questioned whether the same rules as those set
forth in Sec. 125.6 apply to the calculation of work performed by a
prot[eacute]g[eacute] in a joint venture and whether the 40 percent
performance requirement for a prot[eacute]g[eacute] firm could be met
through performance of work by a similarly situated subcontractor. SBA
has always intended that the same rules as those set forth in Sec.
125.6 should generally apply to the calculation of a
prot[eacute]g[eacute] firm's workshare in the context of a joint
venture. This means that the rules concerning supplies, construction
and mixed contracts apply to the joint venture situation and certain
costs are excluded from the limitation on subcontracting calculation.
For instance, the cost of materials would first be excluded in a
contract for supplies or products before determining whether the joint
venture is not subcontracting more than 50 percent of the amount paid
by the Government. However, SBA has never intended that a
prot[eacute]g[eacute] firm could subcontract its 40 percent performance
requirement to a similarly situated entity. In other words, SBA has
always believed that the prot[eacute]g[eacute] itself must perform at
least 40 percent of the work to be performed by a joint venture between
the prot[eacute]g[eacute] firm and its mentor, and that it cannot
subcontract such work to a similarly situated entity. The only reason
that a large business mentor is able to participate in a joint venture
with its prot[eacute]g[eacute] for a small business contract is to
promote the business development of the prot[eacute]g[eacute] firm.
Where a prot[eacute]g[eacute] firm would subcontract some or all of its
requirement to perform at least 40 percent of the work to be done by
the joint venture to a similarly situated entity, SBA does not believe
that this purpose would be met. The large business mentor is authorized
to participate in a joint venture as a small business only because its
prot[eacute]g[eacute] is receiving valuable business development
assistance through the performance of at least 40 percent of the work
performed by the joint venture. Thus, although a similarly situated
firm can be used to meet the 50 percent performance requirement, it
cannot be used to meet the 40 percent performance requirement for the
prot[eacute]g[eacute] itself. For example, if a joint venture between a
prot[eacute]g[eacute] firm and its mentor were awarded a $10 million
services contract and a similarly situated entity were to perform $2
million of the required services, the joint venture would be required
to perform $3 million of the services (i.e., to get to a total of $5
million or 50 percent of the value of the contract between the joint
venture and the similarly situated entity). If the joint venture were
to perform $3 million of the services, the prot[eacute]g[eacute] firm,
and only the prot[eacute]g[eacute] firm, must perform at least 40
percent of $3 million or $1.2 million. The final rule clarifies that
rules set forth in Sec. 125.6 generally apply to joint ventures and
that a prot[eacute]g[eacute] cannot meet the 40 percent performance
requirement by subcontracting to one or more similar situated entities.
Comments also requested further guidance on the requirement in
Sec. 125.8(b)(2)(ii) that a joint venture must designate an employee
of the small business managing venture as the project manager
responsible for performance of the contract. These commenters pointed
out that many contracts do not have a position labeled ``project
manager,'' but instead have a position named ``program manager,''
``program director,'' or some other term to designate the individual
responsible for performance. SBA agrees that the title of the
individual is not the important determination, but rather the
responsibilities. The provision seeks to require that the individual
responsible for performance must come from the small business managing
venture, and this rule makes that clarification. For consistency
purposes, SBA has made these same changes to Sec. 124.513(c) for 8(a)
joint ventures, to Sec. 125.18(b)(2) for SDVO small business joint
ventures, to Sec. 126.616(c) for HUBZone joint ventures, and to Sec.
127.506(c) for WOSB joint ventures.
Several commenters sought additional clarification to the rules
pertaining to joint ventures for the various small business programs.
Specifically, these commenters believed that the rules applicable to
small business set-asides in Sec. 125.8(a) were not exactly the same
as those set forth in Sec. Sec. 125.18(b)(1)(i) (for SDVO joint
ventures), 126.616(b)(1) (for WOSB joint ventures) and 127.506(a)(1)
(for HUBZone joint ventures), and that a mentor-prot[eacute]g[eacute]
joint venture might not be able to seek the same type of contract,
subcontract or sale in one program as it can in another. In response,
SBA has added language to Sec. 125.9(d)(1) to make clear that a joint
venture between a prot[eacute]g[eacute] and mentor may seek a Federal
prime contract, subcontract or sale as a small business, HUBZone small
business, SDB, SDVO small business, or WOSB provided the
prot[eacute]g[eacute] individually qualifies as such.
One commenter recommended a change to proposed Sec. 125.8(e)
regarding the past performance and experience of joint venture
partners. The proposed rule provided that when evaluating the past
performance and experience of a joint venture submitting an offer for a
contract set aside or reserved for small business, a procuring activity
must consider work done and qualifications held individually by each
partner to the joint venture as well as any work done by the joint
venture itself previously. The commenter agreed with that provision,
but recommended that it be further refined to prohibit a procuring
activity from requiring the prot[eacute]g[eacute] to individually meet
any evaluation or responsibility criteria. SBA understands the concern
that some procuring activities have required unreasonable requirements
of prot[eacute]g[eacute] small business partners to mentor-
prot[eacute]g[eacute] joint ventures. SBA's rules require a small
business prot[eacute]g[eacute] to have some experience in the type of
work to be performed under the contract. However, it is unreasonable to
require the prot[eacute]g[eacute] concern itself to have the same level
of past performance and experience (either in dollar value or number of
previous contracts performed, years of performance, or otherwise) as
its large business mentor. The reason that any small business joint
ventures with another business entity, whether a mentor-
prot[eacute]g[eacute] joint venture or a joint venture with another
small business concern, is because it cannot meet all performance
requirements by itself and seeks to gain experience through the help of
its joint venture partner. SBA
[[Page 66168]]
believes that a solicitation provision that requires both a
prot[eacute]g[eacute] firm and a mentor to each have the same level of
past performance (e.g., each partner to have individually previously
performed 5 contracts of at least $10 million) is unreasonable, and
should not be permitted. However, SBA disagrees that a procuring
activity should not be able to require a prot[eacute]g[eacute] firm to
individually meet any evaluation or responsibility criteria. SBA
intends that the prot[eacute]g[eacute] firm gain valuable business
development assistance through the joint venture relationship. The
prot[eacute]g[eacute] must, however, bring something to the table other
than its size or socio-economic status. The joint venture should be a
tool to enable it to win and perform a contract in an area that it has
some experience but that it could not have won on its own.
Section 125.9
This final rule first reorganizes some of the current provisions in
Sec. 125.9 for ease of use and understanding. The rule reorganizes and
clarifies Sec. 125.9(b). It clarifies that in order to qualify as a
mentor, SBA will look at three things, whether the proposed mentor: Is
capable of carrying out its responsibilities to assist the
prot[eacute]g[eacute] firm under the proposed mentor-
prot[eacute]g[eacute] agreement; does not appear on the Federal list of
debarred or suspended contractors; and can impart value to a
prot[eacute]g[eacute] firm. Instead of requiring SBA to look at and
determine that a proposed mentor possesses good character in every
case, the rule amends this provision to specify that SBA will decline
an application if SBA determines that the mentor does not possess good
character. The rule also clarifies 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. That has always been SBA's
intent (the current rule specifies that a second mentor-
prot[eacute]g[eacute] relationship cannot be a competitor of the
first), but SBA wants to make this clear in response to questions SBA
has received regarding this issue. Commenters generally supported these
clarifications. One commenter asked SBA to clarify the provision
prohibiting a mentor that has more than one prot[eacute]g[eacute] from
submitting competing offers in response to a solicitation for a
specific procurement. Specifically, the commenter noted that many
multiple award procurements have separate pools of potential awardees.
For example, an agency may have a single solicitation that calls for
awarding indefinite delivery indefinite quantity (IDIQ) contracts in
unrestricted, small business, HUBZone, 8(a), WOSB, and SDVO small
business pools. All offerors submit proposals in response to the same
solicitation and indicate the pool(s) for which they are competing. The
commenter sought clarification as to whether a mentor with two
different prot[eacute]g[eacute]s could submit an offer as a joint
venture with one prot[eacute]g[eacute] for one pool and another offer
as a joint venture with a second prot[eacute]g[eacute] for a different
pool. SBA first notes that in order for SBA to approve a second mentor-
prot[eacute]g[eacute] relationship for a specific mentor, the mentor
must demonstrate that the additional mentor-prot[eacute]g[eacute]
relationship will not adversely affect the development of either
prot[eacute]g[eacute] firm. In particular, the mentor must show that
the second prot[eacute]g[eacute] will not be a competitor of the first
prot[eacute]g[eacute]. Thus, the mentor has already assured SBA that
the two prot[eacute]g[eacute]s would not be competitors. If the two
mentor-prot[eacute]g[eacute] relationships were approved in the same
NAICS code, then the mentor must have already made a commitment that
the two firms would not compete against each other. This could include,
for example, a commitment that the one mentor-prot[eacute]g[eacute]
relationship would seek only HUBZone and small business set-aside
contracts while the second would seek only 8(a) contracts. That being
the case, the same mentor could submit an offer as a joint venture with
one prot[eacute]g[eacute] for one pool and another offer as a joint
venture with a second prot[eacute]g[eacute] for a different pool on the
same solicitation because they would not be deemed competitors with
respect to that procurement. SBA does not believe, however, that a
change is needed from the proposed regulatory text since that is merely
an interpretation of what ``competing offers'' means. SBA adopts the
proposed language as final in this rule.
The proposed rule also sought comments as to whether SBA should
limit mentors only to those firms having average annual revenues of
less than $100 million. Currently, any concern that demonstrates a
commitment and the ability to assist small business concerns may act as
a mentor. This includes large businesses of any size. This proposal was
in response to suggestions from ``mid-size'' companies (i.e., those
that no longer qualify as small under their primary NAICS codes, but
believe that they cannot adequately compete against the much larger
companies) that a mentor-prot[eacute]g[eacute] program that excluded
very large businesses would be beneficial to the mid-size firms and
allow them to more effectively compete. This was the single most
commented-on issue in the proposed rule. SBA received more than 150
comments in response to this alternative. The vast majority of
commenters strongly opposed this proposal. Commenters agreed with SBA's
stated intent that the focus of the mentor-prot[eacute]g[eacute]
program should be on the prot[eacute]g[eacute] firm, and how best
valuable business development assistance can be provided to a
prot[eacute]g[eacute] to enable that firm to more effectively compete
on its own in the future. They believed that such a restriction would
harm small businesses, as it would restrict the universe of potential
mentors which could provide valuable business assistance to them.
Commenters believed that the size of the mentor should not matter as
long as that entity is providing needed business development assistance
to its prot[eacute]g[eacute]. Commenters believed that SBA's priority
should be to ensure that needed business development assistance will be
provided to prot[eacute]g[eacute] firms though a mentor-
prot[eacute]g[eacute] agreement, and the size of the mentor should not
be a relevant consideration. All that should matter is whether the
proposed mentor demonstrates a commitment and the ability to assist
small business concerns. Several commenters believed that larger
business entities actually serve as better mentors since they are
involved in the program to help the prot[eacute]g[eacute] firm and not
to gain further access to small business contracting (through joint
ventures) for themselves. In response, SBA will not adopt the proposal,
but rather will continue to allow any business entity, regardless of
size, that demonstrates a commitment and the ability to assist small
business concerns to act as a mentor.
This rule also implements Section 861 of the National Defense
Authorization Act (NDAA) of 2019, Public Law 115-232, to make three
changes to the mentor-prot[eacute]g[eacute] program in order to benefit
Puerto Rican small businesses. First, the rule amends Sec. 125.9(b)
regarding the number of prot[eacute]g[eacute] firms that one mentor can
have at any one time. Currently, the regulation provides that under no
circumstances can a mentor have more than three prot[eacute]g[eacute]s
at one time. Section 861 of the NDAA provides that the restriction on
the number of prot[eacute]g[eacute] firms a mentor can have shall not
apply to up to two mentor-protege relationships if such relationships
are with a small business that has its principal office located in the
Commonwealth of Puerto Rico. As such, Sec. 125.9(b)(3)(ii) provides
that a
[[Page 66169]]
mentor generally cannot have more than three prot[eacute]g[eacute]s at
one time, but that the first two mentor-prot[eacute]g[eacute]
relationships between a specific mentor and a small business that has
its principal office located in the Commonwealth of Puerto Rico will
not count against the limit of three prot[eacute]g[eacute]s that a
mentor can have at one time. Thus, if a mentor did have two
prot[eacute]g[eacute]s that had their principal offices in Puerto Rico,
it could have an additional three prot[eacute]g[eacute]s, or a total of
five prot[eacute]g[eacute]s, and comply with SBA's requirements. The
rule also adds a new Sec. 125.9(d)(6) to implement a provision of
Section 861 of NDAA 2019, which authorizes contracting incentives to
mentors that subcontract to prot[eacute]g[eacute] firms that are Puerto
Rico businesses. Specifically, Sec. 125.9(d)(6) provides that a mentor
that provides a subcontract to a prot[eacute]g[eacute] that has its
principal office located in Puerto Rico may (i) receive positive
consideration for the mentor's past performance evaluation, and (ii)
apply costs incurred for providing training to such
prot[eacute]g[eacute] toward the subcontracting goals contained in the
subcontracting plan of the mentor. Commenters supported these
provisions, and SBA adopts them as final in this rule. A few commenters
asked for clarification as to whether these provisions applied to
entity-owned firms located in Puerto Rico. The statute and proposed
regulatory text notes that it applies to any business concern that has
its principal office in Puerto Rico. If a tribally-owned or ANC-owned
firm has its principal office in Puerto Rico, then the provision
applies to it. SBA does not believe further clarification is needed.
The principal office requirement should be sufficient. One commenter
also questioned the provision in the proposed rule allowing mentor
training costs to count toward a mentor's small subcontracting goals,
believing that training costs should never be allowed as subcontracting
costs. That is not something SBA proposed on its own. That provision
was specifically authorized by Section 861 of NDAA 2019. As such, that
provision is unchanged in this final rule.
A few commenters also recommended that SBA allow a mentor to have
more than three prot[eacute]g[eacute]s at a time generally (i.e., not
only where small businesses in Puerto Rico are involved). These
commenters noted that very large business concerns operate under
multiple NAICS codes and have the capability to mentor a large number
of small prot[eacute]g[eacute] firms that are not in competition with
each other. Although SBA understands that many large businesses have
the capability to mentor more than three small business concerns at one
time, SBA does not believe it is good policy for anyone to perceive
that one or more large businesses are unduly benefitting from small
business programs. The rules allow a mentor to joint venture with its
prot[eacute]g[eacute] and be deemed small for any contract for which
the prot[eacute]g[eacute] individually qualifies as small, and to
perform 60 percent of whatever work the joint venture performs.
Moreover, a mentor can also own an equity interest of up to 40 percent
in the prot[eacute]g[eacute] firm. If a large business mentor were able
to have five (or more) prot[eacute]g[eacute]s at one time, it could
have a joint venture with each of those prot[eacute]g[eacute]s and
perform 60 percent of every small business contract awarded to the
joint venture. It also could (though unlikely) have a 40 percent equity
interest in each of those small prot[eacute]g[eacute] firms. In such a
case, SBA believes that it would appear that the large business mentor
is unduly benefitting from contracting programs intended to be reserved
for small businesses. As such, this rule does not increase the number
of prot[eacute]g[eacute] firms that one mentor can have.
The proposed rule clarified the requirements for a firm seeking to
form a mentor-prot[eacute]g[eacute] relationship in a NAICS code that
is not the firm's primary NAICS code (Sec. 125.9(c)(1)(ii)). SBA has
always intended that a firm seeking to be a prot[eacute]g[eacute] could
choose to establish a mentor-prot[eacute]g[eacute] relationship to
assist its business development in any business area in which it has
performed work as long as the firm qualifies as small for the work
targeted in the mentor-prot[eacute]g[eacute] agreement. The proposed
rule highlighted SBA's belief that a firm must have performed some work
in a secondary industry or NAICS code in order for SBA to approve such
a mentor-prot[eacute]g[eacute] relationship. SBA does not want a firm
that has grown to be other than small in its primary NAICS codes to
form a mentor-prot[eacute]g[eacute] relationship in a NAICS code in
which it had no experience simply because it qualified as small in that
other NAICS code. SBA believes that such a situation (i.e., having a
prot[eacute]g[eacute] with no experience in a secondary NAICS code)
could lead to abuse of the program. It would be hard for a firm with no
experience in a secondary NAICS code to be the lead on a joint venture
with its mentor. Similarly, a mentor with all the experience could
easily take control of a joint venture and perform all of the work
required of the joint venture. The proposed rule clarified that a firm
may seek to be a prot[eacute]g[eacute] in any NAICS code for which it
qualifies as small and can form a mentor-prot[eacute]g[eacute]
relationship in a secondary NAICS code if it qualifies as small and has
prior experience or previously performed work in that NAICS code.
Several commenters sought further clarification of this provision.
Commenters noted that a procuring activity may assign different NAICS
codes to the same basic type of work. These commenters questioned
whether a firm needed to demonstrate that it performed work in a
specific NAICS code or could demonstrate that it has performed the same
type of work, whatever NAICS code was assigned to it. Similarly, other
commenters again questioned whether a firm must demonstrate previous
work performed in a specific NAICS code, or whether similar work that
would logically lead to work in a different NAICS code would be
permitted. SBA agrees with these comments. SBA believes that similar
work performed by the prospective prot[eacute]g[eacute] to that for
which a mentor-prot[eacute]g[eacute] relationship is sought should be
sufficient, even if the previously performed work is in a different
NAICS code than that for which a mentor-prot[eacute]g[eacute] agreement
is sought. In addition, if the NAICS code in which a mentor-
prot[eacute]g[eacute] relationship is sought is a logical progression
from work previously performed by the intended prot[eacute]g[eacute]
firm, that too should be permitted. SBA's intent is to encourage
business development, and any relationship that promotes a logical
business progression for the prot[eacute]g[eacute] firm fulfills that
intent.
The proposed rule also responded to concerns raised by small
businesses regarding the regulatory limit of permitting only two
mentor-prot[eacute]g[eacute] relationships even where the small
business prot[eacute]g[eacute] receives no or limited assistance from
its mentor through a particular mentor-prot[eacute]g[eacute] agreement.
SBA believes that a relationship that provides no business development
assistance or contracting opportunities to a prot[eacute]g[eacute]
should not be counted against the firm, or that the firm should not be
restricted to having only one additional mentor-prot[eacute]g[eacute]
relationship in such a case. However, SBA did not want to impose
additional burdens on prot[eacute]g[eacute] firms that would require
them to document and demonstrate that they did not receive benefits
through their mentor-prot[eacute]g[eacute] relationships. In order to
eliminate any disagreements as to whether a firm did or did not receive
any assistance under its mentor-prot[eacute]g[eacute] agreement, SBA
proposed to establish an easily understandable and objective basis for
counting or not counting a
[[Page 66170]]
mentor-prot[eacute]g[eacute] relationship. Specifically, the proposed
rule amended Sec. 125.9(e)(6) to not count any mentor-
prot[eacute]g[eacute] relationship toward a firm's two permitted
lifetime mentor-prot[eacute]g[eacute] relationships where the mentor-
prot[eacute]g[eacute] agreement is terminated within 18 months from the
date SBA approved the agreement. The vast majority of commenters
supported a specific, objective amount of time within which a
prot[eacute]g[eacute] could end a mentor-prot[eacute]g[eacute]
relationship without having it count against the two in a lifetime
limit. Commenters pointed out, however, that the supplementary
information to and the regulatory text in the proposed rule were
inconsistent (i.e., the supplementary information saying 18 months and
the regulatory text saying one year). Several comments recommended
increasing the lifetime number of mentor-prot[eacute]g[eacute]
relationships that a small business concern could have. Finally, a few
commenters opposed the proposed exemption to the two-in-lifetime rule
because allowing prot[eacute]g[eacute] firms such an easy out within 18
months, whether or not the prot[eacute]g[eacute] received beneficial
business development assistance, could act as a detriment to firms that
would otherwise be willing to serve as mentors. One commenter was
concerned that if a bright line 18-month test is all that is required,
nothing would prevent an unscrupulous business from running through an
endless chain of relatively short-lived mentor-prot[eacute]g[eacute]
relationships. SBA does not believe that will be a frequent occurrence.
Nevertheless, in response, the final rule provides that if a specific
small business prot[eacute]g[eacute] appears to use the 18-month test
as a means of using many short-term mentor-prot[eacute]g[eacute]
relationships, SBA may determine that the business concern has
exhausted its participation in the mentor-prot[eacute]g[eacute] program
and not approve an additional mentor-prot[eacute]g[eacute]
relationship.
The proposed rule also eliminated the reconsideration process for
declined mentor-prot[eacute]g[eacute] agreements in Sec. 125.9(f) as
unnecessary. Currently, if SBA declines a mentor-prot[eacute]g[eacute]
agreement, the prospective small business prot[eacute]g[eacute] may
make changes to its agreement and seek reconsideration from SBA within
45 days of SBA's decision to decline the mentor-prot[eacute]g[eacute]
relationship. The current regulations also allow the small business to
submit a new (or revised) mentor-prot[eacute]g[eacute] agreement to SBA
at any point after 60 days from the date of SBA's final decision
declining a mentor-prot[eacute]g[eacute] relationship. SBA believes
that this ability to submit a new or revised mentor-
prot[eacute]g[eacute] agreement after 60 days is sufficient. Most
commenters supported this change, agreeing that a separate
reconsideration process is unnecessary. A few commenters disagreed,
believing that requiring a small business to wait 60 days to submit a
revised mentor-prot[eacute]g[eacute] agreement and then start SBA's
processing time instead of submitting a revised agreement within a few
days of a decline decision could add an additional two months of wait
time to an ultimate approval. SBA continues to believe that the small
amount of time a small business must wait to resubmit a new/revised
mentor-prot[eacute]g[eacute] agreement to SBA for approval makes the
reconsideration process unnecessary. As such, this rule finalizes the
elimination of a separate reconsideration process.
The proposed rule added clarifying language regarding the annual
review of mentor-prot[eacute]g[eacute] relationships. It is important
that SBA receive an honest assessment from the prot[eacute]g[eacute] of
how the mentor-prot[eacute]g[eacute] relationship is working, whether
the prot[eacute]g[eacute] has received the agreed-upon business
development assistance, and whether the prot[eacute]g[eacute] would
recommend the mentor to be a mentor for another small business in the
future. SBA needs to know if the mentor is not providing the agreed-
upon business development assistance to the prot[eacute]g[eacute]. This
would affect that firm's ability to be a mentor in the future. Several
commenters were also concerned about mentors that did not live up to
their commitments. A few commenters recommended that a
prot[eacute]g[eacute] firm should be able to ask SBA to intervene if it
thought it was not receiving the assistance promised by the mentor or
if it thought that the assistance provided was not of the quality it
anticipated. SBA believes that makes sense and this rule adds a
provision allowing a prot[eacute]g[eacute] to request SBA to intervene
on its behalf with the mentor. Such a request would cause SBA to notify
the mentor that SBA had received adverse information regarding its
participation as a mentor and allow the mentor to respond to that
information. If the mentor did not overcome the allegations, SBA would
terminate the mentor-prot[eacute]g[eacute] agreement. The final rule
also adds a provision that allows a prot[eacute]g[eacute] to substitute
another firm to be its mentor for the time remaining in the mentor-
prot[eacute]g[eacute] agreement without counting against the two-mentor
limit. If two years had already elapsed in the mentor-
prot[eacute]g[eacute] agreement, the prot[eacute]g[eacute] could
substitute another firm to be its mentor for a total of four years.
Prior to the proposed rule, SBA had also received several
complaints from small business prot[eacute]g[eacute]s whose mentor-
prot[eacute]g[eacute] relationships were terminated by the mentor soon
after a joint venture between the prot[eacute]g[eacute] and mentor
received a Government contract as a small business. The proposed rule
asked for comments about the possibility of adding a provision
requiring a joint venture between a prot[eacute]g[eacute] and its
mentor to recertify its size if the mentor prematurely ended the
mentor-prot[eacute]g[eacute] relationship. Commenters did not support
this possible approach, believing that such a recertification
requirement would have a much more serious impact on the
prot[eacute]g[eacute] than on the mentor. In effect, such a provision
would punish a prot[eacute]g[eacute] for its mentor's failure to meet
its obligations under the mentor-prot[eacute]g[eacute] agreement. Upon
further review, SBA believes that better options are provided in
current Sec. 125.9(h), which provides consequences for when a mentor
does not provide to the prot[eacute]g[eacute] firm the business
development assistance set forth in its mentor-prot[eacute]g[eacute]
agreement. Under the current regulations, where that occurs, the firm
will be ineligible to again act as a mentor for a period of two years
from the date SBA terminates the mentor-prot[eacute]g[eacute]
agreement, SBA may recommend to the relevant procuring agency to issue
a stop work order for each Federal contract for which the mentor and
prot[eacute]g[eacute] are performing as a small business joint venture,
and SBA may seek to substitute the prot[eacute]g[eacute] firm for the
joint venture if the prot[eacute]g[eacute] firm is able to
independently complete performance of any joint venture contract
without the mentor. SBA believes that provision should be sufficient to
dissuade mentors from terminating mentor-prot[eacute]g[eacute]
agreements early.
Section 125.18
In addition to the revision to Sec. 125.18(c) identified above,
this rule amends the language in Sec. 125.18(a) to clarify what
representations and certifications a business concern seeking to be
awarded a SDVO contract must submit as part of its offer.
Section 126.602
On November 26, 2019, SBA published a final rule amending the
HUBZone regulations. 84 FR 65222. As part of that rule, SBA revised 13
CFR 126.200 by reorganizing the section to make it more readable.
However, SBA inadvertently overlooked a cross-reference to section
126.200 contained in Sec. 126.602(c). This rule merely fixes the
cross-reference in Sec. 126.602(c).
[[Page 66171]]
Section 126.606
The final rule amends Sec. 126.606 to make it consistent with the
release requirements of Sec. 124.504(d). Current Sec. 126.606
authorizes SBA to release a follow-on requirement previously performed
through the 8(a) BD program for award as a HUBZone contract only where
neither the incumbent nor any other 8(a) Participant can perform the
requirement. SBA believes that is overly restrictive and inconsistent
with the release language contained in Sec. 124.504(d). As such, the
final rule provides that a procuring activity may request that SBA
release an 8(a) requirement for award as a HUBZone contract under the
procedures set forth in Sec. 124.504(d).
Sections 126.616 and 126.618
This rule makes minor revisions to Sec. Sec. 126.616 and 126.618
by merely deleting references to the 8(a) BD Mentor-
Prot[eacute]g[eacute] Program, since that program would no longer exist
as a separate program.
Sections 127.503(h) and 127.504
In addition to the revision to Sec. 127.504(c) identified above,
the proposed rule made other changes or clarifications to Sec.
127.504. The proposed rule renamed and revised Sec. 127.504 for better
understanding and ease of use. It changed the section heading to ``What
requirements must an EDWOSB or WOSB meet to be eligible for an EDWOSB
or WOSB contract?''. SBA received no comments on these changes and
adopts them as final in this rule.
This rule also moves the recertification procedures for WOSBs from
Sec. 127.503(h) to Sec. 127.504(e).
Sections 134.318 and 121.1103
This rule amends Sec. 134.318 to make it consistent with SBA's
size regulations. In this regard, Sec. 121.1103(c)(1)(i) of SBA's size
regulations provides that upon receipt of the service copy of a NAICS
code appeal, the contracting officer must ``stay the solicitation.''
However, when that rule was implemented, a corresponding change was not
made to the procedural rules for SBA's OHA contained in part 134. As
such, this rule simply requires that the contracting officer must amend
the solicitation to reflect the new NAICS code whenever OHA changes a
NAICS code in response to a NAICS code appeal. In addition, for clarity
purposes, the rule revises Sec. 121.1103(c)(1)(i) to provide that a
contracting officer must stay the date of the closing of the receipt of
offers instead of requiring that he or she must stay the solicitation.
III. Compliance With Executive Orders 12866, 12988, 13132, 13175,
13563, 13771, the Paperwork Reduction Act (44 U.S.C. Ch. 35) and the
Regulatory Flexibility Act (5 U.S.C. 601-612)
Executive Order 12866
The Office of Management and Budget (OMB) has determined that this
rule is a significant regulatory action for the purposes of Executive
Order 12866. Accordingly, the next section contains SBA's Regulatory
Impact Analysis. This is not a major rule, however, under the
Congressional Review Act.
Regulatory Impact Analysis
1. Is there a need for the regulatory action?
In combining the 8(a) BD Mentor-Prot[eacute]g[eacute] Program and
the All Small Mentor-Prot[eacute]g[eacute] Program, SBA seeks to
eliminate confusion regarding perceived differences between the two
Programs, remove unnecessary duplication of functions within SBA, and
establish one, unified staff to better coordinate and process mentor-
prot[eacute]g[eacute] applications. In addition, eliminating the
requirement that SBA approve every joint venture in connection with an
8(a) contract will greatly reduce the time required for 8(a) BD
Participants to come into and SBA to ensure compliance with SBA's joint
venture requirements.
SBA is also making several changes to clarify its regulations.
Through the years, SBA has spoken with small business and
representatives and has determined that several regulations need
further refinement so that they are easier to understand and implement.
This rule makes several changes to ensure that the rules pertaining to
SBA's various small business procurement programs are consistent. SBA
believes that making the programs as consistent and similar as
possible, where practicable, will make it easier for small businesses
to understand what is expected of them and to comply with those
requirements.
2. What is the baseline, and the incremental benefits and costs of this
regulatory action?
This rule seeks to address or clarify several issues, which will
provide clarity to small businesses and contracting personnel. Further,
SBA is eliminating the burden that 8(a) Participants seeking to be
awarded a competitive 8(a) contract as a joint venture must submit the
joint venture to SBA for review and approval prior to contract award.
There are currently approximately 4,500 8(a) BD Participants in the
portfolio. Of those, about 10 percent or roughly 450 Participants have
entered a joint venture agreement to seek the award of an 8(a)
contract. Under the current rules, SBA must approve the initial joint
venture agreement itself and each addendum to the joint venture
agreement--identifying the type of work and what percentage each
partner to the joint venture would perform of a specific 8(a)
procurement--prior to contract award. SBA reviews the terms of the
joint venture agreement for regulatory compliance and must also assess
the 8(a) BD Participant's capacity and whether the agreement is fair
and equitable and will be of substantial benefit to the 8(a) concern.
It is difficult to calculate the costs associated with submitting a
joint venture agreement to SBA because the review process is highly
fact-intensive and typically requires that 8(a) firms provide
additional information and clarification. However, in the Agency's best
professional judgment, it is estimated that an 8(a) Participant
currently spends approximately three hours submitting a joint venture
agreement to SBA and responding to questions regarding that submission.
That equates to approximately 1,350 hours at an estimated rate of
$44.06 per hour--the median wage plus benefits for accountants and
auditors according to 2018 data from the Bureau of Labor Statistics--
for an annual total cost savings to 8(a) Participants of about $59,500.
In addition to the initial joint venture review and approval process,
each joint venture can be awarded two more contracts which would
require additional submissions and explanations for any such joint
venture addendum. Not every joint venture is awarded more than one
contract, but those that do are often awarded the maximum allowed of
three contracts. SBA estimates that Participants submit an additional
300 addendum actions, with each action taking about 1.5 hours for the
Participant. That equates to approximately 450 hours at an estimated
rate of $44.06 per hour for an annual total cost savings to 8(a)
Participants of about $19,800. Between both initial and addendum
actions, this equates to an annual total cost savings to 8(a)
Participants of about $79,300.
In addition, merging the 8(a) BD Mentor-Prot[eacute]g[eacute]
Program into the All Small Mentor-Prot[eacute]g[eacute] Program would
also provide cost savings. Firms seeking a mentor-prot[eacute]g[eacute]
relationship through the All Small Mentor-Prot[eacute]g[eacute] Program
apply through an on-line, electronic application system. 8(a)
Participants seeking SBA's approval of a mentor-prot[eacute]g[eacute]
relationship through the 8(a) BD
[[Page 66172]]
program do not apply through an on-line, electronic system, but rather
apply manually through their servicing SBA district office. In SBA's
best professional judgment, the additional cost for submitting a manual
mentor-prot[eacute]g[eacute] agreement to SBA for review and approval
and responding manually to questions regarding that submission is
estimated at two hours. SBA receives approximately 150 applications for
8(a) mentor-prot[eacute]g[eacute] relationships annually, which equates
to an annual savings to prospective prot[eacute]g[eacute] firms of
about 300 hours. At an estimated rate of $44.06 per hour, the annual
savings in costs related to the reduced time for mentor-
prot[eacute]g[eacute] applications through the All Small Mentor
Prot[eacute]g[eacute] process is about $13,000 per year. In a similar
vein, eliminating the manual review and approval process for 8(a) BD
Mentor-Prot[eacute]g[eacute] Program applications will provide cost
savings to the Federal government. As previously noted, an 8(a)
Participant seeking SBA's approval of a mentor-prot[eacute]g[eacute]
relationship through the 8(a) BD program must submit an application
manually to its servicing district office. The servicing district
office likewise conducts a manual review of each application for
completeness and for regulatory compliance. This review process can be
cumbersome since the analyst must first download and organize all
application materials by hand. In contrast, the on-line, electronic
application system available to prospective prot[eacute]g[eacute]s in
the All Small Mentor-Prot[eacute]g[eacute] Program has significantly
streamlined SBA's review process in two ways. First, it logically
organizes application materials for the reviewer, resulting in a more
efficient and consistent review of each application. Second, all
application materials are housed in a central document repository and
are accessible to the reviewer without the need to download files. In
the Agency's best professional judgment, this streamlined application
review process delivers estimated savings of 30 percent per application
as compared to the manual application review process under the 8(a) BD
Mentor-Prot[eacute]g[eacute] Program. SBA further estimates that it
takes approximately three hours to review an application for the All
Small Mentor Prot[eacute]g[eacute] Program. That equates to
approximately 135 hours (i.e., 150 applications multiplied by three
hours multiplied by 30 percent) at an estimated rate of $44.06 per hour
for an annual total cost savings to the Federal government of about
$5,900 per year. The elimination of manual application process creates
a total cost savings of $18,900 per year.
Moreover, eliminating the 8(a) BD Mentor-Prot[eacute]g[eacute]
Program as a separate program and merging it with the All Small Mentor-
Prot[eacute]g[eacute] Program will eliminate confusion between the two
programs for firms seeking a mentor-prot[eacute]g[eacute] relationship.
When SBA first implemented the All Small Mentor-Prot[eacute]g[eacute]
Program, it intended to establish a program substantively identical to
the 8(a) BD Mentor-Prot[eacute]g[eacute] Program, as required by
Section 1641 of the NDAA of 2013. Nevertheless, feedback from the small
business community reveals a widespread misconception that the two
programs offer different benefits. By merging the 8(a) BD Mentor-
Prot[eacute]g[eacute] Program into the All Small-Mentor
Prot[eacute]g[eacute] Program, firms will not have to read the
requirements for both programs and try to decipher perceived
differences. SBA estimates that having one combined program will
eliminate about one hour of preparation time for each firm seeking a
mentor-prot[eacute]g[eacute] relationship. Based on approximately 600
mentor-prot[eacute]g[eacute] applications each year (about 450 for the
All Small Mentor-Prot[eacute]g[eacute] Program and about 150 for the
8(a) BD Mentor-Prot[eacute]g[eacute] Program), this would equate to an
annual cost savings to prospective prot[eacute]g[eacute] firms of about
600 hours. At an estimated rate of $44.06 per hour, the annual savings
in costs related to the elimination of confusion caused by having two
separate programs is about $26,400.
Thus, in total, the merger of the 8(a) BD mentor-
prot[eacute]g[eacute] program into the All Small Business Mentor-
Prot[eacute]g[eacute] Program would provide a cost savings of about
$45,300 per year.
In addition, it generally takes between 60 and 90 days for SBA to
approve a mentor-prot[eacute]g[eacute] relationship through the 8(a) BD
program. Conversely, the average time it takes to approve a mentor-
prot[eacute]g[eacute] relationship through the All Small Mentor-
Prot[eacute]g[eacute] Program is about 20 working days. To firms
seeking to submit offers through a joint venture with their mentors,
this difference is significant. Such joint ventures are only eligible
for the regulatory exclusion from affiliation if they are formed after
SBA approves the underlying mentor-prot[eacute]g[eacute] relationship.
It follows that firms applying through the 8(a) BD Mentor-
Prot[eacute]g[eacute] Program could miss out on contract opportunities
waiting for their mentor-prot[eacute]g[eacute] relationships to be
approved. These contract opportunity costs are inherently difficult to
measure, but are certainly significant to the firms missing out on
specific contract opportunities. However, in SBA's best judgment,
faster approval timeframes will mitigate such costs by giving program
participants more certainty in planning their proposal strategies.
This rule will also eliminate the requirement that any specific
joint venture can be awarded no more than three contracts over a two
year period, but will instead permit a joint venture to be awarded an
unlimited number of contracts over a two year period. The change
removing the limit of three awards to any joint venture will reduce the
burden of small businesses being required to form additional joint
venture entities to perform a fourth contract within that two-year
period. SBA has observed that joint ventures are often established as
separate legal entities--specifically as limited liability
corporations--based on considerations related to individual venture
liability, tax liability, regulatory requirements, and exit strategies.
Under the current rule, joint venture partners must form a new joint
venture entity after receiving three contracts lest they be deemed
affiliated for all purposes. The rule, which allows a joint venture to
continue to seek and be awarded contracts without requiring the
partners to form a new joint venture entity after receiving its third
contract, will save small businesses significant legal costs in
establishing new joint ventures and ensuring that those entities meet
all applicable regulatory requirements.
This rule also makes several changes to reduce the burden of
recertifying small business status generally and requesting changes of
ownership in the 8(a) BD program. Specifically, the rule clarifies that
a concern that is at least 51 percent owned by an entity (i.e., tribe,
ANC, or Community Development Corporation (CDC)) need not recertify its
status as a small business when the ownership of the concern changes to
or from a wholly-owned business concern of the same entity, as long as
the ultimate owner remains that entity. In addition, the rule also
provides that a Participant in SBA's 8(a) BD program that is owned by
an ANC or tribe need not request a change of ownership from SBA where
the ANC or tribe merely reorganizes its ownership of a Participant in
the 8(a) BD program by inserting or removing a wholly-owned business
entity between the ANC/tribe and the Participant. Both changes will
save entity-owned small business concerns time and money. Similarly,
the rule provides that prior SBA approval is not needed where the
disadvantaged individual (or entity) in control of a Participant in the
8(a) BD program will increase the percentage of his or her (its)
ownership interest.
[[Page 66173]]
The rule will also allow a concern that has been declined for 8(a)
BD program participation to submit a new application 90 days after the
date of the Agency's final decision to decline. This changes the
current rule which requires a concern to wait 12 months from the date
of the final Agency decision to reapply. This will allow firms that
have been declined from participating in the 8(a) BD program the
opportunity to correct deficiencies, come into compliance with program
eligibility requirements, reapply and be admitted to the program and
receive the benefits of the program much more quickly. SBA understands
that by reducing the re-application waiting period there is the
potential to strain the Agency's resources with higher application
volumes. In the Agency's best judgment, any costs associated with the
increase in application volume would be outweighed by the potential
benefit of providing business development assistance and contracting
benefits sooner to eligible firms.
This rule also clarifies SBA's position with respect to size and
socioeconomic status certifications on task orders under MACs.
Currently, size certifications at the order level are not required
unless the contracting officer, in his or her discretion, requests a
recertification in connection with a specific order. The rule requires
a concern to submit a recertification or confirm its size and/or
socioeconomic status for all set-aside orders (i.e., small business
set-aside, 8(a) small business, service-disabled veteran-owned small
business, HUBZone small business, or women-owned small business) under
unrestricted MACs, except for orders or Blanket Purchase Agreements
issued under any FSS contracts. Additionally, the rule requires a
concern to submit a recertification or confirm its socioeconomic status
for all set-aside orders where the required socioeconomic status for
the order differs from that of the underlying set aside MAC. The rule
does not require recertification, however, if the agency issues the
order under a pool or a reserve, and the pool or reserve already was
set aside in the same category as the order.
If the firm's size and status in SAM is current and accurate when
the firm submits its offer, the concern will not need to submit a new
certification or submit any additional documentation with its offer.
SBA recognizes that confirming accurate size and socioeconomic status
imposes a burden on a small business contract holder, but the burden is
minimal. SBA intends that confirmation of size and status under this
rule will be satisfied by confirming that the firm's size and status in
SAM is currently accurate and qualifies the firm for award.
FPDS-NG indicates that, in Fiscal Year 2019, agencies set aside
1,800 orders under unrestricted MACs, excluding orders under FSS
contracts. Agencies also set aside 15 pools or reserves using already-
established MACs other than FSS contracts. SBA adopts the assumption
from FAR Case 2014-002 that on average there are three offers per set-
aside order. SBA also assumes that agencies will award five orders from
each set-aside pool or set-aside reserve per year, using the same set-
aside category as the pool or reserve. These pool or reserve orders do
not require recertification at time of order; therefore, SBA subtracts
the pool or reserve orders from the number of orders subject to the
rule, leaving 1,725 orders subject to the rule.
The annual number of set-aside orders under unrestricted MACs,
excluding FSS orders and orders under set-aside pools or reserves,
therefore is calculated as 1,725 orders x 3 offers per order = 5,175.
The ease of complying with the rule varies depending on the size of a
firm. If the firm's size is not close to the size standard, compliance
is simple; the firm merely confirms that it has a SAM registration. SBA
estimates those firms spend 5 minutes per offer to comply with this
rule. For a firm whose size is close to the size standard, compliance
requires determining whether the firm presently qualifies for the set-
aside--primarily, whether the firm is presently a small business. SBA
adopts the estimate from OMB Control No. 9000-0163 that these firms
spend 30 minutes per offer to comply with this rule.
The share of small businesses that are within 10 percent of the
size standard is 1.3 percent. Therefore, the annual public burden of
requiring present size and socioeconomic status is (5,175 offers x 98.7
percent x 5 minutes x $44.06 cost per hour) + (5,175 offers x 1.3
percent x 30 minutes x $44.06 cost per hour) = $20,250.
FPDS-NG indicates that, in Fiscal Year 2019, agencies set aside
about 130 orders under set-aside MACs (other than FSS contracts) in the
categories covered by this rule. These categories are WOSB or EDWOSB
set-aside/sole-source orders under small business set-aside MACs;
SDVOSB set-aside/sole-source orders under small business set-aside
MACs; and HUBZone set-aside/sole source orders set-aside/sole-source
orders under small business set-aside MACs. The ease of complying on
these set-aside within set-asides varies depending on whether the firm
has had any of these recent actions: (i) An ownership change, (ii) a
corporate change that alters control of the firm, such as change in
bylaws or a change in corporate officers, or (iii) for the HUBZone
program, a change in the firm's HUBZone certification status under
SBA's recently revised HUBZone program procedures. Although data is not
available, SBA estimates that up to 25 percent of firms would have any
of those recent actions. Firms in that category will spend 30 minutes
per offer determining whether the firm presently qualifies for a set-
aside order. The remaining 75 percent of firms will spend 5 minutes
merely confirming that the firm has an active SAM registration.
Following the same calculations, the annual cost of requiring
present socioeconomic status on set-aside orders under set-aside MACs
is calculated as (130 orders x 3 offers/order x 75 percent x 5 minutes
x $44.06 cost per hour) + (130 orders x 3 offers/order x 25 percent x
30 minutes x $44.06 cost per hour). This amounts to an annual cost of
about $3,220.
As reflected in the calculation, SBA believes that being presently
qualified for the required size or socioeconomic status on an order,
where required, would impose a burden on small businesses. A concern
already is required by regulation to update its size and status
certifications in SAM at least annually. As such, the added burden to
industry is limited to confirming that the firm's certification is
current and accurate. The Federal Government, however, will receive
greater accuracy from renewed certification which will enhance
transparency in reporting and making awards.
The added burden to ordering agencies includes the act of checking
a firm's size and status certification in SAM at the time of order
award. Since ordering agencies are already familiar with checking SAM
information, such as to ensure that an order awardee is not debarred,
suspended, or proposed for debarment, this verification is minimal.
Further, checking SAM at the time of order award replaces the check of
the offeror's contract level certification. SBA also recognizes that an
agency's market research for the order level may be impacted where the
agency intends to issue a set-aside order under an unrestricted vehicle
(or a socioeconomic set-aside under a small business set-aside vehicle)
except under FSS contracts. The ordering agency may need to identify
MAC-eligible vendors and then find their status in SAM. This is
particularly the case where the agency is applying the Rule of Two and
verifying that there are at least two
[[Page 66174]]
small businesses or small businesses with the required status
sufficient to set aside the order. SBA does not believe that conducting
SAM research is onerous.
Using the same set-aside order data, the annual cost of checking
certifications and conducting additional market research efforts is
calculated as (1725 orders off unrestricted + 130 orders off set-
asides) x 30 minutes x $44.06/hours = $46,600 in annual government
burden.
Currently, recertification at the contract level for long term
contracts is specifically identified only at specific points. This rule
makes clear that a contracting officer has the discretion to request
size recertification as he or she deems appropriate at any point for a
long-term MAC. FPDS-NG indicates that, in Fiscal Year 2019, agencies
awarded 399 MACs to small businesses. SBA estimates that procuring
activities will use their discretion to request recertification at any
point in a long term contract approximately 10% of the time. SBA adopts
the estimate from OMB Control No. 9000-0163 that procuring activities
will spend 30 minutes to comply with this rule. The annual cost of
allowing recertification at any point on a long-term contract to
procuring activities is calculated as (399 MACs x 10%) x 30 minutes x
$44.06 cost per hour. This amounts to an estimated annual cost of $880.
Where requested, this recertification would impose a burden on small
businesses. Following this same calculation, SBA estimates that the
impact to firms will also be $880 ((399 number of MACs x 10%) x 30
minutes x $44.06 per hour). The total cost is $880 x 2 = $1,760.
The annual cost is partially offset by the cost savings that result
from other changes in this rule. This change goes more to
accountability and ensuring that small business contracting vehicles
truly benefit small business concerns. In addition, commenters
responding to the costs associated with recertification supported the
proposed rule that requires a firm to recertify its size and/or
socioeconomic status for set-aside task orders under unrestricted MACs.
These commenters agreed that certifying in the System for Award
Management (sam.gov) should meet this requirement.
3. What are the alternatives to this rule?
As noted above, this rule makes a number of changes intended to
reduce unnecessary or excessive burdens on small businesses, and
clarifies other regulatory provisions to eliminate confusion among
small businesses and procuring activities. SBA has also considered
other alternative proposals to achieve these ends. Concerning SBA's
role in approving 8(a) joint venture agreements, the Agency could also
eliminate the requirement that SBA must approve joint ventures in
connection with sole source 8(a) awards. However, as noted above, SBA
believes that such approval is an important enforcement mechanism to
ensure that the joint venture rules are followed. With respect to the
requirement that a concern must wait 90 days to re-apply to the 8(a) BD
program after the date of the Agency's final decline decision, SBA
could instead eliminate the application waiting period altogether. This
would allow a concern to re-apply as soon as it reasonably believed it
had overcome the grounds for decline. However, SBA believes that such
an alternative would encompass significant administrative burden on
SBA.
Under the rule, if an order under an unrestricted MAC is set-aside
exclusively for small business (i.e., small business set-aside, 8(a)
small business, service-disabled veteran-owned small business, HUBZone
small business, or women-owned small business), or the order is set
aside in a different category than was the set-aside MAC, a concern
must be qualified for the required size and socioeconomic status at the
time it submits its initial offer, which includes price, for the
particular order. In SBA's view, the order is the first time size or
socioeconomic status is important where the underlying MAC is
unrestricted or set aside in a different category than the set-aside
MAC, and therefore, that is the date at which eligibility should be
examined. SBA considered maintaining the status quo; namely, allowing a
one-time certification as to size and socioeconomic status (i.e., at
the time of the initial offer for the underlying contract) to control
all orders under the contract, unless one of recertification
requirements applies (see 121.404(g)). SBA believes the current policy
does not properly promote the interests of small business. Long-term
contracting vehicles that reward firms that once were, but no longer
qualify as, small or a particular socioeconomic status adversely affect
truly small or otherwise eligible businesses.
Another alternative is to require business concerns to notify
contracting agencies when there is a change to a concern's
socioeconomic status (e.g., HUBZone, WOSB, etc.), such that they would
no longer qualify for set-aside orders. The contracting agency would
then be required to issue a contract modification within 30 days, and
from that point forward, ordering agencies would no longer be able to
count options or orders issued pursuant to the contract for small
business goaling purposes. This could be less burdensome than
recertification of socioeconomic status for each set-aside order.
Summary of Costs and Cost Savings
Table 1: Summary of Incremental Costs and Cost Savings, below, sets
out the estimated net incremental cost/(cost saving) associated with
this rule. Table 2: Detailed Breakdown of Incremental Costs and Cost
Savings, below, provides a detailed explanation of the annual cost/
(cost saving) estimates associated with this rule. This rule is an E.O.
13771 deregulatory action. The annualized cost savings of this rule,
discounted at 7% relative to 2016 over a perpetual time horizon, is
$37,166 in 2016 dollars with a net present value of $530,947 in 2016
dollars.
Table 1--Summary of Incremental Costs and Cost Savings
----------------------------------------------------------------------------------------------------------------
Annual cost/ (cost saving)
Item No. Regulatory action item estimate
----------------------------------------------------------------------------------------------------------------
1............................. Eliminating SBA approval of initial and addendums to ($79,300)
joint venture agreements to perform competitive
8(a) contracts and eliminating approval for two
additional contracts which would require additional
submissions and explanations for any such joint
venture addendum.
2............................. Merging the 8(a) BD Mentor-Prot[eacute]g[eacute] (18,900)
Program into the All Small Mentor-
Prot[eacute]g[eacute] Program--Elimination of
manual application process.
3............................. Merging the 8(a) BD Mentor-Prot[eacute]g[eacute] (26,400)
Program into the All Small Mentor-
Prot[eacute]g[eacute] Program--Elimination of
confusion among firms seeking a mentor-
prot[eacute]g[eacute] relationship.
4............................. Requiring recertification for set-aside orders 20,250
issued under unrestricted Multiple Award Contracts.
[[Page 66175]]
5............................. Requiring recertification for set-aside orders 3,220
issued under set-aside Multiple Award Contracts.
6............................. Additional Government detailed market research to 46,600
identify qualified sources for set-aside orders and
verify status.
7............................. Contracting officer discretion to request size 1,760
recertification at any point for a long-term MAC.
----------------------------------------------------------------------------------------------------------------
Table 2--Detailed Breakdown of Incremental Costs and Cost Savings
----------------------------------------------------------------------------------------------------------------
Annual cost/ (cost saving)
Item No. Regulatory action item details estimate breakdown
----------------------------------------------------------------------------------------------------------------
1............................. Regulatory change: SBA is eliminating the burden
that 8(a) Participants seeking to be awarded an
8(a) contract as a joint venture must submit the
joint venture to SBA for review and approval prior
to contract award. In addition, each joint venture
can be awarded two more contracts which would
require additional submissions and explanations for
any such joint venture addendum.
Estimated number of impacted entities: There are 450 entities and 300
currently approximately 4,500 8(a) BD Participants additional addendums.
in the portfolio. Of those, about 10% or roughly
450 Participants have entered a joint venture
agreement to seek the award of an 8(a) contract.
There are approximately 300 addendums per year.
Estimated average impact * (labor hour): SBA 3 hours and 1.5 hours per
estimates that an 8(a) BD Participant currently additional addendum.
spends approximately three hours submitting a joint
venture agreement to SBA and responding to
questions regarding that submission. Each addendum
requires 1.5 hours of time.
2018 Median Pay ** (per hour): Most 8(a) firms use $44.06 per hour.
an accountant or someone with similar skills for
this task.
Estimated Cost/(Cost Saving)........................ ($79,300).
2............................. Regulatory change: SBA is merging the 8(a) BD Mentor-
Prot[eacute]g[eacute] Program into the All Small
Mentor-Prot[eacute]g[eacute] Program and
eliminating the manual application process. This
will reduce the burden on 8(a) Participants seeking
a mentor-prot[eacute]g[eacute] agreement and on SBA
to no longer process paper applications.
Estimated number of impacted entities: SBA receives 150 entities.
approximately 150 applications for 8(a) mentor-
prot[eacute]g[eacute] relationships annually.
Estimated average impact * (labor hour): In SBA's 2 hours for applicants and
best professional judgment, the additional cost for less than 1 hour for SBA.
submitting a manual mentor-prot[eacute]g[eacute]
agreement to SBA for review and approval and
responding manually to questions regarding that
submission is estimated at two hours. For SBA
employees, reviewing the manual mentor-
prot[eacute]g[eacute] agreements takes 3 hours and
this change is expected to save SBA 30% of the time
required.
2018 Median Pay ** (per hour): Most 8(a) firms use 44.06 per hour.
an accountant or someone with similar skills for
this task..
Estimated Cost/(Cost Saving)........................ ($18,900).
3............................. Regulatory change: SBA is merging the 8(a) BD Mentor-
Prot[eacute]g[eacute] Program into the All Small
Mentor-Prot[eacute]g[eacute] Program. In doing so,
firms will not have to read the requirements for
both programs and try to decipher any perceived
differences.
Estimated number of impacted entities: SBA receives 600 entities.
approximately 600 mentor-prot[eacute]g[eacute]
applications each year--about 450 for the All Small
Mentor-Prot[eacute]g[eacute] Program and about 150
for the 8(a) BD Mentor-Prot[eacute]g[eacute]
Program.
Estimated average impact * (labor hour): SBA 1 hour.
estimates that having one combined program will
eliminate about one hour of preparation time for
each firm seeking a mentor-prot[eacute]g[eacute]
relationship.
2018 Median Pay ** (per hour): Most small business $44.06 per hour.
concerns use an accountant or someone with similar
skills for this task.
Estimated Cost/(Cost Saving)........................ ($26,400).
4............................. Regulatory change: SBA is requiring that a firm be
accurately certified and presently qualified as to
size and/or status for set-aside orders issued
under Multiple Award Contracts that were not set
aside or set aside in a separate category, except
for the Federal Supply Schedule.
Estimated number of impacted entities: Approximately 5,175 offers.
1,725 set-aside orders are issued annually on
Multiple Award Contracts that are not set aside in
the same category, including the Federal Supply
Schedule, outside of set-aside pools. SBA estimates
that three offers are submitted for each order.
Estimated average impact * (labor hour): SBA 0.5 hours for firms within
estimates that a small business that is close to 10 percent of size
its size standard will spend an average of 30 standard (1.3% of firms);
minutes confirming that size and status is accurate 5 minutes otherwise
prior to submitting an offer. A small business that (98.7% of firms).
is not close to its size standard will spend an
average of 5 minutes confirming that it has a SAM
registration.
2018 Median Pay ** (per hour): Most small business $44.06 per hour.
concerns use an accountant or someone with similar
skills for this task.
Estimated Cost/(Cost Saving)........................ $20,250.
5............................. Regulatory change: SBA is requiring that a firm be
accurately certified and presently qualified as to
socioeconomic status for set-aside orders issued
under Multiple Award Contracts that were set aside
in a separate category, except for the Federal
Supply Schedule contracts.
[[Page 66176]]
Estimated number of impacted entities: Approximately 390 offers.
130 set-aside orders are issued annually on
Multiple Award Contracts that are not set aside in
the same category, other than on the Federal Supply
Schedule, are affected by this rule. SBA estimates
that three offers are submitted for each order for
a total of 390 offers.
Estimated average impact * (labor hour): SBA 0.5 hours for firms with a
estimates that a small business will spend an change in ownership,
average of 30 minutes confirming that size and control, or HUBZone
status is accurate prior to submitting an offer, if certification (25% of
it has had a change in ownership, control, or firms); 5 minutes
certification. Otherwise, the small business will otherwise (75% of firms).
spend an average of 5 minutes confirming that it
has a SAM registration.
2018 Median Pay ** (per hour): Most small business $44.06 per hour.
concerns use an accountant or someone with similar
skills for this task.
Estimated Cost/(Cost Saving)........................ $3,220.
6............................. Regulatory change: SBA is requiring that firms be
accurately certified and presently qualified as to
size and socioeconomic status for certain set-aside
orders issued under Multiple Award Contracts,
except for the Federal Supply Schedule contracts.
This change impacts the market research required by
ordering activities to determine if a set-aside
order for small business or for any of the
socioeconomic programs may be pursued and whether
the awardee is qualified for award.
Estimated number of impacted entities: Approximately 2,115 orders.
2,115 set-aside orders are issued annually as
described in the rule.
Estimated average impact* (labor hour): SBA 0.5 hours.
estimates that ordering activities applying the
Rule of Two will spend an average of 30 additional
minutes to locate contractors awarded Multiple
Award Contracts, looking up the current business
size for each of the contractors in SAM to
determine if a set-aside order can be pursued, and
confirming the status of the awardee.
2018 Median Pay ** (per hour): Contracting officers $44.06 per hour.
typically perform the market research for the
acquisition plan.
Estimated Cost/(Cost Saving)........................ $46,600.
7............................. Regulatory Change: Contracting officer discretion to
request size recertification at any point for a
long-term MAC.
Estimated number of impacted entities: Approximately 40 contracts.
400 long term MACs are awarded annually to small
businesses. SBA estimates that contracting officers
will exercise this discretion 10% of the time.
Estimated average impact * (labor hour): SBA 0.5 hours for agencies;
estimates that ordering activities will spend an 0.5 hours for businesses.
average of 30 additional minutes to request this
recertification. Contractors will spend an average
of 30 additional minutes to respond to the request.
2018 Median Pay ** (per hour): Contracting officers $44.06.
will request this recertification.
Estimated Cost/(Cost Saving)........................ $1,760.
----------------------------------------------------------------------------------------------------------------
* This estimate is based on SBA's best professional judgment.
** Source: Bureau of Labor Statistics, Accountants and Auditors.
Executive Order 12988
This action meets applicable standards set forth in Sections 3(a)
and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize
litigation, eliminate ambiguity, and reduce burden. The action does not
have retroactive or preemptive effect.
Executive Order 13132
For the purposes of Executive Order 13132, SBA has determined that
this rule will not have substantial, direct effects on the States, on
the relationship between the national government and the States, or on
the distribution of power and responsibilities among the various levels
of government. Therefore, for the purpose of Executive Order 13132,
Federalism, SBA has determined that this rule has no federalism
implications warranting preparation of a federalism assessment.
Executive Order 113175
As part of this rulemaking process, SBA held tribal consultations
pursuant to Executive Order 13175, Tribal Consultations, in
Minneapolis, MN, Anchorage, AK, Albuquerque, NM and Oklahoma City, OK
to provide interested tribal representatives with an opportunity to
discuss their views on various 8(a) BD-related issues. See 84 FR 66647.
These consultations were in addition to those held by SBA in Anchorage,
AK (see 83 FR 17626), Albuquerque, NM (see 83 FR 24684), and Oklahoma
City, OK (see 83 FR 24684) before issuing a proposed rule. This
executive order reaffirms the Federal Government's commitment to tribal
sovereignty and requires Federal agencies to consult with Indian tribal
governments when developing policies that would impact the tribal
community. The purpose of the above-referenced tribal consultation
meetings was to provide interested parties with an opportunity to
discuss their views on the issues, and for SBA to obtain the views of
SBA's stakeholders on approaches to the 8(a) BD program regulations.
SBA has always considered tribal consultation meetings a valuable
component of its deliberations and believes that these tribal
consultation meetings allow for constructive dialogue with the Tribal
community, Tribal Leaders, Tribal Elders, elected members of Alaska
Native Villages or their appointed representatives, and principals of
tribally-owned and ANC-owned firms participating in the 8(a) BD
program.
In general, tribal stakeholders were supportive of SBA's intent to
implement changes that will make it easier for small business concerns
to understand and comply with the regulations
[[Page 66177]]
governing the 8(a) BD program, and agreed that this rulemaking will
make the program more effective and accessible to the small business
community. SBA received significant comments on its approaches to the
proposed regulatory changes, as well as several recommendations
regarding the 8(a) BD program not initially contemplated by this
planned rulemaking. SBA has taken these discussions into account in
drafting this final rule.
Executive Order 13563
This executive order directs agencies to, among other things: (a)
Afford the public a meaningful opportunity to comment through the
internet on proposed regulations, with a comment period that should
generally consist of not less than 60 days; (b) provide for an ``open
exchange'' of information among government officials, experts,
stakeholders, and the public; and (c) seek the views of those who are
likely to be affected by the rulemaking, even before issuing a notice
of proposed rulemaking. As far as practicable or relevant, SBA
considered these requirements in developing this rule, as discussed
below.
1. Did the agency use the best available techniques to quantify
anticipated present and future costs when responding to E.O. 12866
(e.g., identifying changing future compliance costs that might result
from technological innovation or anticipated behavioral changes)?
To the extent possible, the agency utilized the most recent data
available in the Federal Procurement Data System--Next Generation
(FPDS-NG), Dynamic Small Business Search (DSBS) and System for Award
Management (SAM).
2. Public participation: Did the agency: (a) Afford the public a
meaningful opportunity to comment through the internet on any proposed
regulation, with a comment period that should generally consist of not
less than 60 days; (b) provide for an ``open exchange'' of information
among government officials, experts, stakeholders, and the public; (c)
provide timely online access to the rulemaking docket on
Regulations.gov; and (d) seek the views of those who are likely to be
affected by rulemaking, even before issuing a notice of proposed
rulemaking?
The proposed rule initially called for a 70-day comment period,
with comments required to be made to SBA by January 17, 2020. SBA
received several comments in the first few weeks after the publication
to extend the comment period. Commenters felt that the nature of the
issues raised in the rule and the timing of comments during the holiday
season required more time for affected businesses to adequately review
the proposal and prepare their comments. In response to these comments,
SBA published a notice in the Federal Register on January 10, 2020,
extending the comment period an additional 21 days to February 7, 2020.
85 FR 1289. All comments received were posted on www.regulations.gov to
provide transparency into the rulemaking process. In addition, SBA
submitted the final rule to the Office of Management and Budget for
interagency review.
3. Flexibility: Did the agency identify and consider regulatory
approaches that reduce burdens and maintain flexibility and freedom of
choice for the public?
Yes, the rule is intended to reduce unnecessary or excessive
burdens on 8(a) Participants, and clarify other regulatory-related
provisions to eliminate confusion among small businesses and procuring
activities.
Executive Order 13771
This rule is an E.O. 13771 deregulatory action. The annualized cost
savings of this rule is $37,166 in 2016 dollars with a net present
value of $530,947 over perpetuity, in 2016 dollars. A detailed
discussion of the estimated cost of this proposed rule can be found in
the above Regulatory Impact Analysis.
Paperwork Reduction Act, 44 U.S.C. Ch. 35
This rule imposes additional reporting or recordkeeping
requirements under the Paperwork Reduction Act, 44 U.S.C. Chapter 35.
The rule provides a number of size and/or socioeconomic status
recertification requirements for set-aside orders under MACs. The
annual total public reporting burden for this collection of information
is estimated to be 82 total hours ($3,625), including the time for
reviewing instructions, searching existing data sources, gathering and
maintaining the data needed, and completing information reporting.
Respondents: 165.
Responses per respondent: 1.
Total annual responses: 165.
Preparation hours per response: 0.5 (30 min).
Total response burden hours: 82.
Cost per hour: $44.06.
Estimated cost burden to the public: $3,625.
Additionally, the rule adds procuring agency discretion to request
recertification at any point for long term MACs. The annual total
public reporting burden for this collection of information is estimated
to be 20 total hours ($880), including the time for reviewing
instructions, searching existing data sources, gathering and
maintaining the data needed, and completing information reporting.
Respondents: 40.
Responses per respondent: 1.
Total annual responses: 40.
Preparation hours per response: 0.5 (30 min).
Total response burden hours: 20.
Cost per hour: $44.06.
Estimated cost burden to the public: $880.This added information
collection burden will be officially reflected through OMB Control
Number 9000-0163 when the rule is implemented. SBA received no comments
on the PRA analysis set forth in the proposed rule.
SBA also has an information collection for the Mentor-
Prot[eacute]g[eacute] Program, OMB Control Number 3245-0393. This
collection is not affected by these amendments.
Regulatory Flexibility Act, 5 U.S.C. 601-612
The Regulatory Flexibility Act (RFA) requires administrative
agencies to consider the effect of their actions on small entities,
small non-profit enterprises, and small local governments. Pursuant to
the RFA, when an agency issues a rulemaking, the agency must prepare a
regulatory flexibility analysis which describes the impact of the rule
on small entities. However, section 605 of the RFA allows an agency to
certify a rule, in lieu of preparing an analysis, if the rulemaking is
not expected to have a significant economic impact on a substantial
number of small entities. The RFA defines ``small entity'' to include
``small businesses,'' ``small organizations,'' and ``small governmental
jurisdictions.''
This rule concerns aspects of SBA's 8(a) BD program, the All Small
Mentor-Prot[eacute]g[eacute] Program, and various other small business
programs. As such, the rule relates to small business concerns but
would not affect ``small organizations'' or ``small governmental
jurisdictions'' because those programs generally apply only to
``business concerns'' as defined by SBA regulations, in other words, to
small businesses organized for profit. ``Small organizations'' or
``small governmental jurisdictions'' are non-profits or governmental
entities and do not generally qualify as ``business concerns''
[[Page 66178]]
within the meaning of SBA's regulations.
There are currently approximately 4,500 8(a) BD Participants in the
portfolio. Most of the changes are clarifications of current policy or
designed to reduce unnecessary or excessive burdens on 8(a) BD
Participants and therefore should not impact many of these concerns.
There are about 385 Participants with 8(a) BD mentor-
prot[eacute]g[eacute] agreements and about another 850 small businesses
that have SBA-approved mentor-prot[eacute]g[eacute] agreements through
the All Small Mentor-Prot[eacute]g[eacute] Program. The consolidation
of SBA's two mentor-prot[eacute]g[eacute] programs into one program
will not have a significant economic impact on small businesses. In
fact, it should have no affect at all on those small businesses that
currently have or on those that seek to have an SBA-approved mentor-
prot[eacute]g[eacute] relationship. The rule eliminates confusion
regarding perceived differences between the two Programs, removes
unnecessary duplication of functions within SBA, and establishes one
unified staff to better coordinate and process mentor-
prot[eacute]g[eacute] applications. The benefits of the two programs
are identical, and will not change under the rule.
SBA is also requiring a business to be qualified for the required
size and status when under consideration for a set-aside order off a
MAC that was awarded outside of the same set-aside category. Pursuant
to the Small Business Goaling Report (SBGR) Federal Procurement Data
System--Next Generation (FPDS-NG) records, about 236,000 new orders
were awarded under MACs per year from FY 2014 to FY 2018. Around
199,000, or 84.3 percent, were awarded under MACs established without a
small business set aside. For this analysis, small business set-asides
include all total or partial small business set-asides, and all 8(a),
WOSB, SDVOSB, and HUBZone awards. There were about 9,000 new orders
awarded annually with a small business set-aside under unrestricted
MACs. These orders were issued to approximately 2,600 firms. The 9,000
new orders awarded with a small business set-aside under a MAC without
a small business set aside were 4.0 percent of the 236,000 new orders
under MACs in a year (Table 3).
Table 3--0.47% of New MAC Orders in a FY Are Non-FSS Orders Set Aside for Small Business Where Underlying Base Contract Not Set Aside for Small Business
--------------------------------------------------------------------------------------------------------------------------------------------------------
FY014 FY015 FY016 FY017 FY018 AVG
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total new orders under MACs in FY....................... 244,664 231,694 245,978 234,304 223,861 236,100
Orders awarded with SB set aside under unrestricted MAC. 10,089 9,347 9,729 9,198 8,666 9,406
Non-FSS orders awarded with SB set aside without MAC IDV 902 780 1,019 1,422 1,400 1,105
SB set aside...........................................
Percent................................................. 0.37 0.34 0.41 0.61 0.63 0.47
--------------------------------------------------------------------------------------------------------------------------------------------------------
If all firms receiving a non-FSS small business set-aside order
under a MAC that was not itself set aside for small business were
adversely affected by the rule (i.e., every such firm receiving an
award as a small business had grown to be other than a small business
or no longer qualified as 8(a), WOSB, SDVO, or HUBZone), the rule
requiring a business to be certified as small for non-FSS small
business set-aside orders under MACs not set aside for small business
would impact only 0.47 percent of annual new MAC orders. The proposed
rule sought comments as to whether the rule would have a significant
economic impact on a substantial number of small entities. SBA did not
receive any comments responding to such request. As such, SBA certifies
that this rule will not have a significant economic impact on a
substantial number of small entities. Nevertheless, throughout the
supplementary information to this proposed rule, SBA has identified the
reasons why the changes are being made, the objectives and basis for
the rule, a description of the number of small entities to which the
rule will apply, and a description of alternatives considered.
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 134
Administrative practice and procedure, Claims, Equal employment
opportunity, Lawyers, Organization and functions (Government agencies).
Accordingly, for the reasons stated in the preamble, SBA amends 13
CFR parts 121, 124, 125, 126, 127, and 134 as follows:
PART 121--SMALL BUSINESS SIZE REGULATIONS
0
1. The authority citation for part 121 continues to read as follows:
Authority: 15 U.S.C. 632, 634(b)(6), 636(a)(36), 662, and
694a(9); Pub. L. 116-136, Section 1114.
0
2. Amend Sec. 121.103 by:
0
a. Revising the first sentence of paragraphs (b)(6) and (9);
0
b. Revising paragraph (f)(2)(i) and Example 2 to paragraph (f);
0
c. Revising the first sentence of paragraph (g);
0
d. Revising paragraph (h) introductory text and Examples 1, 2, and 3 to
paragraph (h) introductory text;
0
e. Removing paragraphs (h)(1) and (h)(2);
0
f. Redesignating paragraphs (h)(3) through (h)(5) as paragraphs (h)(1)
through (h)(3), respectively;
0
g. Revising the paragraph heading for the newly redesignated paragraph
(h)(1) and adding two sentences to the end of newly redesignated
paragraph (h)(1)(ii);
[[Page 66179]]
0
h. Removing newly redesignated paragraph (h)(1)(iii);
0
i. Adding a paragraph heading for redesignated paragraph (h)(2);
0
j. Revising newly redesignated paragraph (h)(3); and
0
k. Adding paragraph (h)(4).
The revisions and additions read as follows:
Sec. 121.103 How does SBA determine affiliation?
* * * * *
(b) * * *
(6) A firm that has an SBA-approved mentor-prot[eacute]g[eacute]
agreement authorized under Sec. 125.9 of this chapter is not
affiliated with its mentor or prot[eacute]g[eacute] firm solely because
the prot[eacute]g[eacute] firm receives assistance from the mentor
under the agreement. * * *
* * * * *
(9) In the case of a solicitation for a bundled contract or a
Multiple Award Contract with a value in excess of the agency's
substantial bundling threshold, a small business contractor may enter
into a Small Business Teaming Arrangement with one or more small
business subcontractors and submit an offer as a small business without
regard to affiliation, so long as each team member is small for the
size standard assigned to the contract or subcontract. * * *
* * * * *
(f) * * *
(2) * * *
(i) This presumption may be rebutted by a showing that despite the
contractual relations with another concern, the concern at issue is not
solely dependent on that other concern, such as where the concern has
been in business for a short amount of time and has only been able to
secure a limited number of contracts or where the contractual relations
do not restrict the concern in question from selling the same type of
products or services to another purchaser.
* * * * *
Example 2 to paragraph (f). Firm A has been in business for five
years and has approximately 200 contracts. Of those contracts, 195 are
with Firm B. The value of Firm A's contracts with Firm B is greater
than 70% of its revenue over the previous three years. Unless Firm A
can show that its contractual relations with Firm B do not restrict it
from selling the same type of products or services to another
purchaser, SBA would most likely find the two firms affiliated.
(g) Affiliation based on the newly organized concern rule. Except
as provided in Sec. 124.109(c)(4)(iii), affiliation may arise where
former or current officers, directors, principal stockholders, managing
members, or key employees of one concern organize a new concern in the
same or related industry or field of operation, and serve as the new
concern's officers, directors, principal stockholders, managing
members, or key employees, and the one concern is furnishing or will
furnish the new concern with contracts, financial or technical
assistance, indemnification on bid or performance bonds, and/or other
facilities, whether for a fee or otherwise. * * *
(h) Affiliation based on joint ventures. A joint venture is an
association of individuals and/or concerns with interests in any degree
or proportion intending to engage in and carry out business ventures
for joint profit over a two year period, for which purpose they combine
their efforts, property, money, skill, or knowledge, but not on a
continuing or permanent basis for conducting business generally. This
means that a specific joint venture entity generally may not be awarded
contracts beyond a two-year period, starting from the date of the award
of the first contract, without the partners to the joint venture being
deemed affiliated for the joint venture. Once a joint venture receives
a contract, it may submit additional offers for a period of two years
from the date of that first award. An individual joint venture may be
awarded one or more contracts after that two-year period as long as it
submitted an offer including price prior to the end of that two-year
period. SBA will find joint venture partners to be affiliated, and thus
will aggregate their receipts and/or employees in determining the size
of the joint venture for all small business programs, where the joint
venture submits an offer after two years from the date of the first
award. The same two (or more) entities may create additional joint
ventures, and each new joint venture entity may submit offers for a
period of two years from the date of the first contract to the joint
venture without the partners to the joint venture being deemed
affiliates. At some point, however, such a longstanding inter-
relationship or contractual dependence between the same joint venture
partners will lead to a finding of general affiliation between and
among them. A joint venture: Must be in writing; must do business under
its own name and be identified as a joint venture in the System for
Award Management (SAM) for the award of a prime contract; may be in the
form of a formal or informal partnership or exist as a separate limited
liability company or other separate legal entity; and, if it exists as
a formal separate legal entity, may not be populated with individuals
intended to perform contracts awarded to the joint venture (i.e., the
joint venture may have its own separate employees to perform
administrative functions, including one or more Facility Security
Officer(s), but may not have its own separate employees to perform
contracts awarded to the joint venture). SBA may also determine that
the relationship between a prime contractor and its subcontractor is a
joint venture pursuant to paragraph (h)(4) of this section. For
purposes of this paragraph (h), contract refers to prime contracts,
novations of prime contracts, and any subcontract in which the joint
venture is treated as a similarly situated entity as the term is
defined in part 125 of this chapter.
Example 1 to paragraph (h) introductory text. Joint Venture AB
receives a contract on April 2, year 1. Joint Venture AB may receive
additional contracts through April 2, year 3. On June 6, year 2, Joint
Venture AB submits an offer for Solicitation 1. On July 13, year 2,
Joint Venture AB submits an offer for Solicitation 2. On May 27, year
3, Joint Venture AB is found to be the apparent successful offeror for
Solicitation 1. On July 22, year 3, Joint Venture AB is found to be the
apparent successful offeror for Solicitation 2. Even though the award
of the two contracts emanating from Solicitations 1 and 2 would occur
after April 2, year 3, Joint Venture AB may receive those awards
without causing general affiliation between its joint venture partners
because the offers occurred prior to the expiration of the two-year
period.
Example 2 to paragraph (h) introductory text. Joint Venture XY
receives a contract on August 10, year 1. It may receive two additional
contracts through August 10, year 3. On March 19, year 2, XY receives a
second contract. It receives no other contract awards through August
10, year 3 and has submitted no additional offers prior to August 10,
year 3. Because two years have passed since the date of the first
contract award, after August 10, year 3, XY cannot receive an
additional contract award. The individual parties to XY must form a new
joint venture if they want to seek and be awarded additional contracts
as a joint venture.
Example 3 to paragraph (h) introductory text. Joint Venture XY
receives a contract on December 15, year 1. On May 22, year 3 XY
submits an offer for Solicitation S. On December 8, year 3, XY submits
a novation package for contracting officer approval for
[[Page 66180]]
Contract C. In January, year 4 XY is found to be the apparent
successful offeror for Solicitation S and the relevant contracting
officer seeks to novate Contract C to XY. Because both the offer for
Solicitation S and the novation package for Contract C were submitted
prior to December 15 year 3, both contract award relating to
Solicitation S and novation of Contract C may occur without a finding
of general affiliation.
(1) Size of joint ventures. (i) * * *
(ii) * * * Except for sole source 8(a) awards, the joint venture
must meet the requirements of Sec. 124.513(c) and (d), Sec. 125.8(b)
and (c), Sec. 125.18(b)(2) and (3), Sec. 126.616(c) and (d), or Sec.
127.506(c) and (d) of this chapter, as appropriate, at the time it
submits its initial offer including price. For a sole source 8(a)
award, the joint venture must demonstrate that it meets the
requirements of Sec. 124.513(c) and (d) prior to the award of the
contract.
* * * * *
(2) Ostensible subcontractors. * * *
(3) Receipts/employees attributable to joint venture partners. For
size purposes, a concern must include in its receipts its proportionate
share of joint venture receipts, unless the proportionate share already
is accounted for in receipts reflecting transactions between the
concern and its joint ventures (e.g., subcontracts from a joint venture
entity to joint venture partners). In determining the number of
employees, a concern must include in its total number of employees its
proportionate share of joint venture employees. For the calculation of
receipts, the appropriate proportionate share is the same percentage of
receipts or employees as the joint venture partner's percentage share
of the work performed by the joint venture. For the calculation of
employees, the appropriate share is the same percentage of employees as
the joint venture partner's percentage ownership share in the joint
venture, after first subtracting any joint venture employee already
accounted for in one of the partner's employee count.
Example 1 to paragraph (h)(3). Joint Venture AB is awarded a
contract for $10M. The joint venture will perform 50% of the work, with
A performing $2M (40% of the 50%, or 20% of the total value of the
contract) and B performing $3M (60% of the 50% or 30% of the total
value of the contract). Since A will perform 40% of the work done by
the joint venture, its share of the revenues for the entire contract is
40%, which means that the receipts from the contract awarded to Joint
Venture AB that must be included in A's receipts for size purposes are
$4M. A must add $4M to its receipts for size purposes, unless its
receipts already account for the $4M in transactions between A and
Joint Venture AB.
(4) Facility security clearances. A joint venture may be awarded a
contract requiring a facility security clearance where either the joint
venture itself or the individual partner(s) to the joint venture that
will perform the necessary security work has (have) a facility security
clearance.
(i) Where a facility security clearance is required to perform
primary and vital requirements of a contract, the lead small business
partner to the joint venture must possess the required facility
security clearance.
(ii) Where the security portion of the contract requiring a
facility security clearance is ancillary to the principal purpose of
the procurement, the partner to the joint venture that will perform
that work must possess the required facility security clearance.
* * * * *
0
3. Amend Sec. 121.402 by revising the first sentence of paragraph
(b)(2), and paragraphs (c)(1)(i), (c)(2)(i), and (e) to read as
follows:
Sec. 121.402 What size standards are applicable to Federal Government
Contracting programs?
* * * * *
(b) * * *
(2) A procurement is generally classified according to the
component which accounts for the greatest percentage of contract value.
* * *
(c) * * *
(1) * * *
(i) Assign the solicitation a single NAICS code and corresponding
size standard which best describes the principal purpose of the
acquisition as set forth in paragraph (b) of this section, only if the
NAICS code will also best describe the principal purpose of each order
to be placed under the Multiple Award Contract; or
* * * * *
(2) * * *
(i) The contracting officer must assign a single NAICS code for
each order issued against a Multiple Award Contract. The NAICS code
assigned to an order must be a NAICS code included in the underlying
Multiple Award Contract. When placing an order under a Multiple Award
Contract with multiple NAICS codes, the contracting officer must assign
the NAICS code and corresponding size standard that best describes the
principal purpose of each order. In cases where an agency can issue an
order against multiple SINs with different NAICS codes, the contracting
officer must select the single NAICS code that best represents the
acquisition. If the NAICS code corresponding to the principal purpose
of the order is not contained in the underlying Multiple Award
Contract, the contracting officer may not use the Multiple Award
Contract to issue that order.
* * * * *
(e) When a NAICS code designation or size standard in a
solicitation is unclear, incomplete, missing, or prohibited, SBA may
clarify, complete, or supply a NAICS code designation or size standard,
as appropriate, in connection with a formal size determination or size
appeal.
* * * * *
0
4. In Sec. 121.404:
0
a. Amend paragraph (a) by:
0
i. Revising paragraphs (a) introductory text and (a)(1); and
0
ii. Adding a paragraph heading to paragraph (a)(2);
0
b. Revising paragraph (b);
0
c. Adding a paragraph heading to paragraph (c);
0
d. Revising paragraph (d);
0
e. Adding a paragraph heading to paragraph (e) and a sentence at the
end of the paragraph;
0
f. Adding a paragraph heading to paragraph (f);
0
g. Amend paragraph (g) by:
0
i. Redesignating paragraph (g)(2)(ii)(D) as paragraph (g)(2)(iii);
0
ii. Revising paragraphs (g) introductory text, (g)(2)(ii)(C) and newly
redesignated paragraph(g)(2)(iii); and
0
iii. Adding paragraph (g)(2)(iv) and a new third sentence to paragraph
(g)(3) introductory text; and
0
h. Adding a paragraph heading to paragraph (h).
The additions and revisions read as follows:
Sec. 121.404 When is the size status of a business concern
determined?
(a) Time of size--(1) Multiple award contracts. With respect to
Multiple Award Contracts, orders issued against a Multiple Award
Contract, and Blanket Purchase Agreements issued against a Multiple
Award Contract:
(i) Single NAICS. If a single NAICS code is assigned as set forth
in Sec. 121.402(c)(1)(i), SBA determines size status for the
underlying Multiple Award Contract at the time of initial offer (or
other formal response to a solicitation), which includes price, based
upon the size standard set forth in the solicitation for the Multiple
Award Contract, unless the concern was
[[Page 66181]]
required to recertify under paragraph (g)(1), (2), or (3) of this
section.
(A) Unrestricted Multiple Award Contracts. For an unrestricted
Multiple Award Contract, if a business concern (including a joint
venture) is small at the time of offer and contract-level
recertification for the Multiple Award Contract, it is small for
goaling purposes for each order issued against the contract, unless a
contracting officer requests a size recertification for a specific
order or Blanket Purchase Agreement. Except for orders and Blanket
Purchase Agreements issued under any Federal Supply Schedule contract,
if an order or a Blanket Purchase Agreement under an unrestricted
Multiple Award Contract is set-aside exclusively for small business
(i.e., small business set-aside, 8(a) small business, service-disabled
veteran-owned small business, HUBZone small business, or women-owned
small business), a concern must recertify its size status and qualify
as a small business at the time it submits its initial offer, which
includes price, for the particular order or Blanket Purchase Agreement.
However, where the underlying Multiple Award Contract has been awarded
to a pool of concerns for which small business status is required, if
an order or a Blanket Purchase Agreement under that Multiple Award
Contract is set-aside exclusively for concerns in the small business
pool, concerns need not recertify their status as small business
concerns (unless a contracting officer requests size certifications
with respect to a specific order or Blanket Purchase Agreement).
(B) Set-aside Multiple Award Contracts. For a Multiple Award
Contract that is set aside for small business (i.e., small business
set-aside, 8(a) small business, service-disabled veteran-owned small
business, HUBZone small business, or women-owned small business), if a
business concern (including a joint venture) is small at the time of
offer and contract-level recertification for the Multiple Award
Contract, it is small for each order or Blanket Purchase Agreement
issued against the contract, unless a contracting officer requests a
size recertification for a specific order or Blanket Purchase
Agreement.
(ii) Multiple NAICS. If multiple NAICS codes are assigned as set
forth in Sec. 121.402(c)(1)(ii), SBA determines size status at the
time a business concern submits its initial offer (or other formal
response to a solicitation) which includes price for a Multiple Award
Contract based upon the size standard set forth for each discrete
category (e.g., CLIN, SIN, Sector, FA or equivalent) for which the
business concern submits an offer and represents that it qualifies as
small for the Multiple Award Contract, unless the business concern was
required to recertify under paragraph (g)(1), (2), or (3) of this
section. If the business concern (including a joint venture) submits an
offer for the entire Multiple Award Contract, SBA will determine
whether it meets the size standard for each discrete category (CLIN,
SIN, Sector, FA or equivalent).
(A) Unrestricted Multiple Award Contracts. For an unrestricted
Multiple Award Contract, if a business concern (including a joint
venture) is small at the time of offer and contract-level
recertification for discrete categories on the Multiple Award Contract,
it is small for goaling purposes for each order issued against any of
those categories, unless a contracting officer requests a size
recertification for a specific order or Blanket Purchase Agreement.
Except for orders or Blanket Purchase Agreements issued under any
Federal Supply Schedule contract, if an order or Blanket Purchase
Agreement for a discrete category under an unrestricted Multiple Award
Contract is set-aside exclusively for small business (i.e., small
business set, 8(a) small business, service-disabled veteran-owned small
business, HUBZone small business, or women-owned small business), a
concern must recertify its size status and qualify as a small business
at the time it submits its initial offer, which includes price, for the
particular order or Agreement. However, where the underlying Multiple
Award Contract for discrete categories has been awarded to a pool of
concerns for which small business status is required, if an order or a
Blanket Purchase Agreement under that Multiple Award Contract is set-
aside exclusively for concerns in the small business pool, concerns
need not recertify their status as small business concerns (unless a
contracting officer requests size certifications with respect to a
specific order or Blanket Purchase Agreement).
(B) Set-aside Multiple Award Contracts. For a Multiple Award
Contract that is set aside for small business (i.e., small business
set-aside, 8(a) small business, service-disabled veteran-owned small
business, HUBZone small business, or women-owned small business), if a
business concern (including a joint venture) is small at the time of
offer and contract-level recertification for discrete categories on the
Multiple Award Contract, it is small for each order or Agreement issued
against any of those categories, unless a contracting officer requests
a size recertification for a specific order or Blanket Purchase.
(iii) SBA will determine size at the time of initial offer (or
other formal response to a solicitation), which includes price, for an
order or Agreement issued against a Multiple Award Contract if the
contracting officer requests a new size certification for the order or
Agreement.
(2) Agreements. * * *
(b) 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 (under part 126 of this chapter), or as a women-owned small
business concern (under part 127 of this chapter) must qualify as a
small business for its primary industry classification 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.
(c) Certificates of competency. * * *
(d) Nonmanufacturer rule, ostensible subcontractor rule, and joint
venture agreements. Size status is determined as of the date of the
final proposal revision for negotiated acquisitions and final bid for
sealed bidding for the following purposes: compliance with the
nonmanufacturer rule set forth in Sec. 121.406(b)(1), the ostensible
subcontractor rule set forth in Sec. 121.103(h)(4), and the joint
venture agreement requirements in Sec. 124.513(c) and (d), Sec.
125.8(b) and (c), Sec. 125.18(b)(2) and (3), Sec. 126.616(c) and (d),
or Sec. 127.506(c) and (d) of this chapter, as appropriate.
(e) Subcontracting. * * * A prime contractor may rely on the self-
certification of subcontractor provided it does not have a reason to
doubt the concern's self-certification.
(f) Two-step procurements. * * *
(g) Effect of size certification and recertification. A concern
that represents itself as a small business and qualifies as small at
the time it submits its initial offer (or other formal response to a
solicitation) which includes price is generally considered to be a
small business throughout the life of that contract. Similarly, a
concern that represents itself as a small business and qualifies as
small after a required recertification under paragraph (g)(1), (2), or
(3) of this section is generally considered to be a small business
until throughout the life of that contract. Where a concern grows to be
other than small, the procuring agency may exercise options and still
count the award as an award to a small business,
[[Page 66182]]
except that a required recertification as other than small under
paragraph (g)(1), (2), or (3) of this section changes the firm's status
for future options and orders. The following exceptions apply to this
paragraph (g):
* * * * *
(2) * * *
(ii) * * *
(C) In the context of a joint venture that has been awarded a
contract or order as a small business, from any partner to the joint
venture that has been acquired, is acquiring, or has merged with
another business entity.
(iii) If the merger, sale or acquisition occurs after offer but
prior to award, the offeror must recertify its size to the contracting
officer prior to award. If the merger, sale or acquisition (including
agreements in principal) occurs within 180 days of the date of an offer
and the offeror is unable to recertify as small, it will not be
eligible as a small business to receive the award of the contract. If
the merger, sale or acquisition (including agreements in principal)
occurs more than 180 days after the date of an offer, award can be
made, but it will not count as an award to small business.
(iv) Recertification is not required when the ownership of a
concern that is at least 51% owned by an entity (i.e., tribe, Alaska
Native Corporation, or Community Development Corporation) changes to or
from a wholly-owned business concern of the same entity, as long as the
ultimate owner remains that entity.
Example 1 to paragraph (g)(2)(iii). Indian Tribe X owns 100% of
small business ABC. ABC wins an award for a small business set-aside
contract. In year two of contract performance, X changes the ownership
of ABC so that X owns 100% of a holding company XYZ, Inc., which in
turn owns 100% of ABC. This restructuring does not require ABC to
recertify its status as a small business because it continues to be
100% owned (indirectly rather than directly) by Indian Tribe X.
(3) * * * A contracting officer may also request size
recertification, as he or she deems appropriate, prior to the 120-day
point in the fifth year of a long-term multiple award contract. * * *
* * * * *
(h) Follow-on contracts. * * *
Sec. 121.406 [Amended]
0
5. Amend Sec. 121.406 by removing the word ``provided'' and adding in
its place the word ``provide'' in paragraph (a) introductory text.
0
6. Amend Sec. 121.603 by adding paragraph (c)(3) to read as follows:
Sec. 121.603 How does SBA determine whether a Participant is small
for a particular 8(a) BD subcontract?
* * * * *
(c) * * *
(3) Recertification is not required when the ownership of a concern
that is at least 51% owned by an entity (i.e., tribe, Alaska Native
Corporation, or Community Development Corporation) changes to or from a
wholly-owned business concern of the same entity, as long as the
ultimate owner remains that entity.
* * * * *
0
7. Amend Sec. 121.702 by revising paragraph (c)(6) to read as follows:
Sec. 121.702 What size and eligibility standards are applicable to
the SBIR and STTR programs?
* * * * *
(c) * * *
(6) Size requirement for joint ventures. Two or more small business
concerns may submit an application as a joint venture. The joint
venture will qualify as small as long as each concern is small under
the size standard for the SBIR program, found at Sec. 121.702(c), or
the joint venture meets the exception at Sec. 121.103(h)(3)(ii) for
two firms approved to be a mentor and prot[eacute]g[eacute] under SBA's
All Small Mentor-Prot[eacute]g[eacute] Program.
* * * * *
0
8. Amend Sec. 121.1001 by revising paragraphs (a)(1)(iii),
(a)(2)(iii), (a)(3)(iv), (a)(4)(iii), (a)(6)(iv), (a)(7)(iii),
(a)(8)(iv), (a)(9)(iv), (b)(7), and (b)(12) to read as follows:
Sec. 121.1001 Who may initiate a size protest or request a formal
size determination?
(a) * * *
(1) * * *
(iii) The SBA Government Contracting Area Director having
responsibility for the area in which the headquarters of the protested
offeror is located, regardless of the location of a parent company or
affiliates, the Director, Office of Government Contracting, or the
Associate General Counsel for Procurement Law; and
* * * * *
(2) * * *
(iii) The SBA District Director, or designee, in either the
district office serving the geographical area in which the procuring
activity is located or the district office that services the apparent
successful offeror, the Associate Administrator for Business
Development, or the Associate General Counsel for Procurement Law.
(3) * * *
(iv) The responsible SBA Government Contracting Area Director or
the Director, Office of Government Contracting, or the SBA's Associate
General Counsel for Procurement Law; and
* * * * *
(4) * * *
(iii) The responsible SBA Government Contracting Area Director; the
Director, Office of Government Contracting; the Associate
Administrator, Investment Division, or the Associate General Counsel
for Procurement Law.
* * * * *
(6) * * *
(iv) The SBA Director, Office of HUBZone, or designee, or the SBA
Associate General Counsel for Procurement Law.
(7) * * *
(iii) The responsible SBA Government Contracting Area Director, the
Director, Office of Government Contracting, the Associate Administrator
for Business Development, or the Associate General Counsel for
Procurement Law.
(8) * * *
(iv) The Director, Office of Government Contracting, or designee,
or the Associate General Counsel for Procurement Law.
(9) * * *
(iv) The Director, Office of Government Contracting, or designee,
or the Associate General Counsel for Procurement Law.
(b) * * *
(7) In connection with initial or continued eligibility for the
WOSB program, the following may request a formal size determination:
(i) The applicant or WOSB/EDWOSB; or
(ii) The Director of Government Contracting or the Deputy Director,
Program and Resource Management, for the Office of Government
Contracting.
* * * * *
(12) In connection with eligibility for the SDVO program, the
following may request a formal size determination:
(i) The SDVO business concern; or
(ii) The Director of Government Contracting or designee.
* * * * *
0
9. Amend Sec. 121.1004 by revising paragraph (a)(2)(ii) and adding
paragraph (a)(2)(iii) to read as follows:
Sec. 121.1004 What time limits apply to size protests?
(a) * * *
(2) * * *
(ii) An order issued against a Multiple Award Contract if the
contracting officer requested a size recertification in connection with
that order; or
(iii) Except for orders or Blanket Purchase Agreements issued under
any
[[Page 66183]]
Federal Supply Schedule contract, an order or Blanket Purchase
Agreement set-aside for small business (i.e., small business set-aside,
8(a) small business, service-disabled veteran-owned small business,
HUBZone small business, or women-owned small business) where the
underlying Multiple Award Contract was awarded on an unrestricted
basis.
* * * * *
0
10. Amend Sec. 121.1103 by revising paragraph (c)(1)(i) to read as
follows:
Sec. 121.1103 What are the procedures for appealing a NAICS code or
size standard designation?
* * * * *
(c) * * *
(1) * * *
(i) Stay the date for the closing of receipt of offers;
* * * * *
PART 124--8(a) BUSINESS DEVELOPMENT/SMALL DISADVANTAGED BUSINESS
STATUS DETERMINATIONS
0
11. 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 and
Pub. L. 99-661, Pub. L. 100-656, sec. 1207, Pub. L. 101-37, Pub. L.
101-574, section 8021, Pub. L. 108-87, and 42 U.S.C. 9815.
0
12. Amend Sec. 124.3 by adding in alphabetical order a definition for
``Follow-on requirement or contract'' to read as follows:
Sec. 124.3 What definitions are important in the 8(a) BD program?
* * * * *
Follow-on requirement or contract. The determination of whether a
particular requirement or contract is a follow-on includes
consideration of whether the scope has changed significantly, requiring
meaningful different types of work or different capabilities; whether
the magnitude or value of the requirement has changed by at least 25
percent for equivalent periods of performance; and whether the end user
of the requirement has changed. As a general guide, if the procurement
satisfies at least one of these three conditions, it may be considered
a new requirement. However, meeting any one of these conditions is not
dispositive that a requirement is new. In particular, the 25 percent
rule cannot be applied rigidly in all cases. Conversely, if the
requirement satisfies none of these conditions, it is considered a
follow-on procurement.
* * * * *
0
13. Amend Sec. 124.105 by revising paragraph (g) and paragraphs (i)(2)
and (4) to read as follows:
Sec. 124.105 What does it mean to be unconditionally owned by one or
more disadvantaged individuals?
* * * * *
(g) Ownership of another current or former Participant by an
immediate family member. (1) An individual may not use his or her
disadvantaged status to qualify a concern if that individual has an
immediate family member who is using or has used his or her
disadvantaged status to qualify another concern for the 8(a) BD program
and any of the following circumstances exist:
(i) The concerns are connected by any common ownership or
management, regardless of amount or position;
(ii) The concerns have a contractual relationship that was not
conducted at arm's length;
(iii) The concerns share common facilities; or
(iv) The concerns operate in the same primary NAICS code and the
individual seeking to qualify the applicant concern does not have
management or technical experience in that primary NAICS code.
Example 1 to paragraph (g)(1). X applies to the 8(a) BD program. X
is 95% owned by A and 5% by B, A's father and the majority owner in a
former 8(a) Participant. Even though B has no involvement in X, X would
be ineligible for the program.
Example 2 to paragraph (g)(1). Y applies to the 8(a) BD program. C
owns 100% of Y. However, D, C's sister and the majority owner in a
former 8(a) Participant, is acting as a Vice President in Y. Y would be
ineligible for the program.
Example 3 to paragraph (g)(1). X seeks to apply to the 8(a) BD
program with a primary NAICS code in plumbing. X is 100% owned by A. Z,
a former 8(a) participant with a primary industry in general
construction, is owned 100% by B, A's brother. For general construction
jobs, Z has subcontracted plumbing work to X in the past at normal
commercial rates. Subcontracting work at normal commercial rates would
not preclude X from being admitted to the 8(a) BD program. X would be
eligible for the program.
(2) If the AA/BD approves an application under paragraph (g)(1) of
this section, SBA will, as part of its annual review, assess whether
the firm continues to operate independently of the other current or
former 8(a) concern of an immediate family member. SBA may initiate
proceedings to terminate a firm from further participation in the 8(a)
BD program if it is apparent that there are connections between the two
firms that were not disclosed to the AA/BD at the time of application
or that came into existence after program admittance.
* * * * *
(i) * * *
(2) Prior approval by the AA/BD 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, the transfer results from the death
or incapacity due to a serious, long-term illness or injury of a
disadvantaged principal, or the disadvantaged individual or entity in
control of the Participant will increase the percentage of its
ownership interest. The concern must notify SBA within 60 days of such
a change in ownership.
Example 1 to paragraph (i)(2). Disadvantaged individual A owns 90%
of 8(a) Participant X; non-disadvantaged individual B owns 10% of X. In
order to raise additional capital, X seeks to change its ownership
structure such that A would own 80%, B would own 10% and C would own
10%. X can accomplish this change in ownership without prior SBA
approval. Non-disadvantaged owner B is not involved in the transaction
and non-disadvantaged individual C owns less than 20% of X both before
and after the transaction.
Example 2 to paragraph (i)(2). Disadvantaged individual C owns 60%
of 8(a) Participant Y; non-disadvantaged individual D owns 30% of Y;
and non-disadvantaged individual E owns 10% of Y. C seeks to transfer
5% of Y to E. Prior SBA approval is not needed. Although non-
disadvantaged individual D owns more than 20% of Y, D is not involved
in the transfer. Because the only non-disadvantaged individual involved
in the transfer, E, owns less than 20% of Y both before and after the
transaction, prior approval is not needed.
Example 3 to paragraph (i)(2). Disadvantaged individual A owns 85%
of 8(a) Participant X; non-disadvantaged individual B owns 15% of X. A
seeks to transfer 15% of X to B. Prior SBA approval is needed. Although
B, the non-disadvantaged owner of X, owns less than 20% of X prior to
the transaction, prior approval is needed because B would own more than
20% after the transaction.
Example 4 to paragraph (i)(2). ANC A owns 60% of 8(a) Participant
X; non-disadvantaged individual B owns 40% of X. B seeks to transfer
15%
[[Page 66184]]
to A. Prior SBA approval is not needed. Although a non-disadvantaged
individual who is involved in the transaction, B, owns more than 20% of
X both before and after the transaction, SBA approval is not needed
because the change only increases the percentage of A's ownership
interest in X.
* * * * *
(4) Where a Participant requests a change of ownership or business
structure, and proceeds with the change prior to receiving SBA approval
(or where a change of ownership results from the death or incapacity of
a disadvantaged individual for which a request prior to the change in
ownership could not occur), SBA may suspend the Participant from
program benefits pending resolution of the request. If the change is
approved, the length of the suspension will be restored to the
Participant's program term in the case of death or incapacity, or if
the firm requested prior approval and waited 60 days for SBA approval.
* * * * *
0
14. Amend Sec. 124.109 by:
0
a. Revising the section heading;
0
b. Adding paragraph (a)(7);
0
c. Revising paragraph (c)(3)(ii);
0
d. Adding paragraphs (c)(3)(iv) and (c)(4)(iii)(C); and
0
e. Revising paragraphs (c)(6)(iii) and (c)(7)(ii).
The revisions and additions to read as follows:
Sec. 124.109 Do Indian tribes and Alaska Native Corporations have any
special rules for applying to and remaining eligible for the 8(a) BD
program?
(a) * * *
(7) Notwithstanding Sec. 124.105(i), where an ANC merely
reorganizes its ownership of a Participant in the 8(a) BD program by
inserting or removing a wholly-owned business entity between the ANC
and the Participant, the Participant need not request a change of
ownership from SBA. The Participant must, however, notify SBA of the
change within 60 days of the transfer.
* * * * *
(c) * * *
(3) * * *
(ii) A Tribe may not own 51% or more of another firm which, either
at the time of application or within the previous two years, has been
operating in the 8(a) program under the same primary NAICS code as the
applicant. For purposes of this paragraph, the same primary NAICS code
means the six-digit NAICS code having the same corresponding size
standard. A Tribe may, however, own a Participant or other applicant
that conducts or will conduct secondary business in the 8(a) BD program
under the NAICS code which is the primary NAICS code of the applicant
concern.
(A) Once an applicant is admitted to the 8(a) BD program, it may
not receive an 8(a) sole source contract that is a follow-on contract
to an 8(a) contract that was performed immediately previously by
another Participant (or former Participant) owned by the same Tribe.
However, a tribally-owned concern may receive a follow-on sole source
8(a) contract to a requirement that it performed through the 8(a)
program (either as a competitive or sole source contract).
(B) If the primary NAICS code of a tribally-owned Participant is
changed pursuant to Sec. 124.112(e), the tribe can submit an
application and qualify another firm owned by the tribe for
participation in the 8(a) BD program under the NAICS code that was the
previous primary NAICS code of the Participant whose primary NAICS code
was changed.
Example 1 to paragraph (c)(3)(ii)(B). Tribe X owns 100% of 8(a)
Participant A. A entered the 8(a) BD program with a primary NAICS code
of 236115, New Single-Family Housing Construction (except For-Sale
Builders). After four years in the program, SBA noticed that the vast
majority of A's revenues were in NAICS Code 237310, Highway, Street,
and Bridge Construction, and notified A that SBA intended to change its
primary NAICS code pursuant to Sec. 124.112(e). A agreed to change its
primary NAICS Code to 237310. Once the change is finalized, Tribe X can
immediately submit a new application to qualify another firm that it
owns for participation in the 8(a) BD program with a primary NAICS Code
of 236115.
* * * * *
(iv) Notwithstanding Sec. 124.105(i), where a Tribe merely
reorganizes its ownership of a Participant in the 8(a) BD program by
inserting or removing a wholly-owned business entity between the Tribe
and the Participant, the Participant need not request a change of
ownership from SBA. The Participant must, however, notify SBA of the
change within 30 days of the transfer.
(4) * * *
(iii) * * *
(C) Because an individual may be responsible for the management and
daily business operations of two tribally-owned concerns, the full-time
devotion requirement does not apply to tribally-owned applicants and
Participants.
* * * * *
(6) * * *
(iii) The Tribe, a tribally-owned economic development corporation,
or other relevant tribally-owned holding company vested with the
authority to oversee tribal economic development or business ventures
has made a firm written commitment to support the operations of the
applicant concern and it has the financial ability to do so.
(7) * * *
(ii) The officers, directors, and all shareholders owning an
interest of 20% or more (other than the tribe itself) of a tribally-
owned applicant or Participant must demonstrate good character (see
Sec. 124.108(a)) and cannot fail to pay significant Federal
obligations owed to the Federal Government (see Sec. 124.108(e)).
0
15. Amend Sec. 124.110 by revising the section heading and paragraph
(e) to read as follows:
Sec. 124.110 Do Native Hawaiian Organizations (NHOs) have any special
rules for applying to and remaining eligible for the 8(a) BD program?
* * * * *
(e) An NHO cannot own 51% or more of another firm which, either at
the time of application or within the previous two years, has been
operating in the 8(a) program under the same primary NAICS code as the
applicant. For purposes of this paragraph, the same primary NAICS code
means the six-digit NAICS code having the same corresponding size
standard. An NHO may, however, own a Participant or an applicant that
conducts or will conduct secondary business in the 8(a) BD program
under the same NAICS code that a current Participant owned by the NHO
operates in the 8(a) BD program as its primary NAICS code.
(1) Once an applicant is admitted to the 8(a) BD program, it may
not receive an 8(a) sole source contract that is a follow-on contract
to an 8(a) contract that was performed immediately previously by
another Participant (or former Participant) owned by the same NHO.
However, an NHO-owned concern may receive a follow-on sole source 8(a)
contract to a requirement that it performed through the 8(a) program
(either as a competitive or sole source contract).
(2) If the primary NAICS code of a Participant owned by an NHO is
changed pursuant to Sec. 124.112(e), the NHO can submit an application
and qualify another firm owned by the NHO for participation in the 8(a)
BD program under the NAICS code that was the previous primary NAICS
code of the Participant whose primary NAICS code was changed.
* * * * *
0
16. Amend Sec. 124.111 by revising the section heading, adding
paragraph
[[Page 66185]]
(c)(3), and revising paragraph (d) to read as follows:
Sec. 124.111 Do Community Development Corporations (CDCs) have any
special rules for applying to and remaining eligible for the 8(a) BD
program?
* * * * *
(c) * * *
(3) Notwithstanding Sec. 124.105(i), where a CDC merely
reorganizes its ownership of a Participant in the 8(a) BD program by
inserting or removing a wholly-owned business entity between the CDC
and the Participant, the Participant need not request a change of
ownership from SBA. The Participant must, however, notify SBA of the
change within 30 days of the transfer.
(d) A CDC cannot own 51% or more of another firm which, either at
the time of application or within the previous two years, has been
operating in the 8(a) program under the same primary NAICS code as the
applicant. For purposes of this paragraph, the same primary NAICS code
means the six-digit NAICS code having the same corresponding size
standard. A CDC may, however, own a Participant or an applicant that
conducts or will conduct secondary business in the 8(a) BD program
under the same NAICS code that a current Participant owned by the CDC
operates in the 8(a) BD program as its primary SIC code.
(1) Once an applicant is admitted to the 8(a) BD program, it may
not receive an 8(a) sole source contract that is a follow-on contract
to an 8(a) contract that was performed immediately previously by
another Participant (or former Participant) owned by the same CDC.
However, a CDC-owned concern may receive a follow-on sole source 8(a)
contract to a requirement that it performed through the 8(a) program.
(2) If the primary NAICS code of a Participant owned by a CDC is
changed pursuant to Sec. 124.112(e), the CDC can submit an application
and qualify another firm owned by the CDC for participation in the 8(a)
BD program under the NAICS code that was the previous primary NAICS
code of the Participant whose primary NAICS code was changed.
* * * * *
0
17. Amend Sec. 124.112 by revising paragraph (d)(5), redesignating
paragraph (e)(2)(iv) as paragraph (e)(2)(v), and adding a new paragraph
(e)(2)(iv).
The revision and addition read as follows:
Sec. 124.112 What criteria must a business meet to remain eligible to
participate in the 8(a) BD program?
* * * * *
(d) * * *
(5) The excessive withdrawal analysis does not apply to
Participants owned by Tribes, ANCs, NHOs, or CDCs where a withdrawal is
made for the benefit of the Tribe, ANC, NHO, CDC or the native or
shareholder community. It does, however, apply to withdrawals from a
firm owned by a Tribe, ANC, NHO, or CDC that do not benefit the
relevant entity or community. Thus, if funds or assets are withdrawn
from an entity-owned Participant for the benefit of a non-disadvantaged
manager or owner that exceed the withdrawal thresholds, SBA may find
that withdrawal to be excessive. However, a non-disadvantaged minority
owner may receive a payout in excess of the excessive withdrawal amount
if it is a pro rata distribution paid to all shareholders (i.e., the
only way to increase the distribution to the Tribe, ANC, NHO or CDC is
to increase the distribution to all shareholders) and it does not
adversely affect the business development of the Participant.
Example 1 to paragraph (d)(5). Tribally-owned Participant X pays
$1,000,000 to a non-disadvantaged manager. If that was not part of a
pro rata distribution to all shareholders, that would be deemed an
excessive withdrawal.
Example 2 to paragraph (d)(5). ANC-owned Participant Y seeks to
distribute $550,000 to the ANC and $450,000 to non-disadvantaged
individual A based on their 55%/45% ownership interests. Because the
distribution is based on the pro rata share of ownership, this would
not be prohibited as an excessive withdrawal unless SBA determined that
Y would be adversely affected.
(e) * * *
(2) * * *
(iv) A Participant may appeal a district office's decision to
change its primary NAICS code to SBA's Associate General Counsel for
Procurement Law (AGC/PL) within 10 business days of receiving the
district office's final determination. The AGC/PL will examine the
record, including all information submitted by the Participant in
support of its position as to why the primary NAICS code contained in
its business plan continues to be appropriate despite performing more
work in another NAICS code, and issue a final agency decision within 15
business days of receiving the appeal.
* * * * *
0
18. Amend Sec. 124.203 by revising the first two sentences and adding
a new third sentence to read as follows:
Sec. 124.203 What must a concern submit to apply to the 8(a) BD
program?
Each 8(a) BD applicant concern must submit information and
supporting documents required by SBA when applying for admission to the
8(a) BD program. This information may include, but not be limited to,
financial data and statements, copies of filed Federal personal and
business tax returns, individual and business bank statements, personal
history statements, and any additional information or documents SBA
deems necessary to determine eligibility. Each individual claiming
disadvantaged status must also authorize SBA to request and receive tax
return information directly from the Internal Revenue Service. * * *
0
19. Amend Sec. 124.204 by adding a sentence to the end of paragraph
(a) to read as follows:
Sec. 124.204 How does SBA process applications for 8(a) BD program
admission?
(a) * * * Where during its screening or review SBA requests
clarifying, revised or other information from the applicant, SBA's
processing time for the application will be suspended pending the
receipt of such information.
* * * * *
0
20. Revise Sec. 124.205 to read as follows:
Sec. 124.205 Can an applicant ask SBA to reconsider SBA's initial
decision to decline its application?
There is no reconsideration process for applications that have been
declined. An applicant which has been declined may file an appeal with
SBA's Office of Hearings and Appeals pursuant to Sec. 124.206, or
reapply to the program pursuant to Sec. 124.207.
Sec. 124.206 [Amended]
0
21. Revise Sec. 124.206 by removing and reserving paragraph (b) and
redesignating paragraphs (c) and (d) as paragraphs (b) and (c),
respectively.
0
22. Revise Sec. 124.207 to read as follows:
Sec. 124.207 Can an applicant reapply for admission to the 8(a) BD
program?
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.
However, a concern that has been declined three times within 18 months
of the date of the first
[[Page 66186]]
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.
Sec. 124.301 [Redesignated as Sec. 124.300]
0
23. Redesignate Sec. 124.301 as Sec. 124.300.
0
24. Add new Sec. 124.301 to read as follows:
Sec. 124.301 Voluntary withdrawal or voluntary early graduation.
(a) A Participant may voluntarily withdraw from the 8(a) BD program
at any time prior to the expiration of its program term. Where a
Participant has substantially achieved the goals and objectives set
forth in its business plan, it may elect to voluntarily early graduate
from the 8(a) BD program.
(b) To initiate withdrawal or early graduation from the 8(a) BD
program, a Participant must notify its servicing SBA district office of
its intent to do so in writing. Once the SBA servicing district office
processes the request and the District Director recognizes the
withdrawal or early graduation, the Participant is no longer eligible
to receive any 8(a) BD program assistance.
0
25. Amend Sec. 124.304(d) by revising the paragraph heading and adding
a sentence at the end of paragraph (d) to read as follows:
Sec. 124.304 What are the procedures for early graduation and
termination?
* * * * *
(d) Notice requirements and effect of decision. * * * Once the AA/
BD issues a decision to early graduate or terminate a Participant, the
Participant will be immediately ineligible to receive further program
assistance. If OHA overrules the AA/BD's decision on appeal, the length
of time between the AA/BD's decision and OHA's decision on appeal will
be added to the Participant's program term.
* * * * *
0
26. Amend Sec. 124.305 by:
0
a. Revising paragraph (a);
0
b. Revising the introductory text of paragraph (d);
0
c. Revising paragraph (d)(3);
0
d. Revising the introductory text of paragraph (h)(1);
0
d. Revising paragraphs (h)(1)(ii) and (iv);
0
e. Adding paragraph (h)(1)(v);
0
f. Redesignating paragraph (h)(6) as (h)(7); and
0
g. Adding a new paragraph (h)(6).
The revisions and additions read as follows:
Sec. 124.305 What is suspension and how is a Participant suspended
from the 8(a) BD program?
(a) Except as set forth in paragraph (h) of this section, the AA/BD
may suspend a Participant when he or she determines that suspension is
needed to protect the interests of the Federal Government, such as
where information showing a clear lack of program eligibility or
conduct indicating a lack of business integrity exists, including where
the concern or one of its principals submitted false statements to the
Federal Government. SBA will suspend a Participant where SBA determines
that the Participant submitted false information in its 8(a) BD
application.
* * * * *
(d) SBA has the burden of showing that adequate evidence exists
that protection of the Federal Government's interest requires
suspension.
* * * * *
(3) OHA's review is limited to determining whether the Government's
interests need to be protected, unless a termination action has also
been initiated and the Administrative Law Judge consolidates the
suspension and termination proceedings. In such a case, OHA will also
consider the merits of the termination action.
* * * * *
(h)(1) Notwithstanding paragraph (a) of this section, SBA will
suspend a Participant from receiving further 8(a) BD program benefits
where:
* * * * *
(ii) A disadvantaged individual who is involved in controlling the
day-to-day management and control of the Participant is called to
active military duty by the United States, his or her participation in
the firm's management and daily business operations is critical to the
firm's continued eligibility, the Participant does not designate
another disadvantaged individual to control the concern during the
call-up period, and the Participant requests to be suspended during the
call-up period;
* * * * *
(iv) Federal appropriations for one or more Federal departments or
agencies have lapsed, a Participant would lose an 8(a) sole source
award due to the lapse in appropriations (e.g., SBA has previously
accepted an offer for a sole source 8(a) award on behalf of the
Participant or an agency could not offer a sole source 8(a) requirement
to the program on behalf of the Participant due to the lapse in
appropriations, and the Participant's program term would end during the
lapse), and the Participant elects to suspend its participation in the
8(a) BD program during the lapse in Federal appropriations; or
(v) A Participant has not submitted a business plan to its SBA
servicing office within 60 days after program admission.
* * * * *
(6) Where a Participant is suspended pursuant to paragraph
(h)(1)(iii) or paragraph (h)(1)(v) of this section, the length of the
suspension will be added to the concern's program term.
* * * * *
0
27. Amend Sec. 124.402 by revising paragraph (b) to read as follows:
Sec. 124.402 How does a Participant develop a business plan?
* * * * *
(b) Submission of initial business plan. Each Participant must
submit a business plan to its SBA servicing office as soon as possible
after program admission. SBA will suspend a Participant from receiving
8(a) BD program benefits, including 8(a) contracts, if it has not
submitted its business plan to the servicing district office within 60
days after program admission.
* * * * *
0
28. Amend Sec. 124.501 by redesignating paragraphs (g) through (i) as
paragraphs (h) through (j), respectively, by adding new paragraphs (g)
and (k), and by revising newly redesignated paragraph (h) to read as
follows:
Sec. 124.501 What general provisions apply to the award of 8(a)
contracts?
* * * * *
(g) Before a Participant may be awarded either a sole source or
competitive 8(a) contract, SBA must determine that the Participant is
eligible for award. SBA will determine eligibility at the time of its
acceptance of the underlying requirement into the 8(a) BD program for a
sole source 8(a) contract, and after the apparent successful offeror is
identified for a competitive 8(a) contract. Eligibility is based on
8(a) BD program criteria, including whether the Participant:
(1) Qualifies as a small business under the size standard
corresponding to the NAICS code assigned to the requirement;
(2) Is in compliance with any applicable competitive business mix
targets established or remedial measure imposed by Sec. 124.509 that
does not include the denial of future sole source 8(a) contracts;
(3) Complies with the continued eligibility reporting requirements
set forth in Sec. 124.112(b);
(4) Has a bona fide place of business in the applicable geographic
area if the procurement is for construction;
[[Page 66187]]
(5) Has not received 8(a) contracts in excess of the dollar limits
set forth in Sec. 124.519 for a sole source 8(a) procurement;
(6) Has complied with the provisions of Sec. 124.513(c) and (d) if
it is seeking a sole source 8(a) award through a joint venture; and
(7) Can demonstrate that it, together with any similarly situated
entity, will meet the limitations on subcontracting provisions set
forth in Sec. 124.510.
(h) For a sole source 8(a) procurement, a concern must be a current
Participant in the 8(a) BD program at the time of award. If a firm's
term of participation in the 8(a) BD program ends (or the firm
otherwise exits the program) before a sole source 8(a) contract can be
awarded, award cannot be made to that firm. This applies equally to
sole source orders issued under multiple award contracts. For a
competitive 8(a) procurement, a firm must be a current Participant
eligible for award of the contract on the initial date specified for
receipt of offers contained in the solicitation as provided in Sec.
124.507(d).
* * * * *
(k) In order to be awarded a sole source or competitive 8(a)
construction contract, a Participant must have a bona fide place of
business within the applicable geographic location determined by SBA.
This will generally be the geographic area serviced by the SBA district
office, a Metropolitan Statistical Area (MSA), or a contiguous county
to (whether in the same or different state) where the work will be
performed. SBA may determine that a Participant with a bona fide place
of business anywhere within the state (if the state is serviced by more
than one SBA district office), one or more other SBA district offices
(in the same or another state), or another nearby area is eligible for
the award of an 8(a) construction contract.
(1) A Participant may have bona fide places of business in more
than one location.
(2) In order for a Participant to establish a bona fide place of
business in a particular geographic location, the SBA district office
serving the geographic area of that location must determine if the
location in fact qualifies as a bona fide place of business under SBA's
requirements.
(i) A Participant must submit a request for a bona fide business
determination to the SBA district office servicing it. Such request
may, but need not, relate to a specific 8(a) requirement. In order to
apply to a specific competitive 8(a) solicitation, such request must be
submitted at least 20 working days before initial offers that include
price are due.
(ii) The servicing district office will immediately forward the
request to the SBA district office serving the geographic area of the
particular location for processing. Within 10 working days of receipt
of the submission, the reviewing district office will conduct a site
visit, if practicable. If not practicable, the reviewing district
office will contact the Participant within such 10-day period to inform
the Participant that the reviewing office has received the request and
may ask for additional documentation to support the request.
(iii) In connection with a specific competitive solicitation, the
reviewing office will make a determination whether or not the
Participant has a bona fide place of business in its geographical area
within 5 working days of a site visit or within 15 working days of its
receipt of the request from the servicing district office if a site
visit is not practical in that timeframe. If the request is not related
to a specific procurement, the reviewing office will make a
determination within 30 working days of its receipt of the request from
the servicing district office, if practicable.
(A) Where SBA does not provide a determination within the
identified time limit, a Participant may presume that SBA has approved
its request for a bona fide place of business and submit an offer for a
competitive 8(a) procurement that requires a bona fide place of
business in the requested area.
(B) In order to be eligible for award, SBA must approve the bona
fide place of business prior to award. If SBA has not provided a
determination prior to the time that a Participant is identified as the
apparent successful offeror, SBA will make the bona fide place of
business determination as part of the eligibility determination set
forth in paragraph (g)(4) of this section within 5 days of receiving a
procuring activity's request for an eligibility determination, unless
the procuring activity grants additional time for review. If, due to
deficiencies in a Participant's request, SBA cannot make a
determination, and the procuring activity does not grant additional
time for review, SBA will be unable to verify the Participant's
eligibility for award and the Participant will be ineligible for award.
(3) The effective date of a bona fide place of business is the date
that the evidence (paperwork) shows that the business in fact regularly
maintained its business at the new geographic location.
(4) Except as provided in paragraph (k)(2)(iii) of this section, in
order for a Participant to be eligible to submit an offer for an 8(a)
procurement limited to a specific geographic area, it must receive from
SBA a determination that it has a bona fide place of business within
that area prior to submitting its offer for the procurement.
(5) Once a Participant has established a bona fide place of
business, the Participant may change the location of the recognized
office without prior SBA approval. However, the Participant must notify
SBA and provide documentation demonstrating an office at that new
location within 30 days after the move. Failure to timely notify SBA
will render the Participant ineligible for new 8(a) construction
procurements limited to that geographic area.
0
29. Amend Sec. 124.503 by:
0
a. Removing the phrase ``in Sec. 124.507(b)(2)'' and adding in its
place the phrase ``in Sec. 124.501(g)'' in paragraph (a)(1);
0
b. Redesignating paragraphs (e) through (j) as paragraphs (f) through
(k), respectively;
0
c. Adding a new paragraph (e);
0
d. Revising newly redesignated paragraph (g);
0
e. Revising the introductory text of the newly redesignated paragraph
(h);
0
f. Adding the phrase ``or BPA'' after the phrase ``BOA'', wherever it
appears, in the newly redesignated paragraphs (h)(1) through (4);
0
g. Revising newly redesignated paragraph (i)(1)(iii);
0
h. Adding a sentence at the end of newly redesignated paragraph
(i)(1)(iv); and
0
i. Revising newly redesignated paragraphs (i)(2)(ii) and (i)(2)(iv).
The additions and revisions read as follows:
Sec. 124.503 How does SBA accept a procurement for award through the
8(a) BD program?
* * * * *
(e) Withdrawal/substitution of offered requirement or Participant.
After SBA has accepted a requirement for award as a sole source 8(a)
contract on behalf of a specific Participant (whether nominated by the
procuring agency or identified by SBA for an open requirement), if the
procuring agency believes that the identified Participant is not a good
match for the procurement--including for such reasons as the procuring
agency finding the Participant non-responsible or the negotiations
between the procuring agency and the Participant otherwise failing--the
procuring agency may seek to substitute another Participant for the
originally
[[Page 66188]]
identified Participant. The procuring agency must inform SBA of its
concerns regarding the originally identified Participant and identify
whether it believes another Participant could fulfill its needs.
(1) If the procuring agency and SBA agree that another Participant
can fulfill its needs, the procuring agency will withdraw the original
offering and reoffer the requirement on behalf of another 8(a)
Participant. SBA will then accept the requirement on behalf of the
newly identified Participant and authorize the procuring agency to
negotiate directly with that Participant.
(2) If the procuring agency and SBA agree that another Participant
cannot fulfill its needs, the procuring agency will withdraw the
original offering letter and fulfill its needs outside the 8(a) BD
program.
(3) If the procuring agency believes that another Participant
cannot fulfill its needs, but SBA does not agree, SBA may appeal that
decision to the head of the procuring agency pursuant to Sec.
124.505(a)(2).
* * * * *
(g) Repetitive acquisitions. A procuring activity contracting
officer must submit a new offering letter to SBA where he or she
intends to award a follow-on or repetitive contract as an 8(a) award.
(1) This enables SBA to determine:
(i) Whether the requirement should be a competitive 8(a) award;
(ii) A nominated firm's eligibility, whether or not it is the same
firm that performed the previous contract;
(iii) The affect that contract award would have on the equitable
distribution of 8(a) contracts; and
(iv) Whether the requirement should continue under the 8(a) BD
program.
(2) Where a procuring agency seeks to reprocure a follow-on
requirement through an 8(a) contracting vehicle which is not available
to all 8(a) BD Program Participants (e.g., a multiple award or
Governmentwide acquisition contract that is itself an 8(a) contract),
and the previous/current 8(a) award was not so limited, SBA will
consider the business development purposes of the program in
determining how to accept the requirement.
* * * * *
(h) Basic Ordering Agreements (BOAs) and Blanket Purchase
Agreements (BPAs). Neither a Basic Ordering Agreement (BOA) nor a
Blanket Purchase Agreement (BPA) is a contract under the FAR. See 48
CFR 13.303 and 48 CFR 16.703(a). Each order to be issued under a BOA or
BPA is an individual contract. As such, the procuring activity must
offer, and SBA must accept, each order under a BOA or BPA in addition
to offering and accepting the BOA or BPA itself.
* * * * *
(i)
(1) * * *
(iii) A concern awarded a task or delivery order contract or
Multiple Award Contract that was set-aside exclusively for 8(a) Program
Participants, partially set-aside for 8(a) Program Participants or
reserved solely for 8(a) Program Participants may generally continue to
receive new orders even if it has grown to be other than small or has
exited the 8(a) BD program, and agencies may continue to take SDB
credit toward their prime contracting goals for orders awarded to 8(a)
Participants. A procuring agency may seek to award an order only to a
concern that is a current Participant in the 8(a) program at the time
of the order. In such a case, the procuring agency will announce its
intent to limit the award of the order to current 8(a) Participants and
verify a contract holder's 8(a) BD status prior to issuing the order.
Where a procuring agency seeks to award an order to a concern that is a
current 8(a) Participant, a concern must be an eligible Participant in
accordance with Sec. 124.501(g) as of the initial date specified for
the receipt of offers contained in the order solicitation, or at the
date of award of the order if there is no solicitation.
(iv) * * * To be eligible for the award of a sole source order, a
concern must be a current Participant in the 8(a) BD program at the
time of award.
(2) * * *
(ii) The order must be competed exclusively among only the 8(a)
awardees of the underlying multiple award contract;
* * * * *
(iv) SBA must verify that a concern is an eligible 8(a) Participant
in accordance with Sec. 124.501(g) as of the initial date specified
for the receipt of offers contained in the order solicitation, or at
the date of award of the order if there is no solicitation. If a
concern has exited the 8(a) BD program prior to that date, it will be
ineligible for the award of the order.
* * * * *
0
30. Amend Sec. 124.504 by:
0
a. Revising the section heading and paragraph (b);
0
b. Removing the term ``Simplified Acquisition Procedures'' and adding
in its place the phrase ``the simplified acquisition threshold (as
defined in the FAR at 48 CFR 2.101)'' in paragraph (c) introductory
text;
0
c. Removing the word ``will'' and adding in its place the word ``may''
in paragraph (c)(1)(ii)(C);
0
d. Adding a paragraph (c)(4); and
0
e. Revising the paragraph heading for paragraph (d) and paragraphs
(d)(1) introductory text and (d)(4).
The revisions and addition read as follows:
Sec. 124.504 What circumstances limit SBA's ability to accept a
procurement for award as an 8(a) contract, and when can a requirement
be released from the 8(a) BD program?
* * * * *
(b) Competition prior to offer and acceptance. The procuring
activity competed a requirement among 8(a) Participants prior to
offering the requirement to SBA and did not clearly evidence its intent
to conduct an 8(a) competitive acquisition.
* * * * *
(c) * * *
(4) SBA does not typically consider the value of a bridge contract
when determining whether an offered procurement is a new requirement. A
bridge contract is meant to be a temporary stop-gap measure intended to
ensure the continuation of service while an agency finalizes a long-
term procurement approach.
(d) Release for non-8(a) or limited 8(a) competition. (1) Except as
set forth in paragraph (d)(4) of this section, where a procurement is
awarded as an 8(a) contract, its follow-on requirement must remain in
the 8(a) BD program unless SBA agrees to release it for non-8(a)
competition. Where a procurement will contain work currently performed
under one or more 8(a) contracts, and the procuring agency determines
that the procurement should not be considered a follow-on requirement
to the 8(a) contract(s), the procuring agency must notify SBA that it
intends to procure such specified work outside the 8(a) BD program
through a requirement that it considers to be new. Additionally, a
procuring agency must notify SBA where it seeks to reprocure a follow-
on requirement through a pre-existing limited contracting vehicle which
is not available to all 8(a) BD Program Participants and the previous/
current 8(a) award was not so limited. If a procuring agency would like
to fulfill a follow-on requirement outside of the 8(a) BD program, it
must make a written request to and receive the concurrence of the AA/BD
to do so. In determining whether to release a requirement from the 8(a)
BD program, SBA will consider:
* * * * *
(4) The requirement that a follow-on procurement must be released
from the
[[Page 66189]]
8(a) BD program in order for it to be fulfilled outside the 8(a) BD
program does not apply:
(i) Where previous orders were offered to and accepted for the 8(a)
BD program pursuant to Sec. 124.503(i)(2); or
(ii) Where a procuring agency will use a mandatory source (see FAR
Subparts 8.6 and 8.7(48 CFR subparts 8.6 and 8.7)). In such a case, the
procuring agency should notify SBA at least 30 days prior to the end of
the contract or order.
0
31. Amend Sec. 124.505 by:
0
a. Removing the word ``and'' at the end of paragraph (a)(2);
0
b. Redesignating paragraph (a)(3) as paragraph (a)(4); and
0
c. Adding new paragraph (a)(3).
The addition reads as follows:
Sec. 124.505 When will SBA appeal the terms or conditions of a
particular 8(a) contract or a procuring activity decision not to use
the 8(a) BD program?
(a) * * *
(3) A decision by a contracting officer that a particular
procurement is a new requirement that is not subject to the release
requirements set forth in Sec. 124.504(d); and
* * * * *
0
32. Amend Sec. 124.507 by:
0
a. Revising paragraph (b)(2);
0
b. Removing paragraph (b)(3);
0
c. Redesignating paragraphs (b)(4) through (6) as paragraphs (b)(3)
through (5), respectively;
0
d. Removing paragraph (c)(1);
0
e. Redesignating paragraphs (c)(2) and (3) as paragraphs (c)(1) and
(2), respectively;
0
f. Revising newly redesignated paragraph (c)(1); and
0
g. Adding a new paragraph (d)(3).
The revisions and addition read as follows:
Sec. 124.507 What procedures apply to competitive 8(a) procurements?
* * * * *
(b) * * *
(2) SBA determines a Participant's eligibility pursuant to Sec.
124.501(g).
* * * * *
(c) * * *
(1) Construction competitions. Based on its knowledge of the 8(a)
BD portfolio, SBA will determine whether a competitive 8(a)
construction requirement should be competed among only those
Participants having a bona fide place of business within the
geographical boundaries of one or more SBA district offices, within a
state, or within the state and nearby areas. Only those Participants
with bona fide places of business within the appropriate geographical
boundaries are eligible to submit offers.
* * * * *
(d) * * *
(3) For a two-step design-build procurement to be awarded through
the 8(a) BD program, a firm must be a current Participant eligible for
award of the contract on the initial date specified for receipt of
phase one offers contained in the contract solicitation.
0
33. Amend Sec. 124.509 by:
0
a. Removing the word ``maximum'' and adding in its place the words
``good faith'' in paragraph (a)(1);
0
b. Removing the words ``substantial and sustained'' and adding in their
place the words ``good faith'' in paragraph (a)(2);
0
c. Revising the table in paragraph (b)(2);
0
d. Revising paragraph (d); and
0
e. Revising paragraph (e).
The revisions read as follows:
Sec. 124.509 What are non-8(a) business activity targets?
* * * * *
(b) * * *
Table 1 to Paragraph (b)
----------------------------------------------------------------------------------------------------------------
Non-8(a) business activity targets (required minimum
Participants year in the transitional stage non-8(a) revenue as a percentage of total revenue)
----------------------------------------------------------------------------------------------------------------
1 15
2 25
3 30
4 40
5 50
----------------------------------------------------------------------------------------------------------------
* * * * *
(d) Consequences of not meeting competitive business mix targets.
(1) Beginning at the end of the first year in the transitional stage
(the fifth year of participation in the 8(a) BD program), any firm that
does not meet its applicable competitive business mix target for the
just completed program year must demonstrate to SBA the specific
efforts it made during that year to obtain non-8(a) revenue.
(2) If SBA determines that an 8(a) Participant has failed to meet
its applicable competitive business mix target during any program year
in the transitional stage of program participation, SBA will increase
its monitoring of the Participant's contracting activity during the
ensuing program year.
(3) As a condition of eligibility for new 8(a) sole source
contracts, SBA may require a Participant that fails to achieve the non-
8(a) business activity targets to take one or more specific actions.
These include requiring the Participant to obtain management
assistance, technical assistance, and/or counseling from an SBA
resource partner or otherwise, and/or attend seminars relating to
management assistance, business development, financing, marketing,
accounting, or proposal preparation. Where any such condition is
imposed, SBA will not accept a sole source requirement offered to the
8(a) BD program on behalf of the Participant until the Participant
demonstrates to SBA that the condition has been met.
(4) If SBA determines that a Participant has not made good faith
efforts to meet its applicable non-8(a) business activity target, the
Participant will be ineligible for sole source 8(a) contracts in the
current program year. SBA will notify the Participant in writing that
the Participant will not be eligible for further 8(a) sole source
contract awards until it has demonstrated to SBA that it has complied
with its non-8(a) business activity requirements as described in
paragraphs (d)(4)(i) and (ii) of this section. In order for a
Participant to come into compliance with the non-8(a) business activity
target and be eligible for further 8(a) sole source contracts, it may:
(i) Wait until the end of the current program year and demonstrate
to SBA as part of the normal annual review process that it has met the
revised non-8(a) business activity target; or
(ii) At its option, submit information regarding its non-8(a)
revenue to SBA quarterly throughout the current program year in an
attempt to come into compliance before the end of the current
[[Page 66190]]
program year. If the Participant satisfies the requirements of
paragraphs (d)(2)(ii)(A) or (B) of this section, SBA will reinstate the
Participant's ability to get sole source 8(a) contracts prior to its
annual review.
(A) To qualify for reinstatement during the first six months of the
current program year (i.e., at either the first or second quarterly
review), the Participant must demonstrate that it has received non-8(a)
revenue and new non-8(a) contract awards that are equal to or greater
than the dollar amount by which it failed to meet its non-8(a) business
activity target for the just completed program year. For this purpose,
SBA will not count options on existing non-8(a) contracts in
determining whether a Participant has received new non-8(a) contract
awards.
(B) To qualify for reinstatement during the last six months of the
current program year (i.e., at either the nine-month or one year
review), the Participant must demonstrate that it has achieved its non-
8(a) business activity target as of that point in the current program
year.
Example 1 to paragraph (d)(4). Firm A had $10 million in total
revenue during year 2 in the transitional stage (year 6 in the
program), but failed to meet the minimum non-8(a) business activity
target of 25 percent. It had 8(a) revenues of $8.5 million and non-8(a)
revenues of $1.5 million (15 percent). Based on total revenues of $10
million, Firm A should have had at least $2.5 million in non-8(a)
revenues. Thus, Firm A missed its target by $1 million (its target
($2.5 million) minus its actual non-8(a) revenues ($1.5 million)).
Because Firm A did not achieve its non-8(a) business activity target
and SBA determined that it did not make good faith efforts to obtain
non-8(a) revenue, it cannot receive 8(a) sole source awards until
correcting that situation. The firm may wait until the next annual
review to establish that it has met the revised target, or it can
choose to report contract awards and other non-8(a) revenue to SBA
quarterly. Firm A elects to submit information to SBA quarterly in year
3 of the transitional stage (year 7 in the program). In order to be
eligible for sole source 8(a) contracts after either its 3 month or 6
month review, Firm A must show that it has received non-8(a) revenue
and/or been awarded new non-8(a) contracts totaling $1 million (the
amount by which it missed its target in year 2 of the transitional
stage).
Example 2 to paragraph (d)(4). Firm B had $10 million in total
revenue during year 2 in the transitional stage (year 6 in the
program), of which $8.5 million were 8(a) revenues and $1.5 million
were non-8(a) revenues, and SBA determined that Firm B did not make
good faith efforts to meet its non-8(a) business activity target. At
its first two quarterly reviews during year 3 of the transitional stage
(year 7 in the program), Firm B could not demonstrate that it had
received at least $1 million in non-8(a) revenue and new non-8(a)
awards. In order to be eligible for sole source 8(a) contracts after
its 9 month or 1 year review, Firm B must show that at least 35% (the
non-8(a) business activity target for year 3 in the transitional stage)
of all revenues received during year 3 in the transitional stage as of
that point are from non-8(a) sources.
(5) In determining whether a Participant has achieved its required
non-8(a) business activity target at the end of any program year in the
transitional stage, or whether a Participant that failed to meet the
target for the previous program year has achieved the required level of
non-8(a) business at its nine-month review, SBA will measure 8(a)
support by adding the base year value of all 8(a) contracts awarded
during the applicable program year to the value of all options and
modifications executed during that year.
(6) SBA may initiate proceedings to terminate a Participant from
the 8(a) BD program where the firm makes no good faith efforts to
obtain non-8(a) revenues.
(e) Waiver of sole source prohibition. (1) Despite a finding by SBA
that a Participant did not make good faith efforts to meet its non-8(a)
business activity target, SBA may waive the requirement prohibiting a
Participant from receiving further sole source 8(a) contracts where a
denial of a sole source contract would cause severe economic hardship
on the Participant so that the Participant's survival may be
jeopardized, or where extenuating circumstances beyond the
Participant's control caused the Participant not to meet its non-8(a)
business activity target.
(2) SBA may waive the requirement prohibiting a Participant from
receiving further sole source 8(a) contracts when the Participant does
not meet its non-8(a) business activity target where the head of a
procuring activity represents to SBA that award of a sole source 8(a)
contract to the Participant is needed to achieve significant interests
of the Government.
(3) The decision to grant or deny a request for a waiver is at
SBA's discretion, and no appeal may be taken with respect to that
decision.
(4) A waiver generally applies to a specific sole source
opportunity. If SBA grants a waiver with respect to a specific
procurement, the firm will be able to self-market its capabilities to
the applicable procuring activity with respect to that procurement. If
the Participant seeks an additional sole source opportunity, it must
request a waiver with respect to that specific opportunity. Where,
however, a Participant can demonstrate that the same extenuating
circumstances beyond its control affect its ability to receive specific
multiple 8(a) contracts, one waiver can apply to those multiple
contract opportunities.
0
34. Amend Sec. 124.513 by revising paragraphs (c)(2) and (4), the
second sentence of paragraph (c)(5), and paragraph (e) to read as
follows:
Sec. 124.513 Under what circumstances can a joint venture be awarded
an 8(a) contract?
* * * * *
(c) * * *
(2) Designating an 8(a) Participant as the managing venturer of the
joint venture, and designating a named employee of the 8(a) managing
venturer as the manager with ultimate responsibility for performance of
the contract (the ``Responsible Manager'').
(i) The managing venturer is responsible for controlling the day-
to-day management and administration of the contractual performance of
the joint venture, but other partners to the joint venture may
participate in all corporate governance activities and decisions of the
joint venture as is commercially customary.
(ii) The individual identified as the Responsible Manager of the
joint venture need not be an employee of the 8(a) Participant at the
time the joint venture submits an offer, but, if he or she is not,
there must be a signed letter of intent that the individual commits to
be employed by the 8(a) Participant if the joint venture is the
successful offeror. The individual identified as the Responsible
Manager cannot be employed by the mentor and become an employee of the
8(a) Participant for purposes of performance under the joint venture.
(iii) Although the joint venture managers responsible for orders
issued under an IDIQ contract need not be employees of the
prot[eacute]g[eacute], those managers must report to and be supervised
by the joint venture's Responsible Manager;
* * * * *
(4) Stating that the 8(a) Participant(s) must receive profits from
the joint venture commensurate with the work performed by the 8(a)
Participant(s), or a percentage agreed to by the parties to the joint
venture whereby the 8(a) Participant(s) receive profits from the
[[Page 66191]]
joint venture that exceed the percentage commensurate with the work
performed by the 8(a) Participant(s);
(5) * * * This account must require the signature or consent of all
parties to the joint venture for any payments made by the joint venture
to its members for services performed. * * *
* * * * *
(e) Prior approval by SBA. (1) When a joint venture between one or
more 8(a) Participants seeks a sole source 8(a) award, SBA must approve
the joint venture prior to the award of the sole source 8(a) contract.
SBA will not approve joint ventures in connection with competitive 8(a)
awards (but see Sec. 124.501(g) for SBA's determination of Participant
eligibility).
(2) Where a joint venture has been established for one 8(a)
contract, the joint venture may receive additional 8(a) contracts
provided the parties create an addendum to the joint venture agreement
setting forth the performance requirements for each additional award
(and provided any contract is awarded within two years of the first
award as set forth in Sec. 121.103(h)). If an additional 8(a) contract
is a sole source award, SBA must also approve the addendum prior to
contract award.
* * * * *
0
35. Amend Sec. 124.514 by revising paragraph (b) to read as follows:
Sec. 124.514 Exercise of 8(a) options and modifications.
* * * * *
(b) Priced options. Except as set forth in Sec. 124.521(e)(2), the
procuring activity contracting officer may exercise a priced option to
an 8(a) contract whether the concern that received the award has
graduated or been terminated from the 8(a) BD program or is no longer
eligible if to do so is in the best interests of the Government.
* * * * *
0
36. Amend Sec. 124.515 by revising paragraph (d) to read as follows:
Sec. 124.515 Can a Participant change its ownership or control and
continue to perform an 8(a) contract, and can it transfer performance
to another firm?
* * * * *
(d) SBA determines the eligibility of an acquiring Participant
under paragraph (b)(2) of this section by referring to the items
identified in Sec. 124.501(g) and deciding whether at the time of the
request for waiver (and prior to the transaction) the acquiring
Participant is an eligible concern with respect to each contract for
which a waiver is sought. As part of the waiver request, the acquiring
concern must certify that it is a small business for the size standard
corresponding to the NAICS code assigned to each contract for which a
waiver is sought. SBA will not grant a waiver for any contract if the
work to be performed under the contract is not similar to the type of
work previously performed by the acquiring concern.
* * * * *
0
37. Amend Sec. 124.518 by revising paragraph (c) to read as follows:
Sec. 124.518 How can an 8(a) contract be terminated before
performance is completed?
* * * * *
(c) Substitution of one 8(a) contractor for another. SBA may
authorize another Participant to complete performance and, in
conjunction with the procuring activity, permit novation of an 8(a)
contract without invoking the termination for convenience or waiver
provisions of Sec. 124.515 where a procuring activity contracting
officer demonstrates to SBA that the Participant that was awarded the
8(a) contract is unable to complete performance, where an 8(a) contract
will otherwise be terminated for default, or where SBA determines that
substitution would serve the business development needs of both 8(a)
Participants.
0
38. Amend Sec. 124.519 by:
0
a. Revising paragraph (a);
0
b. Removing paragraph (c);
0
c. Redesignating paragraph (b) as paragraph (c); and
0
d. Adding a new paragraph (b).
The revision and addition read as follows:
Sec. 124.519 Are there any dollar limits on the amount of 8(a)
contracts that a Participant may receive?
(a) A Participant (other than one owned by an Indian Tribe, ANC,
NHO, or CDC) may not receive sole source 8(a) contract awards where it
has received a combined total of competitive and sole source 8(a)
contracts in excess of $100,000,000 during its participation in the
8(a) BD program.
(b) In determining whether a Participant has reached the limit
identified in paragraph (a) of this section, SBA:
(1) Looks at the 8(a) revenues a Participant has actually received,
not projected 8(a) revenues that a Participant might receive through an
indefinite delivery or indefinite quantity contract, a multiple award
contract, or options or modifications; and
(2) Will not consider 8(a) contracts awarded under the Simplified
Acquisition Threshold.
* * * * *
0
39. Revise Sec. 124.520 to read as follows:
Sec. 124.520 Can 8(a) BD Program Participants participate in SBA's
Mentor-Prot[eacute]g[eacute] program?
(a) An 8(a) BD Program Participant, as any other small business,
may participate in SBA's All Small Mentor-Prot[eacute]g[eacute] Program
authorized under Sec. 125.9 of this chapter.
(b) In order for a joint venture between a prot[eacute]g[eacute]
and its SBA-approved mentor to receive the exclusion from affiliation
with respect to a sole source or competitive 8(a) contract, the joint
venture must meet the requirements set forth in Sec. 124.513(c) and
(d).
0
40. Amend Sec. 124.521 by revising the last sentence of paragraph
(e)(1) to read as follows:
Sec. 124.521 What are the requirements for representing 8(a) status,
and what are the penalties for misrepresentation?
* * * * *
(e) Recertification. (1) * * * Except as set forth in paragraph
(e)(2) of this section, where a concern later fails to qualify as an
8(a) Participant, the procuring agency may exercise options and still
count the award as an award to a Small Disadvantaged Business (SDB).
* * * * *
PART 125--GOVERNMENT CONTRACTING PROGRAMS
0
41. The authority citation for part 125 continues to read as follows:
Authority: 15 U.S.C. 632(p), (q), 634(b)(6), 637, 644, 657(f),
and 657r.
0
42. Amend Sec. 125.2 by revising paragraph (e)(6)(i) and adding a new
paragraph (g) to read as follows:
Sec. 125.2 What are SBA's and the procuring agency's responsibilities
when providing contracting assistance to small businesses?
* * * * *
(e) * * *
(6) * * *
(i) Notwithstanding the fair opportunity requirements set forth in
10 U.S.C. 2304c and 41 U.S.C. 4106(c), a contracting officer may set
aside orders for small businesses, eligible 8(a) Participants,
certified HUBZone small business concerns, SDVO small business
concerns, WOSBs, and EDWOSBs against full and open Multiple Award
Contracts. In addition, a contracting officer may set aside orders for
eligible 8(a) Participants, certified HUBZone small business concerns,
SDVO small business concerns, WOSBs, and EDWOSBs
[[Page 66192]]
against total small business set-aside Multiple Award Contracts,
partial small business set-aside Multiple Award Contracts, and small
business reserves of Multiple Award Contracts awarded in full and open
competition. Although a contracting officer can set aside orders issued
under a small business set-aside Multiple Award Contract or reserve to
any subcategory of small businesses, contracting officers are
encouraged to review the award dollars under the Multiple Award
Contract and aim to make available for award at least 50% of the award
dollars under the Multiple Award Contract to all contract holders of
the underlying small business set-aside Multiple Award Contract or
reserve. However, a contracting officer may not further set aside
orders for specific types of small business concerns against Multiple
Award Contracts that are set-aside or reserved for eligible 8(a)
Participants, certified HUBZone small business concerns, SDVO small
business concerns, WOSBs, and EDWOSBs (e.g., a contracting officer
cannot set-aside an order for 8(a) Participants that are also certified
HUBZone small business concerns against an 8(a) Multiple Award
Contract).
* * * * *
(g) Capabilities, past performance, and experience. When an offer
of a small business prime contractor includes a proposed team of small
business subcontractors and specifically identifies the first-tier
subcontractor(s) in the proposal, the head of the agency must consider
the capabilities, past performance, and experience of each first tier
subcontractor that is part of the team as the capabilities, past
performance, and experience of the small business prime contractor if
the capabilities, past performance, and experience of the small
business prime does not independently demonstrate capabilities and past
performance necessary for award.
0
43. Amend Sec. 125.3 by adding a sentence to the end of paragraph
(b)(2), and by revising the first sentence of paragraph (c)(1)(viii)
and paragraph (c)(1)(ix) to read as follows:
Sec. 125.3 What types of subcontracting assistance are available to
small businesses?
* * * * *
(b) * * *
(2) * * * This applies whether the firm qualifies as a small
business concern for the size standard corresponding to the NAICS code
assigned to the contract, or is deemed to be treated as a small
business concern by statute (see e.g., 43 U.S.C. 1626(e)(4)(B)).
* * * * *
(c) * * *
(1) * * *
(viii) The contractor must provide pre-award written notification
to unsuccessful small business offerors on all subcontracts over the
simplified acquisition threshold (as defined in the FAR at 48 CFR
2.101) for which a small business concern received a preference. * * *
(ix) As a best practice, the contractor may provide the pre-award
written notification cited in paragraph (c)(1)(viii) of this section to
unsuccessful and small business offerors on subcontracts at or below
the simplified acquisition threshold (as defined in the FAR at 48 CFR
2.101) and should do so whenever practical; and
* * * * *
0
44. Amend Sec. 125.5 by:
0
a. Revising the third sentence of paragraph (a)(1);
0
b. Redesignating paragraphs (f)(2) and (f)(3) as paragraphs (f)(3) and
(f)(4) respectively;
0
c. Adding a new paragraph (f)(2);
0
d. Removing the phrase ``$100,000 or less, or in accordance with
Simplified Acquisition Threshold procedures'' and adding in its place
the phrase ``Less than or equal to the Simplified Acquisition
Threshold'' in paragraph (g);
0
e. Removing the phrase ``Between $100,000 and $25 million'' and adding
in its place the phrase ``Above the Simplified Acquisition Threshold
and less than or equal to $25 million'' in paragraph (g);
0
f. Removing the term ``$100,000'' and adding in its place ``the
simplified acquisition threshold'' in paragraphs (h) and (i).
The revision and addition read as follows:
Sec. 125.5 What is the Certificate of Competency Program?
(a) * * *
(1) * * * The COC Program is applicable to all Government
procurement actions, with the exception of 8(a) sole source awards but
including Multiple Award Contracts and orders placed against Multiple
Award Contracts, where the contracting officer has used any issues of
capacity or credit (responsibility) to determine suitability for an
award. * * *
* * * * *
(f) * * *
(2) An offeror seeking a COC has the burden of proof to demonstrate
that it possesses all relevant elements of responsibility and that it
has overcome the contracting officer's objection(s).
* * * * *
0
45. Amend Sec. 125.6 by:
0
a. Revising paragraph (a) introductory text;
0
b. Revising paragraph (a)(2)(ii)(B);
0
c. Revising Examples 2, 3 and 4 to paragraph (a)(2);
0
d. Revising the paragraph (b) introductory text; and
0
e. Adding Example 3 to paragraph (b).
The revisions and addition read as follows:
Sec. 125.6 What are the prime contractor's limitations on
subcontracting?
(a) General. In order to be awarded a full or partial small
business set-aside contract with a value greater than the simplified
acquisition threshold (as defined in the FAR at 48 CFR 2.101), an 8(a)
contract, an SDVO SBC contract, a HUBZone contract, or a WOSB or EDWOSB
contract pursuant to part 127 of this chapter, a small business concern
must agree that:
* * * * *
(2) * * *
(ii) * * *
(B) For a multiple item procurement where a waiver as described in
Sec. 121.406(b)(5) of this chapter is granted for one or more items,
compliance with the limitation on subcontracting requirement will be
determined by combining the value of the items supplied by domestic
small business manufacturers or processors with the value of the items
subject to a waiver. As such, as long as the value of the items to be
supplied by domestic small business manufacturers or processors plus
the value of the items to be supplied that are subject to a waiver
account for at least 50% of the value of the contract, the limitations
on subcontracting requirement is met.
* * * * *
Example 2 to paragraph (a)(2). A procurement is for $1,000,000 and
calls for the acquisition of 10 items. Market research shows that nine
of the items can be sourced from small business manufacturers and one
item is subject to an SBA class waiver. Since 100% of the value of the
contract can be procured through domestic small business manufacturers
or processors plus manufacturers or processors of the item for which a
waiver has been granted, the procurement should be set aside for small
business. At least 50% of the value of the contract, or 50% of
$1,000,000, must be supplied by one or more domestic small business
manufacturers or manufacturers or processors of the one item for which
[[Page 66193]]
class waiver has been granted. In addition, the prime small business
nonmanufacturer may act as a manufacturer for one or more items.
Example 3 to paragraph (a)(2). A contract is for $1,000,000 and
calls for the acquisition of 10 items. Market research shows that only
four of these items are manufactured by small businesses. The value of
the items manufactured by small business is estimated to be $400,000.
The contracting officer seeks and is granted contract specific waivers
on the other six items. Since 100% of the value of the contract can be
procured through domestic small business manufacturers or processors
plus manufacturers or processors of the items for which a waiver has
been granted, the procurement should be set aside for small business.
At least 50% of the value of the contract, or 50% of $1,000,000, must
be supplied by one or more domestic small business manufacturers or
manufacturers or processors of the six items for which a contract
specific waiver has been granted. In addition, the prime small business
nonmanufacturer may act as a manufacturer for one or more items.
Example 4 to paragraph (a)(2). A contract is for $1,000,000 and
calls for the acquisition of 10 items. Market research shows that three
of the items can be sourced from small business manufacturers at this
particular time, and the estimated value of these items is $300,000.
There are no class waivers subject to the remaining seven items. In
order for this procurement to be set aside for small business, a
contracting officer must seek and be granted a contract specific waiver
for one or more items totaling $200,000 (so that $300,000 plus $200,000
equals 50% of the value of the entire procurement). Once a contract
specific waiver is received for one or more items, at least 50% of the
value of the contract, or 50% of $1,000,000, must be supplied by one or
more domestic small business manufacturers or processors or by
manufacturers or processors of the items for which a contract specific
waiver has been granted. In addition, the prime small business
nonmanufacturer may act as a manufacturer for one or more items.
* * * * *
(b) Mixed contracts. Where a contract integrates any combination of
services, supplies, or construction, the contracting officer shall
select the appropriate NAICS code as prescribed in Sec. 121.402(b) of
this chapter. The contracting officer's selection of the applicable
NAICS code is determinative as to which limitation on subcontracting
and performance requirement applies. Based on the NAICS code selected,
the relevant limitation on subcontracting requirement identified in
paragraphs (a)(1) through (4) of this section will apply only to that
portion of the contract award amount. In no case shall more than one
limitation on subcontracting requirement apply to the same contract.
* * * * *
Example 3 to paragraph (b). A procuring activity is acquiring both
services and general construction through a small business set-aside.
The total value of the requirement is $10,000,000, with the
construction portion comprising $8,000,000, and the services portion
comprising $2,000,000. The contracting officer appropriately assigns a
construction NAICS code to the requirement. The 85% limitation on
subcontracting identified in paragraph (a)(3) would apply to this
procurement. Because the services portion of the contract is excluded
from consideration, the relevant amount for purposes of calculating the
limitation on subcontracting requirement is $8,000,000. As such, the
prime contractor cannot subcontract more than $6,800,000 to non-
similarly situated entities, and the prime and/or similarly situated
entities must perform at least $1,200,000.
* * * * *
0
46. Amend Sec. 125.8 by:
0
a. Revising paragraphs (b)(2)(ii) and (iv), the second sentence of
paragraph (b)(2)(v), and paragraphs (b)(2)(xi) and (xii);
0
b. Adding a new sentence at the end of paragraph (c)(1);
0
c. Adding paragraph (c)(4); and
0
d. Revising paragraphs (e), and (h)(2).
The revisions and additions read as follows:
Sec. 125.8 What requirements must a joint venture satisfy to submit
an offer for a procurement or sale set aside or reserved for small
business?
* * * * *
(b) * * *
(2) * * *
(ii) Designating a small business as the managing venturer of the
joint venture, and designating a named employee of the small business
managing venturer as the manager with ultimate responsibility for
performance of the contract (the ``Responsible Manager'').
(A) The managing venturer is responsible for controlling the day-
to-day management and administration of the contractual performance of
the joint venture, but other partners to the joint venture may
participate in all corporate governance activities and decisions of the
joint venture as is commercially customary.
(B) The individual identified as the Responsible Manager of the
joint venture need not be an employee of the small business at the time
the joint venture submits an offer, but, if he or she is not, there
must be a signed letter of intent that the individual commits to be
employed by the small business if the joint venture is the successful
offeror. The individual identified as the Responsible Manager cannot be
employed by the mentor and become an employee of the small business for
purposes of performance under the joint venture.
(C) Although the joint venture managers responsible for orders
issued under an IDIQ contract need not be employees of the
prot[eacute]g[eacute], those managers must report to and be supervised
by the joint venture's Responsible Manager;
* * * * *
(iv) Stating that the small business participant(s) must receive
profits from the joint venture commensurate with the work performed by
them, or a percentage agreed to by the parties to the joint venture
whereby the small business participant(s) receive profits from the
joint venture that exceed the percentage commensurate with the work
performed by them, and that at the conclusion of the joint venture
contract(s) and/or the termination of a joint venture, any funds
remaining in the joint venture bank account shall distributed at the
discretion of the joint venture members according to percentage of
ownership;
(v) * * * This account must require the signature or consent of all
parties to the joint venture for any payments made by the joint venture
to its members for services performed. * * *
* * * * *
(xi) Stating that annual performance-of-work statements required by
paragraph (h)(1) must be submitted to SBA and the relevant contracting
officer not later than 45 days after each operating year of the joint
venture; and
(xii) Stating that the project-end performance-of-work required by
paragraph (h)(2) must be submitted to SBA and the relevant contracting
officer no later than 90 days after completion of the contract.
* * * * *
(c) * * *
(1) * * * Except as set forth in paragraph (c)(4) of this section,
the 40% calculation for prot[eacute]g[eacute] workshare
[[Page 66194]]
follows the same rules as those set forth in Sec. 125.6 concerning
supplies, construction, and mixed contracts, including the exclusion of
the same costs from the limitation on subcontracting calculation (e.g.,
cost of materials excluded from the calculation in construction
contracts).
* * * * *
(4) Work performed by a similarly situated entity will not count
toward the requirement that a prot[eacute]g[eacute] must perform at
least 40% of the work performed by a joint venture.
* * * * *
(e) Capabilities, past performance and experience. When evaluating
the capabilities, past performance, experience, business systems and
certifications of an entity submitting an offer for a contract set
aside or reserved for small business as a joint venture established
pursuant to this section, a procuring activity must consider work done
and qualifications held individually by each partner to the joint
venture as well as any work done by the joint venture itself
previously. 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.
The partners to the joint venture in the aggregate must demonstrate the
past performance, experience, business systems and certifications
necessary to perform the contract.
* * * * *
(h) * * *
(2) At the completion of every contract set aside or reserved for
small business that is awarded to a joint venture between a
prot[eacute]g[eacute] small business and a mentor authorized by Sec.
125.9, and upon request by SBA or the relevant contracting officer, the
small business partner to the joint venture must submit a report to the
relevant contracting officer and to SBA, signed by an authorized
official of each partner to the joint venture, explaining how and
certifying that the performance of work requirements were met for the
contract, and further certifying that the contract was performed in
accordance with the provisions of the joint venture agreement that are
required under paragraph (b) of this section.
* * * * *
0
47. Amend Sec. 125.9 by:
0
a. Revising paragraphs (b), (c)(1)(ii), and (c)(2) introductory text;
0
b. Removing paragraph (c)(4);
0
c. Revising paragraphs (d)(1) introductory text, (d)(1)(iii)
introductory text, and (d)(1)(iii)(B);
0
d. Adding paragraph (d)(6);
0
e. Removing ``(e.g., management and/or technical assistance, loans and/
or equity investments, cooperation on joint venture projects, or
subcontracts under prime contracts being performed by the mentor)'' in
paragraph (e)(1) introductory text, and adding in its place ``(e.g.,
management and or technical assistance; loans and/or equity
investments; bonding; use of equipment; export assistance; assistance
as a subcontractor under prime contracts being performed by the
prot[eacute]g[eacute]; cooperation on joint venture projects; or
subcontracts under prime contracts being performed by the mentor)''.
0
f. Revising paragraphs (e)(1)(i) and (e)(5);
0
g. Redesignating paragraphs (e)(6) through (8) as paragraphs (e)(7)
through (9), respectively;
0
h. Adding new paragraph (e)(6);
0
i. Revising paragraph (f);
0
j. Revising paragraph (g) introductory text;
0
k. Revising paragraph (g)(4);
0
l. Adding paragraph (g)(5); and
0
m. Revising paragraph (h)(1) introductory text.
The revisions and additions to read as follows:
Sec. 125.9 What are the rules governing SBA's small business mentor-
prot[eacute]g[eacute] program?
* * * * *
(b) Mentors. Any concern that demonstrates a commitment and the
ability to assist small business concerns may act as a mentor and
receive benefits as set forth in this section. This includes other than
small businesses.
(1) In order to qualify as a mentor, a concern must demonstrate
that it:
(i) Is capable of carrying out its responsibilities to assist the
prot[eacute]g[eacute] firm under the proposed mentor-
prot[eacute]g[eacute] agreement;
(ii) Does not appear on the Federal list of debarred or suspended
contractors; and
(iii) Can impart value to a prot[eacute]g[eacute] firm due to
lessons learned and practical experience gained or through its
knowledge of general business operations and government contracting.
(2) SBA will decline an application if SBA determines that the
mentor does not possess good character or a favorable financial
position, employs or otherwise controls the managers of the
prot[eacute]g[eacute], or is otherwise affiliated with the
prot[eacute]g[eacute]. Once approved, SBA may terminate the mentor-
prot[eacute]g[eacute] agreement if the mentor does not possess good
character or a favorable financial position, was affiliated with the
prot[eacute]g[eacute] at time of application, or is affiliated with the
prot[eacute]g[eacute] for reasons other than the mentor-
prot[eacute]g[eacute] agreement or assistance provided under the
agreement.
(3) In order for SBA to agree to allow a mentor to have more than
one prot[eacute]g[eacute] at time, the mentor and proposed additional
prot[eacute]g[eacute] must demonstrate that the added mentor-
prot[eacute]g[eacute] relationship will not adversely affect the
development of either prot[eacute]g[eacute] firm (e.g., the second firm
may not be a competitor of the first firm).
(i) 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.
(ii) A mentor generally cannot have more than three
prot[eacute]g[eacute]s at one time. However, the first two mentor-
prot[eacute]g[eacute] relationships approved by SBA between a specific
mentor and a small business that has its principal office located in
the Commonwealth of Puerto Rico do not count against the limit of three
proteges that a mentor can have at one time.
(c) * * *
(1) * * *
(ii) Where a small business concern seeks to qualify as a
prot[eacute]g[eacute] in a secondary NAICS code, the concern must
demonstrate how the mentor-prot[eacute]g[eacute] relationship will help
it further develop or expand its current capabilities in that secondary
NAICS code. SBA will not approve a mentor-prot[eacute]g[eacute]
relationship in a secondary NAICS code in which the small business
concern has no prior experience. SBA may approve a mentor-
prot[eacute]g[eacute] relationship where the small business concern can
demonstrate that it has performed work in one or more similar NAICS
codes or where the NAICS code in which the small business concern seeks
a mentor-prot[eacute]g[eacute] relationship is a logical business
progression to work previously performed by the concern.
(2) A prot[eacute]g[eacute] firm may generally have only one mentor
at a time. SBA may approve a second mentor for a particular
prot[eacute]g[eacute] firm where the second relationship will not
compete or otherwise conflict with the first mentor-
prot[eacute]g[eacute] relationship, and:
* * * * *
(d) * * * (1) A prot[eacute]g[eacute] and mentor may joint venture
as a small business for any government prime contract, subcontract or
sale, provided the prot[eacute]g[eacute] qualifies as small for the
procurement or sale. Such a joint venture may seek any type of small
business contract (i.e., small business set-aside, 8(a), HUBZone, SDVO,
or
[[Page 66195]]
WOSB) for which the prot[eacute]g[eacute] firm qualifies (e.g., a
prot[eacute]g[eacute] firm that qualifies as a WOSB could seek a WOSB
set-aside as a joint venture with its SBA-approved mentor). Similarly,
a joint venture between a prot[eacute]g[eacute] and mentor may seek a
subcontract as a HUBZone small business, small disadvantaged business,
SDVO small business, or WOSB provided the prot[eacute]g[eacute]
individually qualifies as such.
* * * * *
(iii) A joint venture between a prot[eacute]g[eacute] and its
mentor will qualify as a small business for any procurement for which
the prot[eacute]g[eacute] individually qualifies as small. Once a
prot[eacute]g[eacute] firm no longer qualifies as a small business for
the size standard corresponding to the NAICS code under which SBA
approved its mentor-prot[eacute]g[eacute] relationship, any joint
venture between the prot[eacute]g[eacute] and its mentor will no longer
be able to seek additional contracts or subcontracts as a small
business for any NAICS code having the same or lower size standard. A
joint venture between a prot[eacute]g[eacute] and its mentor could seek
additional contract opportunities in NAICS codes having a size standard
for which the prot[eacute]g[eacute] continues to qualify as small. A
change in the prot[eacute]g[eacute]'s size status does not generally
affect contracts previously awarded to a joint venture between the
prot[eacute]g[eacute] and its mentor.
* * * * *
(B) For contracts with durations of more than five years (including
options), where size re-certification is required under Sec.
121.404(g)(3) of this chapter no more than 120 days prior to the end of
the fifth year of the contract and no more than 120 days prior to
exercising any option thereafter, once the prot[eacute]g[eacute] no
longer qualifies as small for the size standard corresponding to the
NAICS code assigned to the contract, the joint venture will not be able
re-certify itself to be a small business for that contract. The rules
set forth in Sec. 121.404(g)(3) of this chapter apply in such
circumstances.
* * * * *
(6) A mentor that provides a subcontract to a prot[eacute]g[eacute]
that has its principal office located in the Commonwealth of Puerto
Rico may (i) receive positive consideration for the mentor's past
performance evaluation, and (ii) apply costs incurred for providing
training to such protege toward the subcontracting goals contained in
the subcontracting plan of the mentor.
(e) * * *
(1) * * *
(i) Specifically identify the business development assistance to be
provided and address how the assistance will help the
prot[eacute]g[eacute] enhance its growth and/or foster or acquire
needed capabilities;
* * * * *
(5) The term of a mentor-prot[eacute]g[eacute] agreement may not
exceed six years. If an initial mentor-prot[eacute]g[eacute] agreement
is for less than six years, it may be extended by mutual agreement
prior to the expiration date for an additional amount of time that
would total no more than six years from its inception (e.g., if the
initial mentor-prot[eacute]g[eacute] agreement was for two years, it
could be extended for an additional four years by consent of the two
parties; if the initial mentor-prot[eacute]g[eacute] agreement was for
three years, it could be extended for an additional three years by
consent of the two parties). Unless rescinded in writing as a result of
an SBA review, the mentor-prot[eacute]g[eacute] relationship will
automatically renew without additional written notice of continuation
or extension to the prot[eacute]g[eacute] firm.
(6) A prot[eacute]g[eacute] may generally have a total of two
mentor-prot[eacute]g[eacute] agreements with different mentors.
(i) Each mentor-prot[eacute]g[eacute] agreement may last for no
more than six years, as set forth in paragraph (e)(5) of this section.
(ii) If a mentor-prot[eacute]g[eacute] agreement is terminated
within 18 months from the date SBA approved the agreement, that mentor-
prot[eacute]g[eacute] relationship will generally not count as one of
the two mentor-prot[eacute]g[eacute] relationships that a small
business may enter as a prot[eacute]g[eacute]. However, where a
specific small business prot[eacute]g[eacute] appears to enter into
many short-term mentor-prot[eacute]g[eacute] relationships as a means
of extending its program eligibility as a prot[eacute]g[eacute], SBA
may determine that the business concern has exhausted its participation
in the mentor-prot[eacute]g[eacute] program and not approve an
additional mentor-prot[eacute]g[eacute] relationship.
(iii) If during the evaluation of the mentor-prot[eacute]g[eacute]
relationship pursuant to paragraphs (g) and (h) of this section SBA
determines that a mentor has not provided the business development
assistance set forth in its mentor-prot[eacute]g[eacute] agreement or
that the quality of the assistance provided was not satisfactory, SBA
may allow the prot[eacute]g[eacute] to substitute another mentor for
the time remaining in the mentor-prot[eacute]g[eacute] agreement
without counting against the two-mentor limit.
* * * * *
(f) Decision to decline mentor-prot[eacute]g[eacute] relationship.
Where SBA declines to approve a specific mentor-prot[eacute]g[eacute]
agreement, SBA will issue a written decision setting forth its
reason(s) for the decline. The small business concern seeking to be a
prot[eacute]g[eacute] cannot attempt to enter into another mentor-
prot[eacute]g[eacute] relationship with the same mentor for a period of
60 calendar days from the date of the final decision. The small
business concern may, however, submit another proposed mentor-
prot[eacute]g[eacute] agreement with a different proposed mentor at any
time after the SBA's final decline decision.
(g) Evaluating the mentor-prot[eacute]g[eacute] relationship. SBA
will review the mentor-prot[eacute]g[eacute] relationship annually. SBA
will ask the prot[eacute]g[eacute] for its assessment of how the
mentor-prot[eacute]g[eacute] relationship is working, whether or not
the prot[eacute]g[eacute] received the agreed upon business development
assistance, and whether the prot[eacute]g[eacute] would recommend the
mentor to be a mentor for another small business in the future. At any
point in the mentor-prot[eacute]g[eacute] relationship where a
prot[eacute]g[eacute] believes that a mentor has not provided the
business development assistance set forth in its mentor-
prot[eacute]g[eacute] agreement or that the quality of the assistance
provided did not meet its expectations, the prot[eacute]g[eacute] can
ask SBA to intervene on its behalf with the mentor.
* * * * *
(4) At any point in the mentor-prot[eacute]g[eacute] relationship
where a prot[eacute]g[eacute] believes that a mentor has not provided
the business development assistance set forth in its mentor-
prot[eacute]g[eacute] agreement or that the quality of the assistance
provided did not meet its expectations, the prot[eacute]g[eacute] can
ask SBA to intervene on its behalf with the mentor.
(5) SBA may decide not to approve continuation of a mentor-
prot[eacute]g[eacute] agreement where:
(i) SBA finds that the mentor has not provided the assistance set
forth in the mentor-prot[eacute]g[eacute] agreement;
(ii) SBA finds that the assistance provided by the mentor has not
resulted in any material benefits or developmental gains to the
prot[eacute]g[eacute]; or
(iii) A prot[eacute]g[eacute] does not provide information relating
to the mentor-prot[eacute]g[eacute] relationship, as set forth in
paragraph (g).
(h) Consequences of not providing assistance set forth in the
mentor-prot[eacute]g[eacute] agreement. (1) Where SBA determines that a
mentor may not have provided to the prot[eacute]g[eacute] firm the
business development assistance set forth in its mentor-
prot[eacute]g[eacute] agreement or that the quality of the assistance
provided may not have been satisfactory, SBA will notify the mentor of
such determination and afford the mentor an opportunity to respond. The
[[Page 66196]]
mentor must respond within 30 days of the notification, presenting
information demonstrating that it did satisfactorily provide the
assistance set forth in the mentor-prot[eacute]g[eacute] agreement or
explaining why it has not provided the agreed upon assistance and
setting forth a definitive plan as to when it will provide such
assistance. If the mentor fails to respond, does not adequately provide
information demonstrating that it did satisfactorily provide the
assistance set forth in the mentor-prot[eacute]g[eacute] agreement,
does not supply adequate reasons for its failure to provide the agreed
upon assistance, or does not set forth a definite plan to provide the
assistance:
* * * * *
0
48. Amend Sec. 125.18 by:
0
a. Revising paragraph (a);
0
b. Removing ``(see Sec. Sec. 125.9 and 124.520 of this chapter)'' in
paragraph (b)(1)(ii) and adding in its place ``(see Sec. 125.9)'';
0
c. Removing ``Sec. 124.520 or Sec. 125.9 of this chapter'' in
paragraph (b)(2) introductory text and adding in its place ``Sec.
125.9'';
0
d. Revising paragraphs (b)(2)(ii) and (iv) and the second sentence of
paragraph (b)(2)(v);
0
e. Removing ``or Sec. 124.520 of this chapter'' in paragraph
(b)(3)(i);
0
f. Redesignating paragraphs (d)(1) through (4) as paragraphs (d)(2)
through (5), respectively; and
0
g. Adding a new paragraph (d)(1).
The revisions and addition read as follows:
Sec. 125.18 What requirements must an SDVO SBC meet to submit an
offer on a contract?
(a) General. In order for a business concern to submit an offer and
be eligible for the award of a specific SDVO contract, the concern must
submit the appropriate representations and certifications at the time
it submits its initial offer which includes price (or other formal
response to a solicitation) to the contracting officer, including, but
not limited to, the fact that:
(1) It is small under the size standard corresponding to the NAICS
code(s) assigned to the contract;
(2) It is an SDVO SBC; and
(3) There has been no material change in any of its circumstances
affecting its SDVO SBC eligibility.
* * * * *
(b) * * *
(2) * * *
(ii) Designating an SDVO SBC as the managing venturer of the joint
venture, and designating a named employee of the SDVO SBC managing
venturer as the manager with ultimate responsibility for performance of
the contract (the ``Responsible Manager'').
(A) The managing venturer is responsible for controlling the day-
to-day management and administration of the contractual performance of
the joint venture, but other partners to the joint venture may
participate in all corporate governance activities and decisions of the
joint venture as is commercially customary.
(B) The individual identified as the Responsible Manager of the
joint venture need not be an employee of the SDVO SBC at the time the
joint venture submits an offer, but, if he or she is not, there must be
a signed letter of intent that the individual commits to be employed by
the SDVO SBC if the joint venture is the successful offeror. The
individual identified as the Responsible Manager cannot be employed by
the mentor and become an employee of the SDVO SBC for purposes of
performance under the joint venture.
(C) Although the joint venture managers responsible for orders
issued under an IDIQ contract need not be employees of the
prot[eacute]g[eacute], those managers must report to and be supervised
by the joint venture's Responsible Manager.
* * * * *
(iv) Stating that the SDVO SBC must receive profits from the joint
venture commensurate with the work performed by the SDVO SBC, or a
percentage agreed to by the parties to the joint venture whereby the
SDVO SBC receives profits from the joint venture that exceed the
percentage commensurate with the work performed by the SDVO SBC;
(v) * * * This account must require the signature or consent of all
parties to the joint venture for any payments made by the joint venture
to its members for services performed. * * *
* * * * *
(d) Multiple Award Contracts. (1) SDVO status. With respect to
Multiple Award Contracts, orders issued against a Multiple Award
Contract, and Blanket Purchase Agreements issued against a Multiple
Award Contract:
(i) SBA determines SDVO small business eligibility for the
underlying Multiple Award Contract as of the date a business concern
certifies its status as an SDVO small business concern as part of its
initial offer (or other formal response to a solicitation), which
includes price, unless the firm was required to recertify under
paragraph (e) of this section.
(A) Unrestricted Multiple Award Contracts or Set-Aside Multiple
Award Contracts for Other than SDVO. For an unrestricted Multiple Award
Contract or other Multiple Award Contract not specifically set aside
for SDVO, if a business concern is an SDVO small business concern at
the time of offer and contract-level recertification for the Multiple
Award Contract, it is an SDVO small business concern for goaling
purposes for each order issued against the contract, unless a
contracting officer requests recertification as an SDVO small business
for a specific order or Blanket Purchase Agreement. Except for orders
and Blanket Purchase Agreements issued under any Federal Supply
Schedule contract, if an order or a Blanket Purchase Agreement under an
unrestricted Multiple Award Contract is set-aside exclusively for SDVO
small business, a concern must recertify that it qualifies as an SDVO
small business at the time it submits its initial offer, which includes
price, for the particular order or Blanket Purchase Agreement. However,
where the underlying Multiple Award Contract has been awarded to a pool
of concerns for which SDVO small business status is required, if an
order or a Blanket Purchase Agreement under that Multiple Award
Contract is set-aside exclusively for concerns in the SDVO small
business pool, concerns need not recertify their status as SDVO small
business concerns (unless a contracting officer requests size
certifications with respect to a specific order or Blanket Purchase
Agreement).
(B) SDVO Set-Aside Multiple Award Contracts. For a Multiple Award
Contract that is specifically set aside for SDVO small business, if a
business concern is an SDVO small business at the time of offer and
contract-level recertification for the Multiple Award Contract, it is
an SDVO small business for each order issued against the contract,
unless a contracting officer requests recertification as an SDVO small
business for a specific order or Blanket Purchase Agreement.
(ii) SBA will determine SDVO small business status at the time of
initial offer (or other formal response to a solicitation), which
includes price, for an order or an Agreement issued against a Multiple
Award Contract if the contracting officer requests a new SDVO small
business certification for the order or Agreement.
* * * * *
0
49. Amend Sec. 125.28 by revising the section heading and adding a
sentence to the end of paragraph (d)(1) to read as follows:
[[Page 66197]]
Sec. 125.28 What are the requirements for filing a service-disabled
veteran-owned status protest?
* * * * *
(d) * * *
(1) * * * Except for an order or Blanket Purchase Agreement issued
under any Federal Supply Schedule contract, for an order or a Blanket
Purchase Agreement that is set-aside for SDVO small business under a
Multiple Award Contract that is not itself set aside for SDVO small
business or have a reserve for SDVO small business (or any SDVO order
where the contracting officer has requested recertification of SDVO
status), an interested party must submit its protest challenging the
SDVO status of a concern for the order or Agreement by close of
business on the fifth business day after notification by the
contracting officer of the apparent successful offeror.
* * * * *
PART 126--HUBZONE PROGRAM
0
50. The authority citation for part 126 continues to read as follows:
Authority: 15 U.S.C. 632(a), 632(j), 632(p), 644 and 657a.
Sec. 126.500 [Amended]
0
51. Amend Sec. 126.500 by removing the words ``(whether by SBA or a
third-party certifier)'' in paragraph (b) introductory text.
Sec. 126.602 [Amended]
0
52. Amend 126.602 in paragraph (c) by removing ``Sec. 126.200(a)'' and
adding in its place ``Sec. 126.200(c)(2)(ii)''.
0
53. Revise Sec. 126.606 to read as follows:
Sec. 126.606 May a procuring activity request that SBA release a
requirement from the 8(a) BD program for award as a HUBZone contract?
A procuring activity may request that SBA release an 8(a)
requirement for award as a HUBZone contract under the procedures set
forth in Sec. 124.504(d).
0
54. Amend Sec. 126.616 by removing ``(or, if also an 8(a) BD
Participant, with an approved mentor authorized by Sec. 124.520 of
this chapter)'' in paragraph (a), and by revising paragraphs (c)(2) and
(c)(4) and the second sentence of paragraph (c)(5) to read as follows:
Sec. 126.616 What requirements must a joint venture satisfy to
submit an offer and be eligible to perform on a HUBZone contract?
* * * * *
(c) * * *
(2) Designating a certified HUBZone small business concern as the
managing venturer of the joint venture, and designating a named
employee of the certified HUBZone small business managing venturer as
the manager with ultimate responsibility for performance of the
contract (the ``Responsible Manager'').
(i) The managing venturer is responsible for controlling the day-
to-day management and administration of the contractual performance of
the joint venture, but other partners to the joint venture may
participate in all corporate governance activities and decisions of the
joint venture as is commercially customary.
(ii) The individual identified as the Responsible Manager of the
joint venture need not be an employee of the certified HUBZone small
business concern at the time the joint venture submits an offer, but,
if he or she is not, there must be a signed letter of intent that the
individual commits to be employed by the certified HUBZone small
business concern if the joint venture is the successful offeror. The
individual identified as the Responsible Manager cannot be employed by
the mentor and become an employee of the certified HUBZone small
business concern for purposes of performance under the joint venture.
(iii) Although the joint venture managers responsible for orders
issued under an IDIQ contract need not be employees of the
prot[eacute]g[eacute], those managers must report to and be supervised
by the joint venture's Responsible Manager.
* * * * *
(4) Stating that the certified HUBZone small business concern must
receive profits from the joint venture commensurate with the work
performed by the certified HUBZone small business concern, or a
percentage agreed to by the parties to the joint venture whereby the
certified HUBZone small business concern receives profits from the
joint venture that exceed the percentage commensurate with the work
performed by the certified HUBZone small business concern;
(5) * * * This account must require the signature or consent of all
parties to the joint venture for any payments made by the joint venture
to its members for services performed. * * *
* * * * *
Sec. 126.618 [Amended]
0
55. Amend Sec. 126.618 by removing ``(or, if also an 8(a) BD
Participant, under Sec. 124.520 of this chapter)'' in paragraph (a).
0
56. Amend Sec. 126.801 by adding a sentence to the end of paragraph
(d)(1) to read as follows:
Sec. 126.801 How does an interested party file a HUBZone status
protest?
* * * * *
(d) * * *
(1) * * * Except for an order or Blanket Purchase Agreement issued
under any Federal Supply Schedule contact, in connection with an order
or an Agreement that is set-aside for a certified HUBZone small
business concern under a Multiple Award Contract that is not itself set
aside for certified HUBZone small business concerns or have a reserve
for certified HUBZone small business concerns, (or any HUBZone set-
aside order where the contracting officer has requested recertification
of such status), an interested party must submit its protest
challenging the HUBZone status of a concern for the order or Agreement
by close of business on the fifth business day after notification by
the contracting officer of the intended awardee of the order or
Agreement.
* * * * *
PART 127--WOMEN-OWNED SMALL BUSINESS FEDERAL CONTRACT PROGRAM
0
57. The authority citation for part 127 continues to read as follows:
Authority: 15 U.S.C. 632, 634(b)(6), 637(m), 644 and 657r.
Sec. 127.503 [Amended]
0
58. Amend Sec. 127.503 by removing paragraph (h).
0
59. Revise Sec. 127.504 to read as follows:
Sec. 127.504 What requirements must an EDWOSB or WOSB meet to be
eligible for an EDWOSB or WOSB requirement?
(a) General. In order for a concern to submit an offer on a
specific EDWOSB or WOSB set-aside requirement, the concern must qualify
as a small business concern under the size standard corresponding to
the NAICS code assigned to the contract, and either be a certified
EDWOSB or WOSB pursuant to Sec. 127.300, or represent that it has
submitted a complete application for WOSB or EDWOSB certification to
SBA or a third-party certifier and has not received a negative
determination regarding that application from SBA or the third party
certifier.
(1) If a concern becomes the apparent successful offeror while its
application for WOSB or EDWOSB certification is pending, either at SBA
or a third-party certifier, the contracting officer for the particular
contract must immediately inform SBA's D/GC. SBA will then prioritize
the concern's WOSB or EDWOSB application and make a
[[Page 66198]]
determination regarding the firm's status as a WOSB or EDWOSB within 15
calendar days from the date that SBA received the contracting officer's
notification. Where the application is pending with a third-party
certifier, SBA will immediately contact the third-party certifier to
require the third-party certifier to complete its determination within
15 calendar days.
(2) If the contracting officer does not receive an SBA or third-
party certifier determination within 15 calendar days after the SBA's
receipt of the notification, the contracting officer may presume that
the apparently successful offeror is not an eligible WOSB or EDWOSB and
may make award accordingly, unless the contracting officer grants an
extension to the 15-day response period.
(b) Sole source EDWOSB or WOSB requirements. In order for a concern
to seek a specific sole source EDWOSB or WOSB requirement, the concern
must be a certified EDWOSB or WOSB pursuant to Sec. 127.300 and
qualify as small under the size standard corresponding to the
requirement being sought.
(c) Joint ventures. A business concern seeking an EDWOSB or WOSB
contract as a joint venture may submit an offer if the joint venture
meets the requirements as set forth in Sec. 127.506.
(d) Multiple Award Contracts. With respect to Multiple Award
Contracts, orders issued against a Multiple Award Contract, and Blanket
Purchase Agreements issued against a Multiple Award Contract:
(1) SBA determines EDWOSB or WOSB eligibility for the underlying
Multiple Award Contract as of the date a concern certifies its status
as an EDWOSB or WOSB as part of its initial offer (or other formal
response to a solicitation), which includes price, unless the concern
was required to recertify its status as a WOSB or EDWOSB under
paragraph (f) of this section.
(i) Unrestricted Multiple Award Contracts or Set-Aside Multiple
Award Contracts for Other than EDWOSB or WOSB. For an unrestricted
Multiple Award Contract or other Multiple Award Contract not set aside
specifically for EDWOSB or WOSB, if a business concern is an EDWOSB or
WOSB at the time of offer and contract-level recertification for the
Multiple Award Contract, it is an EDWOSB or WOSB for goaling purposes
for each order issued against the contract, unless a contracting
officer requests recertification as an EDWOSB or WOSB for a specific
order or Blanket Purchase Agreement. Except for orders and Blanket
Purchase Agreements issued under any Federal Supply Schedule contract,
if an order or a Blanket Purchase Agreement under an unrestricted
Multiple Award Contract is set aside exclusively for EDWOSB or WOSB, a
concern must recertify it qualifies as an EDWOSB or WOSB at the time it
submits its initial offer, which includes price, for the particular
order or Agreement. However, where the underlying Multiple Award
Contract has been awarded to a pool of WOSB or EDWOSB concerns for
which WOSB or EDWOSB status is required, if an order or a Blanket
Purchase Agreement under that Multiple Award Contract is set aside
exclusively for concerns in the WOSB or EDWOSB pool, concerns need not
recertify their status as WOSBs or EDWOSBs (unless a contracting
officer requests size certifications with respect to a specific order
or Blanket Purchase Agreement).
(ii) EDWOSB or WOSB Set-Aside Multiple Award Contracts. For a
Multiple Award Contract that is set aside specifically for EDWOSB or
WOSB, if a business concern is an EDWOSB or WOSB at the time of offer
and contract-level recertification for the Multiple Award Contract, it
is an EDWOSB or WOSB for each order issued against the contract, unless
a contracting officer requests recertification as an EDWOSB or WOSB for
a specific order or Blanket Purchase Agreement.
(2) SBA will determine EDWOSB or WOSB status at the time a business
concern submits its initial offer (or other formal response to a
solicitation) which includes price for an order or an Agreement issued
against a Multiple Award Contract if the contracting officer requests a
new EDWOSB or WOSB certification for the order or Agreement.
(e) Limitations on subcontracting. A business concern seeking an
EDWOSB or WOSB requirement must also meet the applicable limitations on
subcontracting requirements as set forth in Sec. 125.6 of this chapter
for the performance of EDWOSB or WOSB contracts (both sole source and
those totally set aside for EDWOSB or WOSB), the performance of the
set-aside portion of a partial set-aside contract, or the performance
of orders set-aside for EDWOSB or WOSB.
(f) Non-manufacturers. An EDWOSB or WOSB that is a non-
manufacturer, as defined in Sec. 121.406(b) of this chapter, may
submit an offer on an EDWOSB or WOSB contract for supplies, if it meets
the requirements under the non-manufacturer rule set forth in Sec.
121.406(b) of this chapter.
(g) Ostensible subcontractor. Where a subcontractor that is not
similarly situated performs primary and vital requirements of a set-
aside service contract, or where a prime contractor is unduly reliant
on a small business that is not similarly situated to perform the set-
aside service contract, the prime contractor is not eligible for award
of a WOSB or EDWOSB contract.
(1) When the subcontractor is small for the size standard assigned
to the procurement, this issue may be grounds for a WOSB or EDWOSB
status protest, as described in subpart F of this part. When the
subcontractor is other than small or alleged to be other than small for
the size standard assigned to the procurement, this issue may be a
ground for a size protest, as described at Sec. 121.103(h)(4) of this
chapter.
(2) SBA will find that a prime WOSB or EDWOSB contractor is
performing the primary and vital requirements of a contract or order
and is not unduly reliant on one or more non-similarly situated
subcontracts where the prime contractor can demonstrate that it,
together with any similarly situated entity, will meet the limitations
on subcontracting provisions set forth in Sec. 125.6.
(h) Recertification. (1) Where a contract being performed by an
EDWOSB or WOSB is novated to another business concern, the concern that
will continue performance on the contract must recertify its status as
an EDWOSB or WOSB (or qualify as a certified EDWOSB or WOSB for a WOSB
contract) to the procuring agency, or inform the procuring agency that
it does not qualify as an EDWOSB or WOSB, (or qualify as a certified
EDWOSB or WOSB for a WOSB contract) within 30 days of the novation
approval. If the concern cannot recertify its status as an EDWOSB or
WOSB (or qualify as a certified EDWOSB or WOSB for a WOSB contract),
the agency must modify the contract to reflect the new status, and may
not count the options or orders issued pursuant to the contract, from
that point forward, towards its women-owned small business goals.
(2) Where an EDWOSB or WOSB concern that is performing a contract
acquires, is acquired by, or merges with another concern and contract
novation is not required, the concern must, within 30 days of the
transaction becoming final, recertify its status as an EDWOSB or WOSB
(or qualify as a certified EDWOSB or WOSB for a WOSB contract) to the
procuring agency, or inform the procuring agency that it no longer
qualifies as an EDWOSB or WOSB (or qualify as a certified EDWOSB or
WOSB for a
[[Page 66199]]
WOSB contract). If the concern is unable to recertify its status as an
EDWOSB or WOSB (or qualify as a certified EDWOSB or WOSB for a WOSB
contract), the agency must modify the contract to reflect the new
status, and may not count the options or orders issued pursuant to the
contract, from that point forward, towards its women-owned small
business goals.
(3) For purposes of contracts (including Multiple Award Contracts)
with durations of more than five years (including options), a
contracting officer must request that a business concern recertify its
status as an EDWOSB or WOSB (or qualify as a certified EDWOSB or WOSB
for a WOSB contract) no more than 120 days prior to the end of the
fifth year of the contract, and no more than 120 days prior to
exercising any option. If the concern is unable to recertify its status
as an EDWOSB or WOSB (or qualify as a certified EDWOSB or WOSB for a
WOSB contract), the agency must modify the contract to reflect the new
status, and may not count the options or orders issued pursuant to the
contract, from that point forward, towards its women-owned small
business goals.
(4) A business concern that did not certify as an EDWOSB or WOSB,
either initially or prior to an option being exercised, may recertify
as an EDWOSB or WOSB (or qualify as a certified EDWOSB or WOSB for a
WOSB contract) for a subsequent option period if it meets the
eligibility requirements at that time. The agency must modify the
contract to reflect the new status, and may count the options or orders
issued pursuant to the contract, from that point forward, towards its
women-owned small business goals.
(5) Recertification does not change the terms and conditions of the
contract. The limitations on subcontracting, nonmanufacturer and
subcontracting plan requirements in effect at the time of contract
award remain in effect throughout the life of the contract.
(6) A concern's status will be determined at the time of a response
to a solicitation for an Agreement and each order issued pursuant to
the Agreement.
0
60. Amend Sec. 127.506 by revising paragraphs (c)(2) and (c)(4) and
the second sentence of paragraph (c)(5) to read as follows:
Sec. 127.506 May a joint venture submit an offer on an EDWOSB or
WOSB requirement?
* * * * *
(c) * * *
(2) Designating a WOSB or EDWOSB as the managing venturer of the
joint venture, and designating a named employee of the WOSB or EDWOSB
managing venturer as the manager with ultimate responsibility for
performance of the contract (the ``Responsible Manager'').
(i) The managing venturer is responsible for controlling the day-
to-day management and administration of the contractual performance of
the joint venture, but other partners to the joint venture may
participate in all corporate governance activities and decisions of the
joint venture as is commercially customary.
(ii) The individual identified as the Responsible Manager of the
joint venture need not be an employee of the WOSB or EDWOSB at the time
the joint venture submits an offer, but, if he or she is not, there
must be a signed letter of intent that the individual commits to be
employed by the WOSB or EDWOSB if the joint venture is the successful
offeror. The individual identified as the Responsible Manager cannot be
employed by the mentor and become an employee of the WOSB or EDWOSB for
purposes of performance under the joint venture.
(iii) Although the joint venture managers responsible for orders
issued under an IDIQ contract need not be employees of the
prot[eacute]g[eacute], those managers must report to and be supervised
by the joint venture's Responsible Manager.
* * * * *
(4) Stating that the WOSB or EDWOSB must receive profits from the
joint venture commensurate with the work performed by the WOSB or
EDWOSB, or a percentage agreed to by the parties to the joint venture
whereby the WOSB or EDWOSB receives profits from the joint venture that
exceed the percentage commensurate with the work performed by the WOSB
or EDWOSB;
(5) * * * This account must require the signature or consent of all
parties to the joint venture for any payments made by the joint venture
to its members for services performed. * * *
* * * * *
0
61. Amend Sec. 127.603 by revising the section heading and adding a
sentence to the end of paragraph (c)(1) to read as follows:
Sec. 127.603 What are the requirements for filing an EDWOSB or WOSB
status protest?
* * * * *
(c) * * *
(1) * * * Except for an order or Blanket Purchase Agreement issued
under any Federal Supply Schedule contact, for an order or a Blanket
Purchase Agreement that is set-aside for EDWOSB or WOSB small business
under a Multiple Award Contract that is not itself set aside for EDWOSB
or WOSB small business or have a reserve for EDWOSB or WOSB small
business (or any EDWOSB or WOSB order where the contracting officer has
requested recertification of such status), an interested party must
submit its protest challenging the EDWOSB or WOSB status of a concern
for the order or Blanket Purchase Agreement by close of business on the
fifth business day after notification by the contracting officer of the
apparent successful offeror.
* * * * *
PART 134--RULES OF PROCEDURE GOVERNING CASES BEFORE THE OFFICE OF
HEARINGS AND APPEALS
0
62. The authority citation for part 134 continues to read as follows:
Authority: 5 U.S.C. 504; 15 U.S.C. 632, 634(b)(6), 634(i),
637(a), 648(l), 656(i), 657t, and 687(c); 38 U.S.C. 8127(f); E.O.
12549, 51 FR 6370, 3 CFR, 1986 Comp., p. 189.
Subpart J issued under 38 U.S.C. 8127(f)(8)(B).
Subpart K issued under 38 U.S.C. 8127(f)(8)(A).
0
63. Amend Sec. 134.318 by adding a paragraph heading to paragraph (a)
and revising paragraph (b) to read as follows:
Sec. 134.318 NAICS Appeals.
(a) General. * * *
(b) Effect of OHA's decision. If OHA grants the appeal (changes the
NAICS code), the contracting officer must amend the solicitation to
reflect the new NAICS code. The decision will also apply to future
solicitations for the same supplies or services.
* * * * *
Jovita Carranza,
Administrator.
[FR Doc. 2020-19428 Filed 10-15-20; 8:45 am]
BILLING CODE 8026-03-P
