Ownership and Control and Contractual Assistance Requirements for the 8(a) Business Development Program
| Citation | 88 FR 26164 |
| Published date | 27 April 2023 |
| Pages | 26164-26217 |
| FR Document | 2023-07855 |
| Section | Rules and Regulations |
| Issuer | Small Business Administration |
Federal Register, Volume 88 Issue 81 (Thursday, April 27, 2023)
[Federal Register Volume 88, Number 81 (Thursday, April 27, 2023)]
[Rules and Regulations]
[Pages 26164-26217]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-07855]
[[Page 26163]]
Vol. 88
Thursday,
No. 81
April 27, 2023
Part IVSmall Business Administration-----------------------------------------------------------------------13 CFR Parts 121, 124, 125, et al.Ownership and Control and Contractual Assistance Requirements for the
8(a) Business Development Program; Final Rule
Federal Register / Vol. 88, No. 81 / Thursday, April 27, 2023 / Rules
and Regulations
[[Page 26164]]
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SMALL BUSINESS ADMINISTRATION
13 CFR Parts 121, 124, 125, 126, 127, and 128
RIN 3245-AH70
Ownership and Control and Contractual Assistance Requirements for
the 8(a) Business Development Program
AGENCY: U.S. Small Business Administration.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: This final rule makes several changes to the ownership and
control requirements for the 8(a) Business Development (BD) program,
including recognizing a process for allowing a change of ownership for
a former Participant that is still performing one or more 8(a)
contracts and permitting an individual to own an applicant or
Participant where the individual can demonstrate that financial
obligations have been settled and discharged by the Federal Government.
The rule also makes several changes relating to 8(a) contracts,
including clarifying that a contracting officer cannot limit an 8(a)
competition to Participants having more than one certification and
clarifying the rules pertaining to issuing sole source 8(a) orders
under an 8(a) multiple award contract. The rule also makes several
other revisions to incorporate changes to SBA's other government
contracting programs, including changes to implement a statutory
amendment from the National Defense Authorization Act for Fiscal Year
2022, to include blanket purchase agreements in the list of contracting
vehicles that are covered by the definitions of consolidation and
bundling, and to more clearly specify the requirements relating to
waivers of the nonmanufacturer rule.
DATES: This rule is effective on May 30, 2023. It applies to all
solicitations issued on or after that date.
FOR FURTHER INFORMATION CONTACT: Mark Hagedorn, U.S. Small Business
Administration, Office of General Counsel, 409 Third Street SW,
Washington, DC 20416; (202) 205-7625; [email protected].
SUPPLEMENTARY INFORMATION: On September 9, 2022, SBA published in the
Federal Register a comprehensive proposal that primarily proposed
changes to the 8(a) Business Development (BD) program, but also
proposed changes to SBA's size regulations and SBA's other small
business contracting programs. 87 FR 55642. Specifically, the rule
proposed to make several changes to the ownership and control
requirements for the 8(a) BD program, including recognizing a process
for allowing a change of ownership for a former Participant that is
still performing one or more 8(a) contracts and permitting an
individual to own an applicant or Participant where the individual can
demonstrate that financial obligations have been settled and discharged
by the Federal Government, and to provisions relating to the award of
8(a) contracts, including clarifying that a contracting officer cannot
limit an 8(a) competition to Participants having more than one
certification and clarifying the rules pertaining to issuing sole
source 8(a) orders under an 8(a) multiple award contract. The rule also
proposed to make several other revisions to incorporate changes to
SBA's other government contracting programs, including changes to
implement a statutory amendment from the National Defense Authorization
Act for Fiscal Year 2022, to include blanket purchase agreements in the
list of contracting vehicles that are covered by the definitions of
consolidation and bundling, and to more clearly specify the
requirements relating to waivers of the nonmanufacturer rule.
Contemporaneously, on August 26, 2022, SBA also published a Notice in
the Federal Register announcing that SBA intended to conduct tribal
consultations and listening sessions relating to a proposal to require
a Community Benefits Plan laying out how a tribe, Alaska Native
Corporation (ANC) or Native Hawaiian Organization (NHO) that owned and
controlled one or more 8(a) BD Participants intended to give benefits
back to the Native community as a result of its 8(a) BD participation.
87 FR 52602. SBA held consultations in Anchorage, AK on September 14,
2022, in Albuquerque, NM on September 20, 2022, in Oklahoma City, OK on
September 22, 2022, and in Washington, DC on October 5, 2022. In
addition, SBA held a listening session on this topic in Honolulu, HI on
September 28, 2022. The tribal, ANC and NHO representatives
overwhelmingly opposed SBA imposing any target that a certain
percentage of an entity's 8(a) receipts should be distributed to
benefit the affected Native community or that there should be any
specific consequences if the benefit targets were not reached. They
believed that any such requirement infringed on self-determination and
tribal sovereignty, that the entity (tribe/ANC/NHO) is in the best
position to determine how and when to best reinvest in the 8(a)
Participant for long-term growth, and that the tribal members or ANC
shareholders, and not SBA, are the ones who determine what type of
benefits the tribe/ANC provides. SBA listened to the concerns voiced at
the tribal consultations. In response to those concerns, at the October
5, 2022, consultation in Washington, DC, SBA announced that the SBA
Administrator determined that this final rule would not change any
current requirements relating to Native community benefits. As such,
the proposed changes to Sec. 124.604 regarding the imposition of a
Community Benefits Plan are not included in this final rule. In
addition, the questions raised in the proposed rule and the August 26,
2022, Federal Register Notice regarding benefit targets or consequences
for failure to meet those targets are also not included in this final
rule.
During the proposed rule's 60-day comment period, SBA timely
received over 650 comments from 125 commenters, with a high percentage
of commenters favoring the proposed changes. A substantial number of
commenters applauded SBA's effort to clarify and address ambiguities
contained in the current rules. For the most part, the comments
supported the substantive changes proposed by SBA.
Section-By-Section Analysis
Section 121.103(h)
Section 121.103(h) sets forth the rules pertaining to affiliation
through joint ventures. SBA proposed to make several changes to this
section. SBA first proposed to take some of the language currently
contained in the introductory paragraph and add it to a new Sec.
121.103(h)(1) for ease of use. SBA believes that the current
introductory paragraph is overly complex and separating some of the
requirements into a separate subparagraph will be easier to understand
and use. In adding a new Sec. 121.103(h)(1), the proposed rule also
made corresponding numbering and cross reference adjustments. SBA
received no objections to these changes. As such, they are adopted as
final in this rule.
SBA's regulations currently provide that a specific joint venture
generally may not be awarded contracts beyond a two-year period,
starting from the date of the award of the first contract, without the
partners to the joint venture being deemed affiliated for the joint
venture. The proposed rule added a sentence to the introductory text of
Sec. 121.103(h) to capture SBA's current policy that allows orders to
be issued under previously awarded contracts
[[Page 26165]]
beyond the two-year period (since the restriction is on additional
contracts, not continued performance on contracts already awarded). All
comments that SBA received regarding this provision supported the
clarification pertaining to orders. As such, the final rule adopts the
clarification as proposed.
The proposed rule also sought to clarify SBA's distinct treatment
of populated and unpopulated joint ventures. The current regulation
provides that if a joint venture exists as a formal separate legal
entity, it may not be populated with individuals intended to perform
contracts awarded to the joint venture. The proposed rule clarified
that this requirement was meant to apply only to contracts set aside or
reserved for small business (i.e., small business set-aside, 8(a),
women-owned small business (WOSB), HUBZone, and service-disabled
veteran owned small business (SDVOSB) contracts). The proposed rule
clarified that a populated joint venture could be awarded a contract
set aside or reserved for small business where each of the partners to
the joint venture were similarly situated (e.g., both partners to a
joint venture seeking a HUBZone contract were certified HUBZone small
business concerns). Any time the size of a populated joint venture is
questioned, the proposed rule also clarified that SBA will aggregate
the revenues or employees of all partners to the joint venture.
Commenters supported the change to clarify that a populated joint
venture could be awarded a contract set aside or reserved for small
business where each of the partners to the joint venture were similarly
situated. Although several commenters agreed with the language in the
proposed rule aggregating the size of joint venture partners where a
joint venture is populated, two commenters recommended that populated
joint ventures should be permitted for set-aside contracts as long as
each party to the joint venture individually qualifies as small under
the size standard corresponding to the North American Classification
System (NAICS) code assigned to the contract and has any socioeconomic
designation that may be required for the contract (i.e., is similarly
situated). SBA disagrees. SBA has consistently stated its view that a
joint venture is not an on-going business entity, but rather something
that is formed for a limited purpose and duration. If two or more
separate business entities seek to join together through another entity
on a continuing, unlimited basis, SBA views that as a separate business
concern with each partner affiliated with each other. Where two or more
parties form a separate business entity (e.g., a limited liability
company or partnership) and populate that entity with employees
intended to perform work on behalf of that entity, SBA similarly views
that as an ongoing business entity and will aggregate the receipts/
employees of the parties that formed the separate business entity in
determining its size. SBA's joint venture regulations provide generally
that as long as each partner to the joint venture individually
qualifies as small under the NAICS code assigned to the contract, the
joint venture will qualify as small. However, that rule assumes that
each partner to the joint venture individually performs work under a
contract won by the joint venture with its own separate employees. That
is not the case where two or more parties form a separate legal entity,
populate that entity with employees, and intend to perform contracts
with the employees hired by that separate entity. As such, the final
rule adopts the language contained in the proposed rule that where two
parties form a populated joint venture, the joint venture will qualify
as small only where the parties to the joint venture meet the
applicable size standard in the aggregate.
In addition, the proposed rule revised the ostensible subcontractor
rule in redesignated Sec. 121.103(h)(3) in two ways. First, it
clarified how the ostensible subcontractor rule should apply to general
construction contracts. Second, it proposed to add factors to consider
in determining whether a specific subcontractor should be considered an
ostensible subcontractor to comport with recent decisions of SBA's
Office of Hearings and Appeals (OHA).
The proposed rule clarified that the primary role of a prime
contractor in a general construction project is to oversee and
superintend, manage, and schedule the work, including coordinating the
work of various subcontractors. Those are the functions that are the
primary and vital requirements of a general construction contract and
ones that a prime contractor must perform. Although the prime
contractor for a general construction contract must meet the limitation
on subcontracting requirement set forth in Sec. 125.6(a)(3), SBA
recognizes that subcontractors often perform the majority of the actual
construction work because the prime contractor frequently must engage
multiple subcontractors specializing in a variety of trades and
disciplines. As such, SBA believes that the ostensible subcontractor
rule for general construction contracts should be applied to the
management and oversight of the project, not to the actual construction
or specialty trade construction work performed. The prime contractor
must retain management of the contract but may delegate a large portion
of the actual construction work to its subcontractors. SBA received 17
comments regarding the proposed clarification to the ostensible
subcontractor rule for general construction contracts. All 17 comments
supported the clarification. A few commenters suggested adding the word
``supervise'' and to specifically identify that one of the primary
functions of a general construction prime contractor is to coordinate
the work of subcontractors. Although SBA does not see a real
distinction between oversight and supervision, the final rule
nevertheless adds supervision as a primary and vital requirement as
well as adding the coordination of subcontractor work. One commenter
recommended adding more specificity as to what managing the contract
entails. SBA believes that a general requirement to supervise, oversee,
manage, and schedule the work on a contract, including coordinating the
work of various subcontractors, is sufficient. SBA is concerned that
adding any specificity beyond that or highlighting one or two specific
items of managing a contract might be read as SBA believing those one
or two items are more important in the analysis than any others. That
is not SBA's intent, and SBA believes that an SBA Size Specialist
should have discretion to analyze all the facts in determining whether
an arrangement rises to the level of an ostensible subcontractor.
One commenter noted that the proposed rule also amended Sec.
126.401(d) to provide that SBA will find that a prime HUBZone
contractor is performing the primary and vital requirements of the
contract or order and is not unduly reliant on one or more
subcontractors that are not HUBZone-certified, where the prime
contractor can demonstrate that it, together with any subcontractors
that are certified HUBZone small business concerns, will meet the
limitations on subcontracting provisions. The commenter sought
clarification of that provision in light of the proposed language
relating to general construction contractors. Specifically, the
commenter believed the two provisions might conflict because a general
contractor could perform 15 percent of a construction contract but
still be unduly reliant on a
[[Page 26166]]
large business for the supervision and oversight of the contract. SBA
agrees. For a services, specialty trade construction, or supply
contract or order, SBA believes that meeting the applicable limitation
on subcontracting requirement is sufficient to overcome any claim of
the existence of an ostensible subcontractor. However, as the commenter
noted, for a general construction contract a prime contractor could
conceivably perform 15 percent of the contract but subcontract out all
the supervision and oversight responsibilities to another business
entity. If that business entity is not a similarly situated entity,
that subcontracting could render the prime contractor ineligible due to
the ostensible subcontractor rule. The final rule amends Sec.
121.103(h)(3) to clarify the distinction between meeting the limitation
on subcontracting for contracts or orders for services, specialty trade
construction or supplies and those for general construction. To ensure
consistency between the various programs, the final rule also makes
similar changes to Sec. 126.601(d) for the HUBZone program, to Sec.
127.504(g) for the WOSB program, and to Sec. 128.401(g) for the SDVO
program.
SBA further proposed to revise the ostensible subcontractor rule in
light of the decision of SBA's Office of Hearings and Appeals (OHA) in
Size Appeal of DoverStaffing, Inc., SBA No. SIZ-5300 (2011). In that
decision, OHA created a four-factor test to indicate when a prime
contractor's relationship with a subcontractor is suggestive of unusual
reliance under the ostensible subcontractor rule. The four factors are
(1) the proposed subcontractor is the incumbent contractor and
ineligible to compete for the procurement, (2) the prime contractor
plans to hire the large majority of its workforce from the
subcontractor, (3) the prime contractor's proposed management
previously served with the subcontractor on the incumbent contract, and
(4) the prime contractor lacks relevant experience and must rely upon
its more experienced subcontractor to win the contract. Under OHA's
decisions, when these factors are present, violation of the ostensible
subcontractor rule is more likely to be found if the subcontractor will
perform 40% or more of the contract. SBA proposed to add two of these
four factors to the ostensible subcontractor rule: the reliance on
incumbent management and the reliance on the subcontractor's
experience. SBA did not include plans to hire a large majority of its
intended workforce on a contract from the incumbent contractor as a
factor because a successful concern is often required to offer to
qualified employees of a predecessor contract the right of first
refusal on a subsequent contract, and must hire such individuals if
they so opt. Because of this and other practical reasons, it is common
for the same individuals to work for multiple different business
concerns over time while performing the same function on follow-on
contracts.
SBA received comments on both sides of this issue, with seven
commenters agreeing with including the identified Doverstaffing factors
and nine commenters opposing their inclusion. Those opposing the
inclusion of these factors into the regulations highlighted that
leveraging the experience of a subcontractor is a tool needed to assist
a small business gain experience necessary to compete and win work.
They believed that reliance on a subcontractor's experience alone
should never result in a finding of an ostensible subcontractor. One
commenter argued that as long as the new prime contractor is meeting
the limitation on subcontracting requirement, SBA should not care who
the subcontractor is. Another commenter believed that it should not
matter whether a subcontractor previously performed the requirement or
was the incumbent contractor, and that all that should be looked at is
determining whether a subcontractor is performing primary and vital
requirements of the contract. One commenter similarly argued that
whether the prime contractor's proposed management previously served
with the subcontractor on the incumbent contract is also irrelevant.
The commenter believed that as long as those individuals are now
employed by and under the control of the prime contractor, that should
not negatively affect whether the subcontractor is an ostensible
subcontractor. Even three of the commenters who favored adding the two
identified factors to regulatory text believed that identifying factors
to consider was appropriate as long as SBA did not apply any
mechanically. SBA agrees that the ultimate determination in every case
depends upon who is performing the primary and vital requirements of a
contract or order and whether a prime contractor is unusually reliant
on a subcontractor. SBA also agrees that no factor is determinative and
that a prime contractor should be able to use the experience and past
performance of its subcontractors to strengthen its offer, even where a
subcontractor is the incumbent contractor. As with the existing rule,
SBA intends to consider all aspects of the prime contractor's
relationship with the subcontractor and would not limit its inquiry to
any enumerated factors. SBA continues to believe that the SBA Area
Offices should be given discretion to consider and weigh all factors in
rendering a formal size determination, and that unique circumstances
could lead to a result that does not fully align with the DoverStaffing
analysis. That being said, SBA believes that identifying factors that
can be considered is helpful to contractors. As such, the final rule
retains factors that SBA may consider but adds a provision identifying
that no single factor is determinative. The final rules also
specifically clarifies that a prime contractor may use the experience
and past performance of a subcontractor to enhance or strengthen its
offer, including that of an incumbent contractor. It also reenforces
that it is only where that subcontractor will perform primary and vital
requirements of a contract or order, or where the prime contractor is
unusually reliant on the subcontractor, that SBA will find the
subcontractor to be an ostensible subcontractor.
One commenter requested that SBA clarify that the ostensible
subcontractor rule does not apply to similarly-situated entities. SBA
believes that is unnecessary as the current rule already specifies that
an ``ostensible subcontractor is a subcontractor that is not a
similarly situated entity'' and that language has been retained in this
final rule.
One commenter also questioned whether the ostensible subcontractor
rule applied to contracts below the Simplified Acquisition Threshold
(SAT). SBA notes that the limitations on subcontracting requirements do
not apply to small business acquisitions with an estimated value
between the micro-purchase threshold and the simplified acquisition
threshold. See 13 CFR 121.406(c). That being the case, a small business
can subcontract to any business for such contracts and it does not
matter who is performing the primary and vital functions of the
contract. Although SBA believes that can be inferred from the current
regulatory language, the final rule adds clarifying language to Sec.
121.406(c) to eliminate any confusion.
Finally, the proposed rule revised redesignated Sec. 121.103(h)(4)
to clarify how receipts are to be counted where a joint venture hires
individuals to perform one or more specific contracts (i.e., where the
joint venture is populated). Although SBA requires joint ventures to be
unpopulated for purposes of performing set-aside contracts in order to
properly track work performed
[[Page 26167]]
and benefits derived by the lead small/8(a)/HUBZone/WOSB/SDVOSB entity
to the joint venture, some joint ventures are nevertheless populated
for other purposes. Generally, the appropriate share of a joint
venture's revenues that a partner to the joint venture must include in
its own revenues is the same percentage as the joint venture partner's
share of the work performed by the joint venture. However, that general
rule cannot apply to populated joint ventures. Where a joint venture is
populated, each individual partner to the joint venture does not
perform any percentage of the contract--the joint venture entity itself
performs the work. As such, revenues cannot be divided according to the
same percentage as work performed because to do so would give each
partner $0 corresponding to the 0% of the work performed by the
individual partner. In such a case, SBA believes that revenues must be
divided according to the same percentage as the joint venture partner's
percentage ownership share in the joint venture. The proposed rule
specifically incorporated into redesignated Sec. 121.103(h)(4) SBA's
belief that revenues should be divided by ownership interest. Comments
supported this clarification, and SBA adopts the proposed language in
the final rule.
In connection with the comments relating to the proposed changes to
Sec. 121.103, SBA also received comments seeking clarification to the
joint venture provisions in Sec. 125.8. Specifically, several
commenters recommended that SBA provide further guidance regarding what
decisions non-managing partners to the joint venture can participate
in. The regulations provide that the managing venturer must control all
aspects of the day-to-day management and administration of the
contractual performance of the joint venture, and that other partners
to the joint venture may participate in all corporate governance
activities and decisions of the joint venture as is commercially
customary. One commenter recommended that SBA add language providing
that a non-managing joint venture partner could participate in
decisions that were customary for joint ventures outside of the small
business Government contracting environment. SBA believes that is
unnecessary as it does not add anything substantively different from
the current regulatory language. Another commenter recommended that SBA
specifically include in the regulation instances in which a non-
managing joint venture partner's concurrence could be required and
identified the ability of the joint venture to initiate litigation on
behalf of the joint venture as such an instance. As previously noted,
the managing joint venture partner must independently control all
aspects of the day-to-day management and administration of the
contractual performance of the joint venture. SBA believes that
initiating contract litigation is outside the scope of the management
of daily contractual performance and instead represents a decision that
reasonably falls into the exception that allows other joint venture
partners to participate in commercially customary decisions. A joint
venture is a mutual agreement between joint venture partners to combine
resources for a specific contract or contracts, and litigation is
sometimes required to protect those resources. Litigation on behalf of
the joint venture is a decision that carries significant risk for both
partners and as a result, it is unreasonable and outside the bounds of
customary commercial practices to limit that decision to only one
partner. Similarly, SBA believes that requiring the concurrence of a
non-managing joint venture partner in deciding what contract
opportunities the joint venture should seek is also something that
would be commercially customary. The partners to a joint venture have
formed a joint venture in order to seek contract opportunities. Since
the parties will be jointly and severally liable for any contracts
awarded to the joint venture, it makes sense that all parties to the
joint venture should have a say in what opportunities the joint venture
pursues. The final rule adds language specifying that a non-managing
venturer's approval may be required in determining what contract
opportunities the joint venture should seek and in initiating
litigation on behalf of the joint venture. That addition is not meant
to be the only decisions in which a non-managing member may participate
but is merely illustrative of corporate governance activities and
decisions of the joint venture that SBA believes non-managing venturer
participation is commercially customary.
Another commenter also sought clarification to a perceived
inconsistency in the regulations between Sec. 125.8(b)(2)(xii) and
Sec. 125.8(h)(2). Paragraph 125.8(b)(2)(xii) provides that a joint
venture must submit a project-end performance-of-work report to SBA and
the relevant contracting officer no later than 90 days after completion
of the contract. Paragraph (h)(2) provides that at the completion of
every contract set aside or reserved for small business that is awarded
to a joint venture between a prot[eacute]g[eacute] small business and
its SBA-approved mentor, and upon request by SBA or the relevant
contracting officer, the small business partner to the joint venture
must submit a report to the relevant contracting officer and to SBA.
The commenter believed that Sec. 125.8(b)(2)(xii) required a
performance-of-work report at contract completion while Sec.
125.8(h)(2) stated that such a report must be submitted only when
requested by SBA or the contracting officer. The commenter
misunderstood SBA's intent in Sec. 125.8(h)(2). That provision meant
to require the submission of a performance-of-work report in two
instances: first, always at the completion of the contract; and second,
whenever requested to do so by SBA or the contracting officer prior to
completion of the contract. In order to eliminate any confusion, the
final rule adds clarifying language to Sec. 125.8(h)(2).
Section 121.103(i)
The proposed rule put back into the regulations a paragraph
pertaining to affiliation based on franchise and license agreements.
This provision was inadvertently deleted from Sec. 121.103 when SBA
deleted other provisions of Sec. 121.103 in its October 2020
rulemaking. The proposed rule merely added back into the regulations
the provision that was inadvertently removed. Several commenters
supported adding this provision back into the regulations and no
comments opposed. As such, SBA the final rule adopts adding this
provision back into the regulations.
Section 121.404
SBA proposed to clarify Sec. 121.404(a)(1)(iv), which provides
that size is determined for a multiple award contract at the time of
initial offer on the contract even if the initial offer might not
include price. The proposed clarification intended to treat orders
issued pursuant to a multiple award contract that did not itself
include price similarly to orders under multiple award contracts
generally. SBA believes there is no justification for treating orders
issued on these contracts differently, simply because the contract did
not require price with initial offer. Thus, size for set-aside orders
will be determined in accordance with subparagraphs (a)(1)(i)(A),
(a)(1)(i)(B), (a)(1)(ii)(A), or (a)(1)(ii)(B), as appropriate, which
means that for orders issued under any set-aside contract, size will be
determined at the time of offer for the multiple award contract and not
at the time of each
[[Page 26168]]
individual order unless a contracting officer requests size
recertification with respect to an individual order.
SBA received comments both supporting and opposing this
clarification. Commenters generally agreed that orders for multiple
award contracts should be treated similarly whether offers included
price for the underlying multiple award contract itself. Several
commenters, however, repeated previous concerns raised with SBA
regarding the amendments to Sec. 121.404 that were made in 2020.
Section 121.404 states that where an order under an unrestricted
multiple award contract is set-aside exclusively for small business
(i.e., small business, 8(a) small business, service-disabled veteran-
owned small business, HUBZone small business, or women-owned small
business), a concern must recertify its size status and qualify as a
small business at the time it submits its initial offer, which includes
price, for the particular order. Although the proposed rule did not
seek to change that provision, several commenters voiced the view that
that provision should not apply to previously awarded multiple award
contracts.
A firm's status as a small business does not generally affect
whether the firm does or does not qualify for the award of an
unrestricted multiple award contract. As such, competitors are very
unlikely to protest the size of a concern that self-certifies as small
for an unrestricted multiple award contract. In SBA's view, when a
contracting officer sets aside an order for small business under an
unrestricted multiple award contract, the order is the first time that
size status is important because competition is being limited under the
contract. That is the first time that some firms will be eligible to
compete for the order while others will be excluded from competition
because of their size status. SBA never intended to allow a firm's
self-certification for the underlying unrestricted multiple award
contract to control whether a firm is small at the time of an order is
set-aside for small business years after the multiple award contract
was awarded. These few commenters believed that SBA attempted to
retroactively change the rules pertaining to previously awarded
unrestricted multiple award contracts. SBA disagrees. Small business
set-aside orders under unrestricted vehicles are completely
discretionary. When a contracting officer exercises this discretion,
Federal Acquisition Regulation (FAR, Title 48 of the Code of Federal
Regulations) Part 19 and SBA rules apply and change the eligibility
requirements of the contract for that order. For example, the
contractor must comply with the applicable limitations on
subcontracting for that order (whereas the limitations on
subcontracting do not generally apply to unrestricted contracts). When
a procuring agency for the first time decides to set aside a specific
order under an unrestricted multiple award contract for small business,
the agency is making an exception to the fair opportunity regularly
provided to all the contract holders to be considered for each order
under the unrestricted contract. Thus, it follows that a business
concern must qualify as small for an order set aside for small business
under SBA's regulations in effect at the time of the order to ensure
that the exception is applied appropriately at the order level because
being a small business concern was not a requirement for any awardees
under the unrestricted contract and verifying awardees' size status was
not prerequisite to awarding the unrestricted contract. Moreover, the
applicable size standard for any specific order set-aside for small
business would be the one currently codified in SBA's regulations (not
the one that was in effect at the time the underlying multiple award
contract was awarded). All firms that self-certified as small for the
underlying multiple award contract will continue to be considered to be
small businesses for goaling purposes for all orders issued under the
multiple award contract on an unrestricted basis.
SBA also proposed to clarify when size recertification is required
in connection with a sale or acquisition. In 2016, SBA amended its
regulation regarding recertification of size to add the word ``sale''
in addition to mergers and acquisitions as an instance when
recertification is required. See 81 FR 34243, 34259 (May 31, 2016).
Since that time, some have questioned whether recertification of size
status may be required whenever any sale of stock occurs, even de
minimis amounts. That was not SBA's intent. Recertification is required
whenever there is a merger. However, recertification in connection with
a ``sale'' or ``acquisition'' is required only where the sale or
acquisition results in a change in control or negative control of the
concern. Recertification is not required where small sales or
acquisitions of stock that do not appear to affect the control of the
selling or acquiring firm occur. The proposed rule added language to
clarify SBA's current intent. The comments supported this
clarification, and SBA adopts the proposed language in this final rule.
The proposed rule also clarified the recertification requirements
set forth in Sec. 121.404(g) for joint ventures. Specifically, the
proposed rule added a new Sec. 121.404(g)(6) which set forth the
general rule that a joint venture can recertify its status as a small
business where all parties to the joint venture qualify as small at the
time of recertification, or the prot[eacute]g[eacute] small business in
a still active mentor-prot[eacute]g[eacute] joint venture qualifies as
small at the time of recertification. The proposed rule also clarified
that the two-year limitation on contract awards to joint ventures set
forth in Sec. 121.103(h) does not apply to recertification. In other
words, recertification is not a new contract award, and thus can occur
even if its timing is more than two years after the joint venture
received its first contract. Commenters supported both of those
clarifications. As such, SBA adopts them as final.
Sections 121.404(a)(1)(i)(B), 121.404(a)(1)(ii)(B), 124.501(h), and
124.502(a)
Sections 121.404(a)(1)(i)(B) and 121.404(a)(1)(ii)(B) provide
generally that a business concern that qualifies as small at the time
of an offer for a multiple award contract that is set aside or reserved
for the 8(a) BD program will be deemed a small business for each order
issued against the contract, unless a contracting officer requests a
size recertification for a specific order. However, for sole source
8(a) orders issued under a multiple award contract set-aside for
exclusive competition among 8(a) Participants, Sec. 124.503(i)(1)(iv)
requires an agency to offer and SBA to accept the order into the 8(a)
program on behalf of the identified 8(a) contract holder. As part of
the offer and acceptance process, SBA must determine that a concern is
currently an eligible Participant in the 8(a) BD program at the time of
award. See Sec. 124.501(h). The proposed rule clarified that because
size is something SBA looks at in making an eligibility determination
in accepting a sole source offering, a Participant must currently
qualify as a small business for any sole source award in addition to
currently being a Participant in the program (i.e., firms that have
graduated from or otherwise left the 8(a) BD program are not eligible
for any 8(a) sole source award). The proposed rule amended Sec. Sec.
121.404(a)(1)(i)(B), 121.404(a)(1)(ii)(B), 124.501(h), and 124.502(a)
to clarify that position. Although a few commenters opposed this
clarification, the majority of commenters supported it. It has always
been SBA's interpretation of its statutory authority that a firm must
be an eligible Participant on the date of any
[[Page 26169]]
8(a) sole source award. As noted, an eligibility determination includes
size. As such, the final rule adopts the language proposed that a
Participant must currently qualify as a small business for any sole
source award.
Section 121.411(c)
The proposed rule corrected an inconsistency between Sec.
121.411(c) and Sec. 125.3(c)(1)(viii). In requiring a prime contractor
to notify unsuccessful small business offerors of the apparent
successful offeror on subcontracts, Sec. 125.3(c)(1)(viii) provides
that a prime contractor must provide pre-award written notification to
unsuccessful small business offerors on all subcontracts over the
simplified acquisition threshold, while Sec. 121.411(c) requires a
prime contractor to inform each unsuccessful subcontract offeror in
connection with any competitive subcontract. The proposed rule added
the over the simplified acquisition threshold condition to Sec.
121.411(c) and adjusted the language in Sec. 125.3(c)(1)(viii) to make
the two provisions consistent. SBA received three comments regarding
this provision. All three supported SBA's proposal to resolve the
inconsistency in the regulations. As such, SBA adopts the proposed
language in this final rule.
Section 121.413
Section 121.413 is currently a Reserved section, with no text. This
final rule merely removes Sec. 121.413 entirely. Section 121.401
currently refers to the rules set forth Sec. Sec. 121.401 through
121.413. With the elimination of Sec. 121.413, the final rule also
amends this reference to instead refer to the rules set forth in
Sec. Sec. 121.401 through 121.412.
Sections 121.506 and 121.507
The Small Business Timber Set-Aside Program establishes small
business set-aside sales of sawtimber from the federal forests managed
by the U.S. Department of Agriculture's Forest Service and the U.S.
Department of the Interior's Bureau of Land Management. Current
regulations require that a small business concern cannot resell or
exchange more than 30% of the sawtimber volume to ``other than small''
businesses. SBA regulations do not address situations where a small
business concern is unable to meet the 30% requirement due to
circumstances outside of its control such as natural disasters,
national emergencies, or other extenuating circumstances.
As proposed, SBA added Sec. 121.507(d) to allow the SBA's Director
of Government Contracting (D/GC) to grant a waiver in limited
circumstances when a small business is unable to meet the 30%
requirement due to circumstances out of its control. SBA sought
comments on the following: whether a waiver is needed; if it is needed,
under what circumstances should a waiver be granted; whether SBA should
allow partial waivers (i.e., for some but not all of the 30/70
requirement); and how SBA should evaluate a waiver request.
SBA received ten comments on the proposed rule with five supporting
the proposed amendment and five opposing it. Commenters in opposition
focused on the importance of the 30/70 requirement to ensure access to
timber for small businesses and expressed concern that the waiver could
weaken the program. While generally in opposition to the waiver, two of
the five comments suggested that if SBA were to finalize the proposed
amendment, a waiver request must meet a set of strict criteria to
ensure that all avenues for compliance have been exhausted. SBA
recognizes that the 30/70 requirement is an integral part of the Small
Business Timber Set-Aside Program and is committed to a full and fair
implementation of the program. SBA does not intend to weaken the
requirement with this amendment, it merely establishes the D/GC's
authority to approve a waiver in limited circumstances when justified.
Historically, SBA has granted few waivers and only in extremely rare
circumstances. Due to that rarity, SBA has no internal procedure to
process requests or established criteria to evaluate and approve
waivers when needed. This amendment gives SBA the opportunity to set
procedure and criteria for processing waiver requests in the future.
SBA will continue to apply a strict standard and does not intend to
grant a waiver in circumstances of inconvenience, changes in market
value, ignorance of contract requirements, or unsupported claims of
changed conditions. Accordingly, SBA implements the Sec. 121.507(d) as
proposed.
SBA also received comments that urged the agency to amend
regulations to reflect the revised terms of the Memorandum of
Understanding (MOU) signed by SBA and Forest Service (FS) in 2020. With
the updated terms of the MOU, SBA and FS agreed to revise the
computation of market share to include timber volume sold under
Stewardship Integrated Resource Timber Contracts. To date, SBA has not
amended its regulations to reflect the revised agreed upon computation
of market share. The commenter recommended that SBA's regulations
should be updated to merely include the policy included in the MOU
agreed upon by SBA and FS to ensure that that policy is consistently
applied and to avoid any confusion regarding the policy. SBA agrees and
adopts this comment.
The MOU governs timber sales by FS under the Small Business Timber
Set-Aside Program and establishes guidelines for determining ``fair
proportion,'' sets a five-year re-computation period for determining
the base average shares of timber purchases and establishes a
``trigger'' mechanism for initiating set-aside timber sales. In 2016,
SBA proposed a change to regulations that included both Integrated
Resource Timber Contracts and Integrated Services Timber Contracts in
the small business market share calculation. (81 FR 66199). Although
SBA received comments supporting the amendment, it did not become final
due to ongoing negotiations with FS on the updated MOU. Ultimately, the
MOU included only Integrated Resource Timber Contracts in the small
business market share calculation. To reflect the 2020 update to the
MOU, SBA amends its regulations at Sec. 121.506 to add relevant
definitions and adds Sec. 121.507(e) to include Integrated Resource
Timber Contracts in the small business market share calculation.
Section 121.702
Section 121.702 sets forth the size and eligibility standards that
apply to the Small Business Innovation Research (SBIR) and Small
Business Technology Transfer (STTR) programs. Paragraph (c)(7) provides
guidance relating to the ostensible subcontractor rule in the SBIR/STTR
programs. That rule treats a prime contractor and its subcontractor or
subgrantee as joint venturers when a subcontractor or subgrantee
performs primary and vital requirements of an SBIR or STTR funding
agreement. The proposed rule clarified that when an SBIR/STTR offeror
is determined to be a joint venturer with its ostensible subcontractor,
all rules applicable to joint ventures apply. This means that SBA will
apply Sec. 121.702(a)(1)(iii) or Sec. 121.702(b)(1)(ii), which
contains the ownership and control requirements for SBIR/STTR joint
ventures. This clarification is consistent with how SBA treats entities
that are determined to be joint venturers with an ostensible
subcontractor for other small business program set-asides. SBA received
five comments in response to this clarification. All five supported the
change. The commenters felt that if SBA determines that a subcontractor
really is a joint venture partner because it is
[[Page 26170]]
performing primary and vital aspects of the requirement, it makes sense
that all requirements that apply to joint ventures generally would
apply to the relationship deemed in effect to be a joint venture. SBA
adopts the proposed language in this final rule.
Section 121.702(c) relates to size and affiliation for the SBIR/
STTR programs. Some of the exceptions to affiliation that are
applicable to the SBIR/STTR programs are listed in Sec. 121.702(c).
However, others are listed in the general exceptions to size
affiliation that are located in section 121.103(b). Currently, there is
an exception to affiliation noted in Sec. 121.103(b)(1) for business
concerns owned in whole or substantial part by Small Business
Investment Companies (SBICs) licensed under the Small Business
Investment Act of 1958, as amended. Pursuant to Sec. 121.103(b)(8),
this exception applies to entities awarded SBIR or STTR contracts or
grants that are wholly or substantially owned by SBICs. SBA received a
comment recommending that SBA specifically clarify that the exception
applies to the SBIR/STTR programs. In response, the final rule
clarifies this longstanding exception to affiliation and its
applicability to the SBIR/STTR programs by specifically referencing the
exception at Sec. 121.103(b)(1) in a new Sec. 121.702(c)(11).
Section 121.1001
Section 121.1001 identifies who may initiate a size protest or
request a formal size determination in any circumstances. Currently,
the language identifying who may protest the size of an apparent
successful offeror is not identical for all of SBA's programs. For
small business set-aside contracts and competitive 8(a) contracts, any
offeror that the contracting officer has not eliminated from
consideration for any procurement-related reason may initiate a size
protest. For contracts set aside for WOSBs or SDVOSBs, any concern that
submits an offer may initiate a size protest. For contracts set aside
for certified HUBZone small business concerns, any concern that submits
an offer and has not been eliminated for reasons unrelated to size may
submit a size protest. SBA believes that making the language for all
programs identical will remove any confusion and provide more
consistent implementation of the size protest procedures. The proposed
rule adopted the language currently pertaining to small business set-
asides and competitive 8(a) contracts to all of SBA's programs. Thus,
any offeror that the contracting officer has not eliminated from
consideration for any procurement-related reason could initiate a size
protest in each of those programs. SBA received ten comments on this
change. All commenters supported making the protest language for all
SBA small business programs identical. As such the final rule make
conforming changes in Sec. 121.1001(a)(6)(i) for the HUBZone program,
in Sec. 121.1001(a)(8)(i) for the SDVO program, and in Sec.
121.1001(a)(9)(i) for the WOSB program.
With respect to 8(a) contracts, Sec. 121.1001(a)(2) identifies
interested parties who may protest the size status of an apparent
successful offeror for an 8(a) competitive contract, and Sec.
121.1001(b)(2)(ii) identifies those who can request a formal size
determination with respect to a sole source 8(a) contract award.
Pursuant to Sec. 124.501(g), before a Participant may be awarded
either a sole source or competitive 8(a) contract, SBA must determine
that the Participant is eligible for award. SBA will determine
eligibility at the time of its acceptance of the underlying requirement
into the 8(a) BD program for a sole source 8(a) contract, and after the
apparent successful offeror is identified for a competitive 8(a)
contract. For a sole source contract, if SBA determines a Participant
to be ineligible because SBA believes the concern to be other than
small, Sec. 121.1001(b)(2)(ii) authorizes the Participant determined
to be ineligible to request a formal size determination. However, Sec.
121.1001(b)(2)(ii) does not currently authorize a Participant
determined to be ineligible based on size to request a formal size
determination in connection with a competitive 8(a) contract award. SBA
does not believe that the protest authority of Sec. 121.1001(a)(2) was
meant to apply to this situation since protests normally relate to
another firm challenging the small business status of the apparent
successful offeror, not the apparent successful offeror challenging its
own size status. The proposed rule provided specific authority to allow
a firm determined to be ineligible for a competitive 8(a) award based
on size to request a formal size determination. It also authorized the
contracting officer, the SBA District Director in the district office
that services the Participant, the Associate Administrator for Business
Development, and the SBA's Associate General Counsel for Procurement
Law to do so as well. SBA received four comments supporting this
change. Without any opposing comments, SBA adopts the language as
proposed.
Sections 121.1004(a)(ii), 126.801(d)(2)(i), and 127.603(c)(2)
In the context of a sealed bid procurement, SBA's regulations
provide that an interested party must protest the size or socioeconomic
status (i.e., service-disabled veteran-owned small business (SDVOSB),
HUBZone or women-owned small business (WOSB)/economically-disadvantaged
women-owned small business (EDWOSB)) of the low bidder prior to the
close of business on the fifth business day after bid opening. However,
the regulations do not specifically take into account the situation
where a low bidder is timely protested and found to be ineligible, the
procuring agency identifies another low bidder, and an interested party
seeks to challenge the size or socioeconomic status of the newly
identified low bidder. In such a situation, the new low bidder is
identified well beyond five days of bid opening. As such, it is
impossible for an interested party to file a timely protest (i.e., one
within five days of bid opening). It was not SBA's intent to disallow
size protests in these circumstances. SBA believes that a protest in
these circumstances should be deemed timely if it is received within
five days of notification of the new low bidder. The proposed rule
specifically provided that where the identified low bidder is
determined to be ineligible for award, a protest of any other
identified low bidder would be deemed timely if received within five
business days after the contracting officer has notified the protestor
of the identity of that new low bidder. Eight commenters supported this
change, noting that the change was needed in order to preserve protests
rights when an initial low bidder ultimately does not receive the
award. SBA adopts the proposed provision in this final rule.
The final rule makes this change in Sec. 121.1004(a)(ii) for size
protests, in Sec. 126.801(d)(2)(i) for protests relating to HUBZone
status, and in Sec. 127.603(c)(2) for protests relating to WOSB or
EDWOSB status. Although the proposed rule also amended Sec.
125.28(d)(2) for protests relating to SDVO status, this final rule does
not amend provisions relating to the timeliness of SDVO status protests
because SBA included the same provision in the final rule implementing
the Veteran Small Business Certification Program and is already
contained in Sec. 134.1004(a)(4) of SBA's regulations. See 87 FR 73400
(Nov. 29, 2022).
Section 121.1004
The proposed rule added Sec. 121.1004(f) to specify that size
protests may be filed only against an apparent
[[Page 26171]]
successful offeror (or offerors) or an offeror in line to receive an
award. SBA will not consider size protests relating to offerors who are
not in line for award. This is the current SBA policy, and the proposed
rule merely provided additional clarity to Sec. 121.1004(e), which
specifies that premature protests will be dismissed. SBA received three
comments, all supporting this clarification. The final rule adopts the
proposed language.
Where an agency decides to reevaluate offers as a corrective action
in response to a protest at the Government Accountability Office (GAO),
the proposed rule added a new Sec. 121.1004(g) providing that SBA
would dismiss any size protest relating to the initial apparent
successful offeror. When offerors are made aware of the new or same
apparent successful offeror after reevaluation, the proposed rule
authorized them to again have the opportunity to protest the size of
the apparent successful offeror within five business days after such
notification. One commenter agreed with proposed Sec. 121.1004(g) as
written, and one commenter agreed with the intent of the proposal but
sought further clarification. That commenter first recommended that all
protests under FAR subpart 33.1 should be treated similarly, meaning
that the same consequences should result where there is an agency level
protest, a protest at GAO or a case filed regarding the affected
procurement at the Court of Federal Claims. SBA agrees and has made
that clarification in the final rule both here and in Sec. 121.1009.
Additionally, the commenter recommended that the regulation allow a
procuring agency to request that a size determination be completed, and
for SBA in its discretion to process the size protest, despite
corrective actions. It is SBA's policy that with respect to a specific
contract, SBA will generally process size protests relating only to the
apparent successful offeror. Where a corrective action could cause a
procuring agency to change who it selects as the apparent successful
offeror, SBA would not agree to continue to process a size protest
relating to the initially identified apparent successful offeror.
Nevertheless, if a procuring agency can demonstrate that the corrective
action would not result in a change in the apparent successful offeror,
SBA believes that it could continue to process the size protest. The
final rule adds language providing that SBA will complete the size
determination where the procuring agency makes a written request to SBA
within two business days of the agency informing SBA of the corrective
action and demonstrates that the corrective action will not result in a
change of the apparent successful offeror. SBA will not, however,
continue to process a size protest where the size protest involves size
issues that are determined as of the date of final proposal revision
per Sec. 121.404(d).
Section 121.1009
Section 121.1009 details the procedures SBA's Government
Contracting Area Offices use in making formal size determinations.
Paragraph 121.1009(a)(1) provides that the Area Office will generally
issue a formal size determination within 15 business days after receipt
of a protest or a request for a formal size determination. As noted
above, with respect to a specific contract, SBA will generally process
size protests relating only to the apparent successful offeror. SBA
sometimes receives a size protest where the award is simultaneously
being protested at the GAO. Where this happens, SBA suspends processing
the size protest pending the outcome of the GAO decision since that
decision may require corrective action which could affect the apparent
successful offeror. Although that has been SBA's policy in practice, it
is not specifically set forth in SBA's regulations. The proposed rule
incorporated that policy, providing that if a protest is pending before
GAO, the SBA Area Office will suspend the size determination case. Once
GAO issues a decision, the proposed rule noted that the Area Office
will recommence the size determination process and issue a formal size
determination within 15 business days of the GAO decision, if possible.
Similar to the comment in response to proposed Sec. 121.1004(g), one
commenter believed that if SBA is going to suspend processing a size
protest pending the outcome of a GAO protest, the same should be done
for agency level protests and cases filed with the Court of Federal
Claims relating to the affected procurement. The commenter also
recommended that if the bid protest is not resolved within 40 days, the
SBA Area Office should resume consideration of the size protest and
issue a formal size determination within 15 business days thereafter,
if possible. SBA disagrees with this recommendation. Again, SBA's
policy is to process size protests only regarding firms that are in
line for award (i.e., for firms that have been selected as the apparent
successful offerors). If the apparent successful offeror could change
in light of the FAR subpart 33.1 protest, it does not make sense to SBA
to recommence processing a size protest regarding the firm initially
determined to be the apparent successful offeror, regardless of the
amount of time that has passed since the FAR subpart 33.1 protest was
filed. As such, the final rule amends the language to clarify that SBA
will suspend processing a size protest whenever a FAR subpart 33.1
protest is filed regarding the same procurement, but does not adopt the
recommendation that SBA restart processing the protest if a certain
amount of time passes. If the FAR subpart 33.1 decision does not change
the apparent successful offeror, SBA will generally issue a formal size
determination within 15 business days of the decision. If the decision
results in a cancellation of the award or a change of the apparent
successful offeror, SBA will dismiss the protest as moot. If the award
is cancelled and re-evaluation or other corrective action takes place,
interested parties may file a timely size protest with respect to the
newly identified apparent successful offeror after the notification of
award. Where re-evaluation results in the selection of the same
apparent successful offeror, a timely size protest may be filed with
respect to that firm.
Sections 121.1009(g)(5), 126.503(a)(2), 127.405(d), and 128.500(d)
Section 863 of the National Defense Authorization Act for Fiscal
Year 2022 (NDAA FY22), Public Law 117-81, amended section 5 of the
Small Business Act, 15 U.S.C. 634, to add three requirements related to
size and socioeconomic status determinations. First, section 863
mandates that a business concern or SBA, as applicable, ``shall''
update the concern's status in SAM.gov not later than two days after a
final determination by SBA that the concern does not meet the size or
socioeconomic status requirements that it certified to be. SBA believes
that the statute intends that a business concern be required to update
SAM.gov in all instances in which it is capable of doing so. Only where
a business concern is unable to change a particular status (e.g., only
SBA can identify a concern as a certified HUBZone small business) will
the business concern not be required to change that status in SAM.gov.
Second, section 863 requires that, in the event that the business does
not update its status within this timeframe, SBA ``shall'' make the
update within two days of the business's failure to do so. Third,
section 863 requires that, where the business is required to make an
update, it also must notify the contracting officer for each contract
with which the business has a pending bid or offer, if the business
finds, in good faith, that
[[Page 26172]]
the determination affects the eligibility of the concern to be awarded
the contract. The proposed rule implemented these provisions by
amending SBA's regulations in Sec. 121.1009(g)(5) (for size
determinations), Sec. 125.30(g)(4) (for SDVO status determinations),
Sec. 126.503(a)(2) (for HUBZone status determinations), and Sec.
127.405(c) (for WOSB/EDWOSB status determinations). Because only SBA
can change a firm's status as a certified HUBZone small business
concern in SAM.gov, it is not ``applicable'' under the statute for the
business concern to do so. As such, the proposed rule did not add
language requiring a HUBZone concern to change its status in SAM.gov
within two business days of an adverse status determination. Instead,
it required SBA to make such a change within four business days.
Several commenters supported the proposed regulatory changes in
response to the statutory change. A few commenters also complained
about difficulties they encountered trying to update SAM.gov, but those
issues are not relevant to the statutory requirements or SBA's
implementation of those requirements.
The final rule adopts the language proposed with a few
modifications. Because SBA renumbered all SDVO provisions when
implementing the Veteran Small Business Certification Program, this
final rule implements the provisions relating to section 863 for SDVO
status in a new Sec. 128.500(d) instead of Sec. 125.30(g)(4) as
proposed. See 87 FR 73400 (Nov. 29, 2022). To take into account SBA's
new authority to certify and decide protests relating to VOSB status,
the final rule also includes VOSB status as something that needs to be
changed in response to a final SBA determination finding a firm
ineligible as a VOSB. Additionally, the final rule applies the two-day
requirement on self-certifications to situations where SBA denies
applicants' requests for VOSB or SDVOSB certification or for WOSB
certification. Those changes are reflected in Sec. 128.302(f) for
VOSB/SDVOSB and in Sec. 127.304(g) for WOSB. For WOSB, the two-day
requirement applies where SBA's determination is based on the ownership
or control of the applicant.
SBA's protest decisions are appealable to OHA, and VOSB/SDVOSB
certification decisions also are appealable. If a participant or
applicant has appealed SBA's determination, the two-day requirement
does not apply until OHA issues a final decision finding the firm
ineligible. If there is no appeal available, the two-day requirement
applies immediately after the firm receives SBA's determination that
the firm is ineligible. If an appeal is available but the firm
ultimately chooses not to appeal the decision, the two-day requirement
applies immediately after the right to appeal lapses.
One commenter sought clarification as to whether there are any
consequences if a firm fails to change its status timely in SAM.gov.
Specifically, the commenter questioned whether a failure to change
status within two days would be a cause to initiate debarment or
suspension proceedings. Under the provisions of section 863, the
consequence of a firm failing to change its status is that SBA would
have authority to change the status on behalf of the firm. SBA will
work with the System for Award Management to exercise such authority,
but SBA does not presently have the ability in SAM.gov to change a
firm's certification status without the firm taking action to accept
the change.
Section 863 also requires firms to alert agencies with which the
firm has a pending offer when the firm receives a relevant negative
status determination. Failure to do so in that instance could lead to
protests or penalties. Initiating a debarment or suspension action
depends on the facts. If the only thing a firm did was not change its
status in SAM.gov within two days, SBA does not believe that would be
sufficient cause for debarment or suspension. Failure to notify
contracting officers on pending procurements of a firm's change in
status could be if SBA believed there was an intent to misrepresent the
firm's status in order to win an award. Submitting offers for new set-
aside awards would be. Similarly, failure to take timely action to
allow an SBA status change to be reflected on the firm's SAM.gov
profile could also be grounds for government-wide debarment or
suspension if SBA believed that the firm's failure to accept the change
was an intent to conceal the status change or otherwise deceive
procuring agencies of its current status. SBA does not believe that
that needs to be addressed in this regulation as the debarment and
suspension regulations provide authority to initiate actions where a
firm intentionally misrepresents its size or status.
Sections 121.1203 and 121.1204
Section 46(a)(4)(A) of the Small Business Act, 15 U.S.C.
657s(a)(4)(A), provides that in a contract mainly for supplies a small
business concern shall supply the product of a domestic small business
manufacturer or processor unless a waiver is granted after SBA reviews
a determination by the applicable contracting officer that no small
business manufacturer or processor can reasonably be expected to offer
a product meeting the specifications (including the period of
performance) required by the contract. Section 121.1203 of SBA's
regulations provides guidance as to when SBA will grant a waiver to the
nonmanufacturer rule in connection with an individual contract, and
section 121.1204 identifies the procedures for requesting and granting
waivers.
The proposed rule sought to clarify perceived ambiguities relating
to the effect of a waiver in a multiple item procurement. For a
multiple item set-aside contract, in order to qualify as a small
business nonmanufacturer, at least 50 percent of the value of the
contract must come from either small business manufacturers or from any
businesses for items which have been granted a waiver to the
nonmanufacturer rule (or small business manufacturers plus waiver must
equal at least 50 percent). See 13 CFR 125.6(a)(2)(ii)(B). In seeking a
contract-specific waiver to the nonmanufacturer rule, SBA's regulations
provide that a contracting officer's waiver request must include a
definitive statement of the specific item to be waived. The proposed
rule clarified that for a multiple item procurement, a contracting
officer must specifically identify each item for which a waiver is
sought when the procuring agency believes that at least 50 percent of
the estimated contract value is available only from other than small
business manufacturers and processors. Of course, if at least 50% of
the estimated contract value of the contract is composed of items
manufactured or processed by small business, then a waiver of the
nonmanufacturer rule is not required and there is no requirement that
each item acquired in a multiple-item acquisition be manufactured or
processed by a small business. The proposed rule also clarified that
because a waiver is granted for specific items, once SBA reviews and
concurs with an agency's request, SBA's waiver applies only to the
specific item(s) identified, not to the entire contract.
SBA received comments both supporting and opposing the
clarification that a contracting officer must specifically identify
each item for which a waiver is sought. Those opposing the
clarification believed it would disrupt and delay procurements,
negatively affect the supply chain and the delivery of services to
warfighters, and significantly harm small business opportunities. One
commenter stated
[[Page 26173]]
that it understood why SBA proposed to require contracting officers to
specifically identify each item in the multi-item procurement for which
a contract-specific waiver is sought but was concerned that this will
increase the administrative burden and make contracting officers less
likely to request contract-specific waivers. Those supporting the
clarification stated that the regulations already require this and that
it is the appropriate approach to ensure that small business is
actually benefitting from set-aside contracts. One commenter believed
that if most of the items to be supplied through a multiple item
procurement really are not made by small business manufacturers, maybe
that procurement should not be set-aside for small business. It is true
that small business resellers or nonmanufacturers would still benefit
from such a procurement, but the value of the contract going to those
small business nonmanufacturers versus the total value of the contract
can be only a fraction of what could go to large business
manufacturers. Another commenter stated too many times an agency uses
some broad waiver (that doesn't specify exact items) to supply the
product of a large business to the detriment of legitimate small
business manufacturers. That commenter believed that it is fine to help
small business non-manufacturers, but not at the expense of small
business manufacturers.
One commenter believed that proposed Sec. 121.1203(f) seemed to
contradict Sec. 121.406(d)(1). Section 121.406(d)(1) provides that if
at least 50% of the estimated contract value of a multiple item
procurement is composed of items that are manufactured by small
business concerns, then a waiver of the nonmanufacturer rule is not
required. Proposed Sec. 121.1203(f) provided that for a multiple item
procurement, a waiver must be sought and granted for each item for
which the procuring agency believes no small business manufacturer or
processor can reasonably be expected to offer a product meeting the
specifications of the solicitation. SBA agrees that proposed Sec.
121.1203(f) was misleading. SBA intended that provision to apply only
where waivers were necessary to meet at least 50% of the value of the
contract, not where it is clear that at least 50% of the value of the
items to be procured will be supplied by small business. In addition,
waivers are needed only to the extent that would enable at least 50% of
the total estimated value of the items to be purchased to come from
small business manufacturers or from large businesses for those items
subject to a waiver. In other words, small plus waiver must equal at
least 50% of the value of the contract. Small plus waiver does not need
to equal 100% of the value of the contract. A contracting officer can
select some items that are not manufactured by small business to
request a waiver, but not others. As long as at least 50% of the
anticipated value of the items to be procured in the aggregate come
from small business or large business subject to a waiver, then the
nonmanufacturer rule is met. The final rule clarifies that a waiver
need not be sought if the conditions in Sec. 121.406(d)(1) are present
(i.e., where at least 50% of the estimated contract value of the items
to be procured are manufactured by small business concerns). The final
rule also clarifies that a contracting officer need not seek a waiver
for each item for which the procuring agency believes no small business
manufacturer or processor can reasonably be expected to offer, but
rather must seek a waiver with respect to such items in an amount that
would bring the total estimated value of items to be supplied by small
business and items subject to a waiver to be at least 50% of the value
of the contract.
SBA again notes that prior to the proposed rule, SBA's regulations
already required a contracting officer to provide ``[a] definitive
statement of the specific item to be waived and justification as to why
the specific item is required'' in order for SBA to grant a contract
specific waiver. 13 CFR 121.1204(b)(1)(i). Thus, it is not a change in
policy to require that in a multiple item procurement each item for
which a waiver is sought must be specifically identified. However, SBA
also understands the concern that specifying every part of a
multifaceted end item could be overly burdensome. For example, aircraft
X has many thousands of parts that make up the aircraft. To specify
every part of the aircraft that might need to be replaced as a separate
item for which a waiver must be sought would be burdensome. SBA does
not expect that. In such a case, the waiver request should state spare
parts relating to aircraft X as the item for which a waiver is sought.
However, a waiver request cannot be so broad as to have no real
identification (e.g., all medical supplies). SBA has added clarifying
language in the final rule to address what an ``item'' is for which a
waiver needs to be sought.
SBA also does not agree that contracting officers would be less
likely to use set-asides. In order to have a set-aside, at least 50% of
the value of the expected items to be procured in the aggregate must
come from small business manufacturers or large business manufacturers
for which a waiver (either class or contract specific) has been
granted. SBA has been told that more than 50% of the value of these
multiple item procurements is often supplied by small businesses. When
that is the case, waivers for individual items would not be required.
Where at least 50% of the estimated value of items to be procured are
not manufactured by small business, the contracting officer should
request a waiver of one or more specific items that are required under
the contract to achieve that 50% value requirement. And, as identified
above, the waiver request can be somewhat broad if it is also specific
(e.g., all spare parts relating to aircraft X). SBA also notes that
contracting officers should be able to rely on past performance. In
other words, for a follow-on multiple item procurement if more than 50%
of the value of the items on the previously awarded contract came from
small business manufacturers or large business manufacturers for which
the identified item(s) supplied were subject to a contract specific
waiver, the follow-on contract should be set-aside for some type of
small business. Contracting officers can project future compliance with
the non-manufacturer rule based on past performance, and not knowing
precisely what will be purchased under a multiple item procurement
should not prevent the procurement from being set aside for small
business.
The proposed rule also added a provision that prohibited contract-
specific waivers for contracts with a duration of longer than five
years, including options. When SBA grants an individual waiver with
respect to a particular item, it does not necessarily mean that there
are no small business manufacturers of that item. Instead, it could
merely relate to the lack of availability of small business
manufacturers for the specific contract at issue due to timing (e.g.,
small business manufacturers are currently tied up with other
commitments) or capacity (e.g., there are small business manufacturers,
but those manufacturers cannot provide the item in the quantity that is
required). SBA firmly believes that the circumstances surrounding the
availability of a specific item from small business manufacturers can
greatly change in five years. Beyond five years, new small business
manufacturers of a particular item could come into the market, or those
previously committed to other projects or who were unable to previously
supply the product in the
[[Page 26174]]
quantity or time constraints required by the contract could become
available to meet the agency's requirements. As an alternative, SBA
noted in the supplementary information to the proposed rule that SBA
was also considering limiting waivers to five years for long term
contracts but allowing a procuring agency to seek a new waiver for an
additional five years if, after conducting market research, it
demonstrates that there are no available small business manufacturers
and that a waiver remains appropriate. The proposed rule specifically
asked for comments on both approaches. SBA received three comments on
the proposal relating to long-term contracts. All three favored the
alternative approach which would allow a contracting officer to request
a second contract-specific waiver to be effective after the first five
years of a contract where the contracting officer can demonstrate that
a waiver is still needed. SBA adopts the alternative approach in this
final rule. This will make waivers relating to long-term contracts
similar to what is required for a follow-on contract to a normal base
and four option years contract. In that context, after a five-year
contract is completed and an agency seeks to award a follow-on contract
for the same requirements, an agency would be required to again conduct
market research and determine that no small business manufacturer or
processor reasonably can be expected to offer one or more specific
products required by the new solicitation. The same will be required
for a long-term contract. A procuring agency will be required to
conduct new market research and demonstrate that a waiver is still
needed beyond the first five years.
When an agency seeks an individual waiver to the nonmanufacturer
rule in connection with a specific acquisition, SBA believes that the
agency is ready to move forward with the acquisition process as soon as
SBA makes a waiverdecision and expects the solicitation to be issued
shortly after such a decision is made. That is why SBA's waiver
decision letters provide that the waiver will expire in one year from
the date of the waiver decision. SBA expects award to be made within
one year. If it is not, SBA believes that the agency should come back
to SBA with revised market research requesting that the waiver (or
waivers in the case of a multiple item procurement) be extended.
Similar to the rationale for not allowing individual waivers beyond
five years on long-term contracts, the circumstances surrounding
whether there are any small business manufacturers who are capable and
available to supply products for a specific procurement may change in
one year. Where an agency demonstrates that small business
manufacturers continue to be unavailable to fulfill the requirement,
SBA will extend the waiver(s). The proposed rule specifically
incorporated this policy into a new Sec. 121.1204(b)(5). SBA received
three comments on this provision. Two commenters indicated that they
had no objection to the proposal. One comment recommended that SBA
should consider allowing a waiver decision to last for two years but
did not provide accompanying rationale for that position. Presumably,
the commenter believes that some procurement actions take longer than
one year to finalize. As noted above, circumstances (availability and
new manufacturers coming into the market) can change in a year. SBA
believes that is the appropriate amount of time for a contract specific
waiver to last for a pending procurement. SBA adopts the proposed
language as final in this rule.
Although SBA believes that there is no current ambiguity, the
proposed rule also added language specifying that an individual waiver
applies only to the contract for which it is granted and does not apply
to modifications outside the scope of the contract or other procurement
actions. A waiver granted for one contract does not and was never
intended to apply to another contract (whether that separate contract
was a follow-on contract, bridge contract, or some other contract or
order under another contract), but the proposed rule added this
language nevertheless to dispel any possible misunderstanding. There
was no opposition to this clarification, and SBA adopts it as final.
Finally, the proposed rule clarified that where an agency requests
a waiver for multiple items, SBA may grant the request in full, deny it
in full, or grant a waiver for some but not all of the items for which
a waiver was sought. SBA's decision letter would identify the specific
items that SBA identifies as waived for the procurement. SBA received
no comments specifically addressing this provision. As such, SBA adopts
it as final.
Section 121.1205
Section 121.1205 refers to the list of classes of products for
which SBA has granted waivers to the Nonmanufacturer Rule. The
reference in the current version of the regulation provides a link to a
website that no longer exists. The proposed rule updated the reference
to the correct website. A few commenters supported this update, and SBA
adopts adding the correct website, which is https://www.sba.gov/document/support-non-manufacturer-rule-class-waiver-list.
Section 124.102
Section 124.102(c) provides that a concern whose application is
denied due to size by 8(a) BD program officials may request a formal
size determination with the SBA Government Contracting Area Office
serving the geographic area in which the principal office of the
business is located. SBA notes that during the processing of an
application SBA itself can request a formal size determination pursuant
to Sec. 121.1001(b)(2)(i). The Sec. 124.102(c) process applies only
where SBA has not requested a formal size determination with respect to
a specific applicant. Under Sec. 124.102(c), if the concern requests a
formal size determination and the Area Office finds it to be small
under the size standard corresponding to its primary NAICS code, the
concern can immediately reapply to the 8(a) BD program. SBA believes
that a concern should not need to reapply to the 8(a) BD program if
size was the only reason for decline. In such a case, SBA believes that
the Associate Administrator for Business Development (AA/BD) should
immediately certify the firm as eligible for the 8(a) BD program. The
proposed rule made a distinction for applications denied solely based
on size and those where size is one of several reasons for decline.
Where size is not the only reason for decline, the proposed rule
provided that the concern could reapply for participation in the 8(a)
BD program at any point after 90 days from the AA/BD's decline. The AA/
BD would then accept the size determination as conclusive of the
concern's small business status, provided the applicant concern has not
completed an additional fiscal year in the intervening period and SBA
believes that the additional fiscal year changes the applicant's size.
SBA received seven comments on proposed Sec. 124.102. All comments
received supported the proposed change that a concern whose application
is denied due to size by 8(a) BD program officials should be able to
request a formal size determination. The commenters also agreed that if
size is the only reason for decline and OHA reverses SBA, the firm
should be admitted to the 8(a) BD program without any further action
being necessary on the part of the firm. As such, SBA adopts the
proposed language in this final rule.
[[Page 26175]]
Section 124.103
Section 124.103 describes the rules pertaining to social
disadvantage status. Section 124.103(c) details how an individual who
is not a member of one of the groups presumed to be socially
disadvantaged may establish his or her individual social disadvantage.
It provides that an individual must identify an objective
distinguishing feature that has contributed to his or her social
disadvantage and lists physical handicap as one such possible
identifiable feature. In order to be consistent with recent changes in
terms made by the General Services Administration (GSA), 87 FR 6044, as
well as with the Americans with Disabilities Act, the proposed rule
changed the words physical handicap to identifiable disability. SBA
received two comments supporting the proposed change and no comments
objecting to it. As such, SBA adopts the proposed language in this
final rule.
Section 124.104
Section 124.104 specifies the rules pertaining to whether an
individual may be considered economically disadvantaged. Paragraph
124.104(c)(2)(ii) provides that funds invested in an Individual
Retirement Account (IRA) or other official retirement account will not
be considered in determining an individual's net worth. The paragraph
then requires the individual to provide information about the terms and
restrictions of the account to SBA in order for SBA to determine
whether the funds invested in the account should be excluded from the
individual's net worth. SBA does not believe that it is necessary for
an individual to provide information about the terms and restrictions
of a retirement account to SBA in every instance. As such, the proposed
rule changed this provision to requiring an individual to provide
information about the terms and restrictions of an IRA or other
retirement account only when requested to do so by SBA. SBA received
four comments supporting the change and one comment in opposition. The
commenter opposing the change believed that removing the requirement
could water down the economically disadvantaged criteria. SBA
disagrees. The change will not affect SBA's ability to seek additional
information relating to an IRA where appropriate. It merely eliminates
the unnecessary burden of requiring an applicant to submit such
information in every instance. SBA adopts the proposed change in this
final rule.
This rule also deletes current Sec. 124.104(c)(2)(iii). That
provision provides that income received from an applicant or
Participant that is an S corporation, limited liability company (LLC)
or partnership will be excluded from an individual's net worth where
the applicant or Participant provides documentary evidence
demonstrating that the income was reinvested in the firm or used to pay
taxes arising in the normal course of operations of the firm. SBA does
not believe that this provision is necessary because the exact
provision is contained in Sec. 124.104(c)(3)(ii) in discussing how SBA
treats personal income.
Section 124.105
Section 124.105 describes the ownership requirements pertaining to
applicants and Participants for the 8(a) BD program. Paragraph
124.105(h) sets forth ownership restrictions for non-disadvantaged
individuals and concerns, and Sec. 124.105(h)(2) specifies ownership
restrictions for non-Participant concerns in the same or similar line
of business and for principals of such concerns. Current Sec.
124.105(h)(2) recognizes a limited exception to the general ownership
restriction for a former Participant in the same or similar line of
business or a principal of such a former Participant. This paragraph
does not, however, refer to or recognize another exception set forth
elsewhere in SBA's regulations, and that is the exception set forth in
Sec. 125.9(d)(2) which allows an SBA-approved mentor to own up to 40
percent of its prot[eacute]g[eacute]. This proposed rule added language
clarifying that the Sec. 125.9(d)(2) authority applies equally to
mentors in the same line of business as its prot[eacute]g[eacute] that
is also a current 8(a) BD Program Participant. SBA received four
comments regarding the proposed clarification that a mentor in the same
or similar line of business can own up to 40 percent of its
prot[eacute]g[eacute] firm. All four commenters supported the
clarification. The final rule adopts the proposed language.
Paragraph 124.105(i) provides guidance with respect to changes of
ownership, and Sec. 124.105(i)(1) specifies that any Participant that
was awarded one or more 8(a) contracts may substitute one disadvantaged
individual for another disadvantaged individual without requiring the
termination of those contracts or a request for waiver under Sec.
124.515. There has been some confusion as to whether there can be a
change of ownership for a former Participant that is still performing
one or more 8(a) contracts. As noted in the proposed rule, this would
generally not occur with one disadvantaged individual seeking to buy
out a disadvantaged principal of a former 8(a) Participant. That is
because of the one-time eligibility restriction. For any change of
ownership to be approved by SBA, SBA must determine that the individual
seeking to replace a former principal does in fact qualify as socially
and economically disadvantaged under SBA's regulations. An individual
who has previously participated in the 8(a) BD program and has used his
or her individual disadvantaged status to qualify one 8(a) Participant
would not be deemed disadvantaged if the individual sought to replace a
principal of a second 8(a) Participant. Thus, the only individuals who
could seek to replace the principal of a former 8(a) Participant would
be those who have never participated in the 8(a) BD program before. To
do so, such individuals would have to use their one-time eligibility to
complete performance on previously awarded 8(a) contracts. The business
concern could not be awarded any additional contracts because it is no
longer an eligible Participant. If an individual thought the
opportunity was sufficient to entice him or her to forego his/her one-
time eligibility, he or she might proceed with such a transaction, but
SBA does not believe that would often happen. The more likely scenario
would be where an entity (tribe, ANC), Native Hawaiian Organization
(NHO) or Community Development Corporation (CDC)) seeks to replace the
principal of a former 8(a) Participant. The one-time eligibility
restriction does not apply to entities. A tribe, ANC, NHO or CDC can
own more than one business concern that participates in the 8(a) BD
program. As such, an entity could purchase a former Participant and
complete performance of any remaining 8(a) contracts. If the tribe,
ANC, NHO or CDC seeking to replace the principal of a former 8(a)
Participant has or has had a Participant in the 8(a) BD program, its
general eligibility has already been established. However, if this
would be the first time that a specific entity would own a business
seeking 8(a) BD benefits, the entity must establish its overall
eligibility. In the case of an Indian tribe or NHO, it must, among
other things, demonstrate that it is economically disadvantaged. The
proposed rule clarified that a change of ownership could apply to a
former Participant as well as to a current Participant. SBA received
nine comments supporting this clarification and no comments opposing
it. The final rule adopts the proposed language.
[[Page 26176]]
Paragraph 124.105(i)(2) permits a change of ownership to occur
without receiving prior SBA approval in certain specified
circumstances, including where all non-disadvantaged individual owners
involved in the change of ownership own no more than a 20 percent
interest in the concern both before and after the transaction. To
ensure that ownership interests are not divided up among two or more
immediate family members to avoid SBA's immediate review of a change of
ownership, the proposed rule provided that SBA will aggregate the
interests of all immediate family members in determining whether a non-
disadvantaged individual involved in a change of ownership has more
than a 20 percent interest in the concern. Three commenters supported
the change. One commenter supported the change but sought further
clarification. That commenter believed that the term ``immediate family
members'' in the proposed rule need to be defined and suggested that
SBA either reference the list of family members stated in Sec.
121.103(f), or add a definition of the term to Sec. 124.105(i)(2).
That commenter also believed that it was inconsistent for the change to
cover immediate family members, but not any other ``persons with an
identity of interest'' under Sec. 121.103(f). Given that SBA treats
persons with an identity of interest (regardless of type) as being
``one party,'' the commenter recommended that SBA should add persons
with an identity of interest generally, such as individuals who are not
family members but through common investments are deemed to be ``one
party'' under Sec. 121.103(f). SBA agrees and has made those changes
in the final rule.
Section 124.107
Section 124.107 describes the policies relating to potential for
success. In order to be eligible for the 8(a) BD program, an applicant
concern must possess reasonable prospects for success in competing in
the private sector. This requirement stems from the language contained
in Sec. 8(a)(7)(A) of the Small Business Act, 15 U.S.C. 637(a)(7)(A),
which provides that no small business concern shall be deemed eligible
for the 8(a) BD program unless SBA determines that with contract,
financial, technical, and management support the concern will be able
to perform 8(a) contracts and has reasonable prospects for success in
competing in the private sector. There has been some confusion as to
whether an applicant must demonstrate that it has specifically
performed work in the private sector prior to applying to participate
in the 8(a) BD program. That is not the case. The statutory requirement
is that SBA must determine that with assistance from the 8(a) BD
program a business concern will have reasonable prospects for success
in competing in the private sector in the future. The regulation
requires an applicant to demonstrate that it has been in business and
received revenues in its primary industry classification for at least
two full years immediately prior to the date of its 8(a) BD
application, but it does not say that those revenues must have come
from the private sector. A business concern that has performed no
private sector work but has demonstrated successful performance of
state, local or federal government contracts is eligible to participate
in the 8(a) BD program. The proposed rule added language clarifying
that intent. SBA received eight comments in response to the proposed
clarification to Sec. 124.107. All eight comments supported the
proposed clarification that a firm can demonstrate potential for
success with prior commercial and government contracts, including state
and local government contract work. As such, SBA adopts the proposed
language in this final rule.
Section 124.108
Section 124.108 establishes other eligibility requirements that
pertain to firms applying to and participating in the 8(a) BD program.
Paragraph 124.108(e) provides that an applicant will be ineligible for
the 8(a) BD program where the firm or any of its principals has failed
to pay significant financial obligations owed to the Federal
Government. This proposed rule added language clarifying that where the
firm or the affected principals can demonstrate that the financial
obligations have been settled and discharged/forgiven by the Federal
Government, the applicant will be eligible for the program. Five
commenters supported this clarification as proposed. One commenter
believed that the terms ``financial obligations owed'' and ``financial
obligations have been settled and discharged/forgiven by the Federal
Government'' are vague. SBA disagrees. The eligibility requirement
pertaining to owing federal obligations to the Government has been in
SBA's regulations for some time without confusion as to its meaning.
Specifically, the regulation prior to the proposed change provided that
``[n]either a firm nor any of its principals that fails to pay
significant financial obligations owed to the Federal Government . . .
is eligible for admission to or participation in the 8(a) BD program.''
The proposed rule merely attempted to clarify that if the Government
has settled a debt (i.e., accepting less than the full amount owed to
discharge the debt), the firm/individual would not be barred from
participating in the 8(a) BD program on that basis alone. SBA adopts
the proposed language in this final rule.
Section 124.109
Section 124.109 provides specific rules applicable to Indian tribes
and Alaska Native Corporations for applying to and remaining eligible
for the 8(a) BD program. SBA's regulations currently provide that the
articles of incorporation, partnership agreement or limited liability
company articles of organization of a tribally-owned applicant or
Participant must contain express sovereign immunity waiver language, or
a ``sue and be sued'' clause which designates United States Federal
Courts to be among the courts of competent jurisdiction for all matters
relating to SBA's programs. The proposed rule sought to make two
changes with respect to that provision. First, the proposed rule
clarified that the waiver of sovereign immunity should apply only to
concerns owned by Federally-recognized Indian tribes. State recognized
tribes are not deemed sovereign and, thus, do not need to waive
sovereign immunity because they are already subject to suit. Second,
concerns that are organized under tribal law may not have articles of
incorporation, partnership agreements or limited liability company
articles of organization and may be unable to strictly comply with the
regulatory language. In response, SBA proposed to add language allowing
tribally-owned concerns organized under tribal law to waive sovereign
immunity in any similar documents authorized under tribal law.
The proposed rule also sought to make a change relating to the
potential for success requirement for tribes. One of the ways a
tribally-owned business can demonstrate potential for success needed to
be eligible for the program is to demonstrate that it has been in
business for at least two years, as evidenced by income tax returns for
each of the two previous tax years showing operating revenues in the
primary industry in which the applicant is seeking 8(a) BD
certification. Not all tribally-owned concerns file federal income tax
returns. The tax return requirement is intended to be an objective
means by which a tribally-owned concern can show that it has been in
business for at least two years with operating revenues. SBA believes
that tax returns are not the only way for
[[Page 26177]]
a tribally-owned concern to demonstrate its business history. The
proposed rule added a provision allowing a tribally-owned applicant to
submit financial statements demonstrating that it has been in business
for at least two years with operating revenues in the primary industry
in which it seeks 8(a) BD certification.
SBA received six comments supporting these two changes and no
comments opposing them. As such, SBA adopts the proposed language as
final in this rule. SBA also received two comments pertaining to other
provisions of Sec. 124.109 that were not addressed in the proposed
rule. Because any potential changes pertaining to those provisions are
outside the scope of this rulemaking, SBA does not address them in this
final rule.
Section 124.110
The proposed rule added a new Sec. 124.110(d)(3) to allow the
individuals responsible for the management and daily operations of an
NHO-owned concern to manage two Program Participants. This would make
the control requirements relating to NHO-owned applicants/Participants
consistent with those applying to applicants/Participants owned by
tribes and Alaska Native Corporations (ANCs). Although this is a
statutory exemption for firms owned by tribes and ANCs, and is not for
firms owned by NHOs, SBA believes that the policies relating to all
three entity-owned applicants/Participants should be consistent
whenever possible. SBA does not believe that this change for NHO-owned
firms in any way contradicts any statutory requirement and would merely
allow more flexibility for NHO-owned firms.
In addition, the proposed rule clarified the current policy
regarding NHO ownership of an applicant or Participant small business
concern. Although SBA currently requires an NHO to unconditionally own
at least 51 percent of the applicant or Participant, the proposed rule
merely made that requirement explicit in the regulations.
SBA received six comments supporting these two changes and no
comments opposing them. Although one comment supported allowing an
individual to be involved in controlling two NHO-owned 8(a) concerns,
the commenter questioned what SBA means by a ``Native Hawaiian leader''
in the context of this regulation. The proposed language provided that
an individual's officer position, membership on the board of directors
or position as a Native Hawaiian leader does not necessarily imply that
the individual is responsible for the management and daily operations
of a given concern. This language was copied from the provision in
Sec. 124.109 for tribally owned firms. In the context of a tribe, the
term ``leader'', as in tribal leader, has some definite meaning. SBA
agrees that in the context of Native Hawaiians it does not. As such,
the final rule adopts the proposed language with one change. The final
rule deletes the reference to Native Hawaiian leader. SBA also received
one comment questioning why NHOs cannot use holding companies as part
of their ownership of 8(a) BD applicants and Participants as tribes and
ANCs can. Although this issue is not part of this rulemaking, SBA will
nevertheless address the reason for the disparate treatment. Section
8(a)(4)(A) of the Small Business Act, 15 U.S.C. 637(a)(4)(A), provides
in pertinent part that the term ``socially and economically
disadvantaged small business concern'' means any small business concern
which is at least 51 percent unconditionally owned by ``(II) an
economically disadvantaged Indian tribe (or a wholly owned business
entity of such tribe), or (III) an economically disadvantaged Native
Hawaiian organization . . .'' As noted, the statute specifically
authorizes tribes (which is also defined to include ANCs) to own an
8(a) Participant through ``a wholly owned business entity of such
tribe'' or in other words through a holding company. The statute does
not provide similar authority for NHOs. NHOs have the same statutory
requirement as socially and economically disadvantaged individuals,
meaning that they must directly own at least 51 percent of an applicant
or Participant concern. SBA does not have the authority to change that
statutory requirement.
Section 124.204
Section 124.204 details how SBA processes applications for 8(a) BD
program admission. It identifies that only the AA/BD can approve or
decline an application for participation in the 8(a) BD program. There
are, however, certain threshold issues that must be addressed before an
application will be fully processed. Specifically, in SBA's electronic
8(a) application system, there are four fundamental eligibility
questions that must be answered before an application will be reviewed:
an applicant must be a for-profit business (see Sec. Sec. 121.105 and
124.101); every individual claiming disadvantaged status must be a
United States citizen (see Sec. 124.101); neither the applicant firm
nor any of the individuals upon whom eligibility is based could have
previously participated in the 8(a) BD program (see Sec. 124.108(b));
and any individually-owned applicant must have generated some revenues
(see Sec. Sec. 124.107(a) and 124.107(b)(1)(iv)). If an applicant
answers that it is not a for-profit business entity, that one or more
of the individuals upon whom eligibility is based is not a United
States citizen (see Sec. 124.104), that the applicant or one or more
of the individuals upon whom eligibility is based has previously
participated in the 8(a) BD program (see Sec. 124.108(b)), or that the
applicant is not an entity-owned business and has generated no revenues
(see Sec. Sec. 124.107(a) and 124.107(b)(1)(iv)), its application will
be closed and it will be prevented from completing a full electronic
application. Each of those four bases automatically renders the
applicant ineligible for the program and further review would not be
warranted. The proposed rule identified these four threshold issues
that must be addressed before an application will be reviewed. SBA
received two comments supporting identifying these four reasons that
will stop the processing of an 8(a) BD application, one comment stating
that threshold application questions are for SBA to determine, and no
comments opposing this identification. The final rule adopts the
proposed language.
Section 124.302
Section 124.302 addresses graduation and early graduation from the
8(a) BD program. In determining whether an applicant or Participant
should be deemed economically disadvantaged, SBA previously required a
concern to compare its financial condition to non-8(a) BD business
concerns in the same or similar line of business. SBA eliminated that
requirement as not being consistent with the statutory authority which
requires only that an applicant or concern be owned and controlled by
one or more individuals who are economically disadvantaged, not that
the concern itself be economically disadvantaged. In addressing
graduation, Sec. 124.302(b) retained some of that same language
requiring a comparison of an 8(a) BD Participant to non-8(a)
businesses. SBA believes that too is inconsistent with the statutory
language, which defines the term ``graduated'' or ``graduation'' to
mean that a Program Participant is recognized as successfully
completing the 8(a) BD program by substantially achieving the targets,
objectives, and goals contained in its business plan, and demonstrating
its ability to compete in the marketplace without assistance from the
8(a) BD program. 15 U.S.C. 636(j)(10)(H). As
[[Page 26178]]
such, the proposed rule removed Sec. 124.302(b)(5), as not consistent
with the statutory oversight responsibilities. The supplementary
information to the proposed rule also noted that the requirements for
graduation are adequately set forth in Sec. 124.302(a)(1) of SBA's
regulations and requested comments on whether the entire Sec.
124.302(b) can be eliminated as unnecessary.
SBA received nine comments supporting the removal of Sec.
124.302(b)(5). In addition, seven commenters recommended that the
entire Sec. 124.302(b) be removed as the provisions in Sec.
124.302(a)(1) adequately establish the requirements for graduation. One
commenter also believed that the language in Sec. 124.302(b) is overly
subjective and should be eliminated on that basis as well. In response
to this comment, SBA more closely reviewed Sec. 124.302(b). Although
the paragraph is titled ``Criteria for determining whether a
Participant has met its goals and objectives,'' much of Sec.
124.302(b) pertains to the overall financial condition of the 8(a) BD
Participant and not to the specific goals and objectives contained in
the Participant's business plan. For that reason and because SBA agrees
that Sec. 124.302(a)(1) adequately explains what graduation means and
what must occur in order for a firm to be graduated from the 8(a) BD
program, the final rule removes the entire Sec. 124.302(b) as
unnecessary.
Section 124.304
Section 124.304 sets forth the procedures for early graduation and
termination from the 8(a) BD program. The proposed rule added a
provision to clarify that where SBA obtains evidence that a Participant
has ceased its operations, the AA/BD may immediately terminate a
concern's participation in the 8(a) BD program by notifying the concern
of its termination and right to appeal that decision to OHA. SBA
received two comments supporting this provision and no comments
opposing it. The final rule adopts the proposed language. SBA continues
to believe requiring SBA to go through the normal process to terminate
a Participant from the 8(a) BD program (i.e., providing an intent to
terminate notice and a 30-day opportunity to respond) is unnecessary
where it can be demonstrated that the concern has ceased its business
operations. Nevertheless, the final rule requires SBA to notify the
concern of its termination and provide it the right to appeal that
decision to OHA.
Section 124.402
Section 124.402 requires each firm admitted to the 8(a) BD program
to develop a comprehensive business plan and to submit that business
plan to SBA as soon as possible after program admission. Currently,
Sec. 124.402(b) provides that SBA will suspend a Participant from
receiving 8(a) BD program benefits if it has not submitted its business
plan to its servicing district office within 60 days after program
admission. There is a concern that Sec. 124.402(b) does not clearly
provide that a Participant's business plan must be approved by SBA
before the concern is eligible for 8(a) contracts, as required by
Section 7(j)(10)(D)(i) of the Small Business Act, 15 U.S.C.
636(j)(10)(D)(i). The proposed rule clarified that, consistent with the
statutory language, SBA must approve a Participant's business plan
before the firm is eligible to receive 8(a) contracts. However, SBA
recognizes that some firms are admitted to the 8(a) BD program with
self-marketed procurement commitments from one or more procuring
agencies. SBA also understands that several newly admitted Participants
have missed 8(a) contract opportunities in the past because SBA did not
approve their business plans before the procuring agencies sought to
award such procurement commitments as 8(a) contracts. SBA does not wish
to discourage self-marketing activities or prevent a newly admitted
Participant from receiving critical business development assistance. At
the same time, SBA is constrained by the statutory language requiring
business plan approval prior to the award of 8(a) contracts. The
proposed rule merely prioritized business plan approval for any firm
that is offered a sole source 8(a) requirement or is the apparent
successful offeror for a competitive 8(a) requirement. Specifically,
the proposed rule provided that where a sole source 8(a) requirement is
offered to SBA on behalf of a Participant or a Participant is the
apparent successful offeror for a competitive 8(a) requirement and SBA
has not yet approved the Participant's business plan, SBA will approve
the Participant's business plan as part of its eligibility
determination prior to contract award.
SBA received 11 comments in response to the proposed change to
Sec. 124.402. Seven comments supported the rule to prioritize business
plan review and approval for new 8(a) firms that were offered a sole
source 8(a) requirement or were the apparent successful offeror for a
competitive 8(a) requirement. Three comments opposed requiring business
plan approval prior to a firm being awarded any 8(a) contract. These
commenters believed that if a firm submitted its business plan to SBA
within 60 days of certification, it should not matter whether SBA
approved it before award. They rationalized that if the firm did
everything it needed to do, the firm should not be penalized by SBA's
failure to approve the business plan. As indicated above, SBA again
notes that the authorizing legislation requires business plan approval
prior to award. SBA cannot waive or disregard that statutory
requirement. However, the intent of the proposed regulation was to
ensure that business plan approval occurred in connection with a normal
eligibility determination and that by doing so every Participant on
whose behalf a sole source 8(a) requirement is offered or who was
identified as the apparent successful offeror in an 8(a) competitive
procurement would receive the award. Prioritizing business plan review
and approval will ensure that such approval can be timely done and not
adversely affect any 8(a) procurement. One comment recognized the
statutory requirement but was concerned that performing a business plan
review as part of an eligibility determination would slow down
eligibility determinations and could cause procuring agencies to avoid
using the 8(a) program. SBA disagrees. Currently, SBA generally
performs an eligibility determination (either for a sole source
offering or a competitive award) within five days, unless SBA seeks and
a procuring agency agrees to a longer period. SBA's intent is to review
and approve business plans within that same five-day period. Thus, SBA
does not envision any additional time being added to the normal
eligibility review timeframe. The final rule adopts the proposed
language.
Section 124.403
Section 124.403 sets forth the requirements relating to business
plans. Paragraph 124.403(a) provides that each Participant must
annually review its business plan with its assigned Business
Opportunity Specialist (BOS) and modify the plan as appropriate. The
wording of this paragraph caused some to believe that a Participant
needed to submit a business plan to SBA every year even where nothing
had changed from the previous year. That was not SBA's intent. The ``as
appropriate'' language was meant to infer that a Participant need not
submit a business plan if nothing had changed from the previous year.
The proposed rule clarified that a Participant must submit
[[Page 26179]]
a new or modified business plan only if its business plan has changed
from the previous year.
SBA received seven comments supporting the provision to require
business plan submissions only if a business plan had changed or been
modified from the previous year and no comments opposing the provision.
The commenters believed that eliminating needless submissions would
reduce the paperwork burden on Participants and enable them to more
thoroughly focus on business development. The final rule adopts the
proposed language.
Sections 124.501, 126.609, 127.503(e), and 128.404(d)
There has been some confusion as to whether a contracting officer
can limit an 8(a) competition (whether for an 8(a) contract or an order
set-aside for 8(a) competition under an unrestricted contract) to
Participants having more than one certification (e.g., 8(a) and
HUBZone). SBA believes that Sec. 8(a)(1)(D)(i) of the Small Business
Act, 15 U.S.C. 637(a)(1)(D)(i), requires any 8(a) competition to be
available to all eligible Program Participants. SBA has consistently
interpreted this provision as prohibiting SBA from accepting a
requirement for the 8(a) BD program that seeks to limit an 8(a)
competition only to certain types of 8(a) Participants, rather than
allowing competition among all eligible Participants. In other words,
SBA has interpreted this authority to prohibit an agency from requiring
one or more other certifications in addition to its 8(a) certification.
This interpretation is currently contained in Sec. 125.2(e)(6)(i) but
is not specifically contained in the 8(a) BD regulations. Likewise, the
statutory authority for HUBZone set asides, 15 U.S.C. 657a(c)(2)(B),
provides authority for competition restricted to certified HUBZone
small business concerns and does not permit a ``dual'' set-aside for
firms that are both HUBZone-certified and 8(a) Participants. The
proposed rule added a sentence to Sec. 124.501(b) to clarify SBA's
position that prohibits a contracting activity from restricting an 8(a)
competition to Participants that are also certified HUBZone small
businesses, certified WOSBs or certified SDVO small businesses. SBA
also proposed to make similar clarifications to the regulations for the
SDVO (in Sec. 125.22(d)), HUBZone (in new Sec. 126.609), and WOSB (in
Sec. 127.503(e)) programs. As noted earlier, the SDVO program
regulations have been moved to a new part 128 as part of implementing
the Veteran Small Business Certification Program. See 87 FR 73400 (Nov.
29, 2022). As such, the final rule amends Sec. 128.404(d) as opposed
to Sec. 125.22(d) as proposed.
SBA received ten comments supporting the clarification to more
clearly set forth SBA's position prohibiting a contracting activity
from restricting a competition to firms with multiple certifications.
One commenter supported the provision but also recommended further
clarification. Specifically, the commenter believed that agencies could
follow the prohibition (i.e., not limiting competition to firms with
multiple certifications) but circumvent SBA's intent by providing
significant evaluation preferences to firms with one or more other
certifications, and thus exclude firms with one certification from any
meaningful opportunity to be awarded a specific contract or order. The
commenter recommended that SBA amend this provision to also specify
that a procuring activity also cannot give additional evaluation points
or any evaluation preference to firms having one or more additional
certifications. SBA agrees and has added this language to each of the
associated regulatory provisions: Sec. 124.501(b) for the 8(a) BD
program; Sec. 126.609 for the HUBZone program; Sec. 127.503(e) for
the WOSB program; and Sec. 128.404(d) for the SDVO program.
SBA also proposed to clarify Sec. 124.501(b) by noting that an
agency may award an 8(a) sole source order against a multiple award
contract that was not set aside for competition only among 8(a)
Participants. SBA believes that such awards are consistent with SBA's
statutory authority at section 8(a)(16) of the Small Business Act, 15
U.S.C. 637(a)(16), to enter 8(a) sole source awards. Furthermore, this
type of 8(a) sole source order is beneficial to both 8(a) Participants,
who benefit from increased contracting opportunities, and to procuring
agencies, that can take advantage of pre-negotiated terms and pricing.
SBA received six comments in response to this provision. All comments
received supported the proposed language. As such, SBA adopts the
proposed language in this final rule.
The proposed rule also revised the introductory language to Sec.
124.501(g). The revised language first required SBA to notify an 8(a)
Participant any time SBA determines the Participant to be ineligible
for a specific sole source or competitive 8(a) award. SBA notes that
this is currently required in FAR 19.805-2, and is something that
should occur routinely, but believes that highlighting this in SBA's
regulations would be helpful. SBA also proposed to clarify that where a
joint venture is the apparent successful offeror in connection with a
competitive 8(a) procurement, SBA will determine whether the 8(a)
partner to the joint venture is eligible for award but will not review
the joint venture agreement to determine compliance with Sec. 124.513.
SBA believes that there was some confusion as to what an eligibility
determination entailed in the context of a competitive 8(a) joint
venture apparent successful offeror. The proposed rule sought to make
clear that SBA's determination of eligibility relates solely to the
8(a) partner to the joint venture and does not represent a full review
of the 8(a) joint venture under Sec. 124.513. SBA received three
comments supporting this clarification regarding the eligibility of a
joint venture offeror, and no comments opposing it. One commenter also
requested clarification as to whether a review of the joint venture
agreement is required where a joint venture is offered a sole source
order under a previously awarded competitive 8(a) multiple award
contract. SBA does not believe that SBA should review the joint venture
agreement itself in this context. The underlying contract is an 8(a)
competitive award. SBA's regulations do not require review of joint
venture agreements with respect to 8(a) competitive awards. Once
awarded, SBA does not believe it should review joint venture agreements
in connection with one or more individual sole source orders under the
8(a) multiple award contract. As such, SBA adopts the proposed language
in this final rule with the added clarification regarding sole source
orders to a joint venture under a previously competitively awarded 8(a)
multiple award contract.
Finally, the proposed rule also made several clarifications to the
bona fide place of business requirement contained in Sec. 124.501(k).
Section 8(a)(11) of the Small Business Act, 15 U.S.C. 637(a)(11),
requires that to the maximum extent practicable 8(a) construction
contracts ``shall be awarded within the county or State where the work
is to be performed.'' SBA has implemented this statutory provision by
requiring a Participant to have a bona fide place of business within a
specific geographic location. In the October 2020 rulemaking, supra,
SBA clarified that the Small Business Act does not differentiate
between sole source 8(a) construction contracts and competitive 8(a)
construction contracts. As such, the statutory ``maximum extent
practicable'' requirement applies equally to sole source and
competitive 8(a) contracts. SBA understands that
[[Page 26180]]
some have expressed the view that the ``to the maximum extent
practicable'' statutory language should be read in a way that affords
procuring agencies the discretion to broaden or do away with the bona
fide place of business requirement where they deem it to be
appropriate, for whatever reason. SBA disagrees that the statutory
language affords such flexibility. In SBA's view, ``to the maximum
extent practicable'' denotes Congress's intent that something be
followed whenever possible, not merely when a procuring agency thinks
it is the best option or appropriate in particular circumstances. Thus,
SBA will continue to apply the bona fide place of business requirement
to both sole source and competitive 8(a) construction procurements
unless SBA determines that it is not ``practicable'' to do so. In this
regard, because of the COVID-19 pandemic, employees in both the public
and private sector were expected to telework on a significant basis. In
response, SBA issued a Policy Notice temporarily placing a moratorium
on the bona fide place of business requirement with respect to all 8(a)
construction contracts offered to the 8(a) BD program prior to
September 30, 2022, based on SBA's determination that it was not
``practicable'' to impose that requirement during the maximum telework
policies. SBA Policy Notice 6000-819056 (August 25, 2021). Prior to the
expiration of that Policy Notice, the SBA Administrator determined that
requiring a bona fide place of business in a particular location
continues to be impracticable due to the lingering effects of the
COVID-19 pandemic and extended the moratorium on the requirement
through September 30, 2023. SBA will continue to examine the
practicality of the rule considering economic realities. Once the
conditions exist that demonstrate that it is no longer impracticable to
require a bona fide place of business, SBA will again implement the
statutory provision to do so with respect to all construction
requirements offered to the 8(a) program. As such, the proposed rule
sought to clarify several components of the bona fide place of business
requirement to be in place when the circumstances dictate that it is
again practicable to enforce the rule.
Before discussing the specific proposed changes to the bona fide
place of business rule and the comments received regarding those
changes, SBA will first discuss the comments received to the rule in
general. Several commenters agreed that current circumstances make it
impracticable to require a bona fide place of business at this time and
recommended that the moratorium be extended. As noted above, the
moratorium is currently in place through September 30, 2023. Before the
expiration of the moratorium, SBA will examine workplace realities. If
telework policies and other economic conditions continue to make
requiring a bona fide place of business impracticable, SBA will again
extend the moratorium. SBA cannot, however, make that commitment at
this point. Several other commenters urged SBA to eliminate the bona
fide place of business rule entirely, believing that the rule is
outdated and no longer makes sense. One commenter noted that the
moratorium has demonstrated that construction work can be performed
without a brick-and-mortar presence and recommended that the bona fide
place of business rule be eliminated. SBA believes that it does not
have the option of eliminating the requirement entirely. As noted
above, the Small Business Act statutorily imposes a strong preference
for local construction firms in the performance of 8(a) contracts. SBA
has implemented that preference through the bona fide place of business
rule. SBA cannot ignore that statutory language. A few commenters
believed that the rule should apply only to competitive 8(a)
construction requirements, but not to sole source 8(a) construction
requirements. The statutory authority does not make a distinction
between sole source and competitive requirements, but rather talks of
all ``construction'' contracts awarded through the 8(a) BD program. As
such, SBA believes that the statutory preference must be applied
equally to all competitive and sole source 8(a) construction
procurements. Recognizing the Small Business Act requirement, several
other commenters applauded SBA's efforts to lessen the burden to
establish a bona fide office. SBA will now address those proposed
changes, the comments to them and SBA's response.
When SBA revised the bona fide place of business rule in October
2020, it intended that a Participant with a bona fide place of business
anywhere in a particular state should be deemed eligible for a
construction contract throughout that entire state (even if the state
is serviced by more than one SBA district office). However, because the
regulatory text used the word ``may'', several Participants sought
clarification of SBA's intent. The proposed rule clarified SBA's
intent.
The proposed rule also clarified that where a Participant is
currently performing a contract in a specific state, it would qualify
as having a bona fide place of business in that state for one or more
additional contracts. This clarification is specifically intended to
apply to the situation where a business concern is performing a
construction contract in a specific location, the procuring activity
likes the work done by the business concern and seeks to award an 8(a)
construction contract to the same business concern in the same location
as the previous contract. SBA believes that it does not make sense to
say that a business concern is not eligible for such award because it
has not officially sought and approved to have a bona fide place of
business in that location. The proposed clarification, however, limited
that exclusion only to the state where the firm is currently performing
a contract. It provided that the Participant could not use contract
performance in one state to allow it to be eligible for an 8(a)
contract in a contiguous state unless it officially establishes a bona
fide place of business in the location in which it is currently
performing a contract (or in that contiguous state or another state
touching that contiguous state).
The proposed rule also clarified that a Participant could establish
a bona fide place of business through a full-time employee in a home
office. In addition, an individual designated as the full-time employee
of the Participant seeking to establish a bona fide place of business
in a specific geographic location need not be a resident of the state
where he/she is conducting business. In the past, some SBA district
offices have required the designated employee to possess a driver's
license issued by the state corresponding to the location of the
office. SBA believes that is not appropriate. There is no requirement
that a specific employee must permanently reside in a specific
location. A Participant merely needs to demonstrate that one or more
employees are operating in an office within the identified geographic
location. A Participant should be able to rotate employees in and out
of a specific location as it sees fit, and as long as one individual
(but not necessarily the same individual) remains at that location,
that location can be considered a bona fide place of business. Finally,
the proposed rule provided guidance on how SBA interprets the bona fide
place of business requirement where a contract requires work to be
performed in more than one location and those different locations may
not be within the boundaries of the bona fide place of business.
Although this is SBA's current interpretation of the bona fide place of
business requirement, SBA believes
[[Page 26181]]
putting it in the regulations will clarify any confusion that currently
exists. For a single award 8(a) construction contract requiring work in
multiple locations, the proposed rule provided that a Participant is
eligible if it has a bona fide place of business where a majority of
the work is to be performed. For a multiple award 8(a) construction
contract, the proposed rule required a Participant to have a bona fide
place of business in any location where work is to be performed.
Commenters overwhelmingly supported the specific proposed changes
to make it easier to meet the bona fide place of business requirement.
Commenters supported the changes regarding allowing home offices to
meet the bona fide place of business requirement, noting that this will
reduce overhead costs. Commenters also supported the clarification that
an individual need not be a full-time resident of a state in order to
count as an employee for bona fide office purposes. They believed that
this clarification to allow ``floaters'' will provide needed
flexibility to enable a firm to engage with clients in different states
as needed and meet client needs more efficiently at a lower cost. SBA
adopts the proposed language for those provisions in this final rule.
SBA also received several comments supporting the clarification
regarding having an approved bona fide place of business in one state
and being eligible for work in a contiguous state. One commenter sought
further clarification of that provision. Specifically, the commenter
asked whether an 8(a) construction firm that has a bona fide office in
Virginia, but does not have a bona fide office in North Carolina, will
qualify for an 8(a) sole source construction project in North Carolina
because the states border each other. The language of the rule states
that a firm will be eligible for work that will be performed in the
geographical area serviced by a contiguous SBA district office to where
the firm has a bona fide place of business (in addition to stating a
firm will be eligible for work anywhere in a state in which the firm
has a bona fide place of business). There are two SBA district offices
servicing Virginia: the Washington Metropolitan Area District Office
services northern Virginia and the Richmond District Office services
the rest of Virginia. North Carolina has only one SBA district office,
so any district office whose geographic area touches any part of North
Carolina will be eligible for any 8(a) construction contract anywhere
in the entire state. Only the geographic area serviced by the Richmond
District Office touches North Carolina. As such, a firm having a bona
fide place of business in the geographic area serviced by the Richmond
District Office will be eligible for 8(a) construction contracts in
North Carolina. Firms having a bona fide place of business in the
geographic area serviced by the Washington Metropolitan Area District
Office will be not eligible because the geographic area serviced by
that office is not contiguous to that of the area serviced by the North
Carolina District Office. SBA believes that the proposed regulatory
language clearly stated that, and thus no change is needed to the
regulatory text as proposed.
Several commenters also supported the proposed change regarding the
guidance on how SBA interprets the bona fide place of business
requirement where a contract requires work to be performed in more than
one location and those different locations may not be within the
boundaries of the bona fide place of business. Commenters agreed that a
firm should not be required to have a bona fide place of business in
each state in which work will be performed. One commenter requested SBA
to define how it will determine what a ``majority'' of work will be for
contracts with more than one location. SBA intends to apply this by the
dollar value of the work to be performed. SBA also understands that a
requirement may have an indefinite aspect to it where the dollar value
to be performed at each location is not exactly known at the time of
contract award. As such, the final rule adds language defining majority
in terms of dollar value but also ties it to the ``anticipated'' work
to be performed. A procuring agency should be able to identify where it
anticipates a majority of the dollars on a contract will be spent.
Finally, several commenters recommended that the rule allow part-
time employees to count in establishing a bona fide place of business.
Although several commenters agreed that part-time employees should be
sufficient to establish a bona fide place of business, most did not
define what they believed a ``part-time'' employee to be. One commenter
recommended that SBA adopt the definition of part-time employee used in
the HUBZone program, believing that consistency between the programs
was important. One commenter recommended that an individual who works
at least 20 hours per week should count in establishing a bona fide
place of business. This commenter believed that 20 hours per week
evidences the small business concern's commitment to establish a bona
fide place of business while at the same time giving it some needed
flexibility. In the HUBZone program, a part-time employee counts as a
HUBZone employee if the individual works a minimum of 40 hours during
the four-week period immediately prior to the relevant date of review.
13 CFR 126.103. SBA does not believe that definition works in
establishing a bona fide place of business for 8(a) construction
contracts. If SBA applied that definition to the bona fide place of
business rule, an individual could work 40 hours in one week and the
``office'' could be empty and closed for the remaining three weeks of
the month. As noted above, the Small Business Act directs that 8(a)
construction contracts generally be awarded within the county or State
where the work is to be performed. SBA believes this means that a
Participant small business concern must have a legitimate presence in
the geographic area close to where the work is to be performed. SBA
does not believe that a firm that could be closed three weeks every
month meets that legitimate presence, but rather that there should be a
presence at the bona fide place of business every week. SBA agrees with
the commenter that 20 hours per week creates the proper balance between
establishing a legitimate presence in a location and providing needed
flexibility to small business construction firms. As such, SBA amends
the definition of bona fide place of business in Sec. 124.3 to allow a
Participant to demonstrate a bona fide place of business in a location
with at least one employee who works at least 20 hours per week at that
location.
Section 124.503(a)
Section 124.503(a) provides that SBA will decide whether to accept
a requirement offered to the 8(a) BD program within ten working days of
receipt of a written offering letter if the contract value exceeds the
SAT. In consideration of mutual responsibilities under SBA's 8(a)
Partnership Agreements with federal procuring agencies, SBA has agreed
to issue an acceptance letter or rejection letter for such offers
within five business days unless the agency grants an extension. This
proposed rule clarified that the ten-day acceptance timeframe under
section 124.503(a) applies only to 8(a) offers made outside the 8(a)
Partnership Agreement authority. One commenter recommended that the
ten-day period be calendar days instead of business days. The
regulatory text before this clarification identified the acceptance
period as ten business days. The proposed rule did not seek to alter
that timeframe. Rather, it merely intended to
[[Page 26182]]
formally recognize in the regulation that SBA and the procuring
activity may agree to a shorter timeframe for SBA's review under a
Partnership Agreement delegating 8(a) contract execution functions to
the agency. As such, SBA adopts the proposed language in this final
rule.
Section 124.503(a)(4)(ii) authorizes a procuring activity to award
an 8(a) contract without requiring an offer and acceptance where the
requirement is valued at or below the SAT and SBA has delegated its
8(a) contract execution functions to the agency. The paragraph goes on
to provide that in such a case, the procuring activity must notify SBA
of all 8(a) awards made under this authority. Some agencies have relied
on this language to justify proceeding to award an 8(a) contract under
the SAT without first requesting an eligibility determination from SBA
of the apparent successful 8(a) contractor (which is required by Sec.
124.501(g)). It was not SBA's intent to allow an award without a
determination of eligibility being made. To do otherwise could result
in agencies awarding 8(a) contracts to ineligible firms. Although it
authorizes an expedited review, the partnership agreement between SBA
and procuring agencies identifies that an eligibility determination
must still be made in these cases. The proposed rule merely clarified
that requirement in SBA's regulations. SBA received two comments
supporting the clarification that SBA determines eligibility in cases
where it has delegated 8(a) contract authority to procuring agency.
Thus, SBA adopts the proposed language in this final rule.
Section 124.503(a)(5) authorizes a procuring agency to seek
acceptance of an 8(a) offering letter with the AA/BD where SBA does not
respond to an offering letter within the ten-day period set forth under
Sec. 124.503(a). The proposed rule clarified that this ten-day time
period is intended to be ten business days. One commenter supported the
clarification, and one opposed it. The comment in opposition
recommended instead that the time frame be measured in calendar days.
Because the language in Sec. 124.503(a) is measured in business days,
SBA believes it makes sense to consistently identify time periods
throughout the section in the same way. As such, SBA adopts the
proposed language as final in this rule.
Section 124.503(i)(1)(ii)
SBA's current regulations require a procuring agency to notify SBA
where it seeks to reprocure a follow-on requirement through a pre-
existing limited contracting vehicle which is not available to all 8(a)
BD Program Participants and the previous/current 8(a) award was not so
limited. See 13 CFR 124.504(d)(1). There has been some confusion as to
whether this conflicts with Sec. 124.503(i)(1)(ii), which provides
that an agency need not offer or receive acceptance of individual
orders into the 8(a) BD program if the underlying multiple award
contract was awarded through the 8(a) BD program. These provisions were
not meant to conflict. Although formal offer and acceptance is not
required, it is important for SBA to be notified of any work that is
intended to be moved to an 8(a) multiple award contract that was
previously performed under an 8(a) contract that was not limited to
specific 8(a) Participants (i.e., either a sole source award to a
specific Participant or an 8(a) competitive award that was open to all
eligible Program Participants). As SBA noted in the supplementary
information to the final rule implementing the notification requirement
contained in Sec. 124.504(d)(1), an 8(a) incumbent contractor may be
seriously hurt by moving a procurement from an 8(a) sole source or
competitive procurement to an 8(a) multiple award contract to which the
incumbent is not a contract holder. See 85 FR 66146, 66163 (Oct. 16,
2020). In such a case, the incumbent would have no opportunity to win
the award for the follow-on contract and would have no opportunity to
demonstrate that it would be adversely impacted by the loss of the
opportunity to compete for the follow-on procurement. SBA believes that
not allowing an incumbent 8(a) contractor to compete for a follow-on
contract where that contract accounts for a significant portion of its
revenues contradicts the business development purposes of the 8(a) BD
program.
In order to eliminate any confusion and ensure that notification
occurs where a procuring agency seeks to issue an order under an 8(a)
multiple award contract and some or all of the work contemplated in
that order was previously performed through one or more other 8(a)
contracts, the proposed rule amended Sec. 124.503(i)(1)(ii) to clarify
that an agency must notify SBA where it seeks to issue an order under
an 8(a) multiple award contract that contains work that was previously
performed through another 8(a) contract. Where that work is critical to
the business development of a current Participant that previously
performed the work through another 8(a) contract and that Participant
is not a contract holder of the 8(a) multiple award contract, SBA may
request that the procuring agency fulfill the requirement through a
competition available to all 8(a) BD Program Participants.
SBA received six comments agreeing that SBA should be notified when
standalone 8(a) work is migrating as an order under an 8(a) multiple
award contract. SBA adopts the proposed language.
Section 124.503(i)(1)(iv)
SBA's current regulations authorize a sole source 8(a) order to be
awarded under a multiple award contract to a multiple award contract
holder where the multiple award contract was set-aside or reserved for
exclusive competition among 8(a) Participants. The procuring agency
must offer, and SBA must accept, the order into the 8(a) BD program on
behalf of the identified 8(a) contract holder. To be eligible for the
award of a sole source order, SBA's regulations currently specify that
a concern must be a current Participant in the 8(a) BD program at the
time of award of the order. There has been some confusion as to whether
the business activity target requirements set forth in Sec. 124.509
apply to the award of such an order. In other words, it was not clear
whether a Participant seeking a sole source 8(a) order under a multiple
award contract set-aside or reserved for eligible 8(a) Participants
needed to be in compliance with any applicable competitive business mix
target established or remedial measure imposed by Sec. 124.509 at the
time of the offer/acceptance of the order. Because SBA is determining
eligibility anew at the time of a new sole source order, it was always
SBA's intent to not only require a firm to still be a current and
otherwise eligible 8(a) Participant at the time of offer/acceptance of
a sole source order, but to also require the firm to be in compliance
with any applicable competitive business mix target established or
remedial measure imposed by Sec. 124.509. As such, the proposed rule
clarified that compliance with the Sec. 124.509 business activity
target requirements will be considered before SBA will accept a sole
source 8(a) order on behalf of a specific 8(a) Participant multiple
award contract holder. Where an agency seeks to issue a sole source
order to a joint venture, the proposed rule clarified that SBA will
review and determine whether the lead 8(a) partner to the joint venture
is currently an eligible Program Participant and in compliance with any
applicable competitive business mix target established or remedial
measure imposed by Sec. 124.509. SBA received 21 comments in response
to this proposal. Nineteen comments supported the
[[Page 26183]]
proposed language specifically authorizing sole source awards under
8(a) multiple award contracts and requiring eligibility and business
activity target compliance at the time of the order award. These
commenters believed that any sole source award, whether an individual
contract or an order under a previously awarded multiple award
contract, should be treated similarly. In other words, these commenters
agreed with SBA's position that eligibility for a sole source 8(a)
order must be determined as of the date of the order, not the
underlying multiple award contract itself. Two commenters opposed the
proposed change. They believed that it would harm 8(a) firms that were
awarded 8(a) multiple award contracts but have grown throughout the
life of the contract. SBA notes that Participants that received an 8(a)
multiple award contract will generally continue to be eligible for
orders that are competitively awarded under that contract throughout
the life of the contract. Of course, a contracting officer may request
recertification of size and/or eligibility with respect to a specific
order and recertification of size and status must occur after the fifth
year on a long-term contract, but firms that grow to be other than
small and/or firms that have graduated or otherwise left the 8(a) BD
program may be awarded competitive orders under the multiple award
contract. However, SBA continues to believe that sole source awards are
unique. Sole source authority does not derive directly from an
underlying competitively awarded 8(a) multiple award contract. SBA
believes that the rules governing the award of a sole source 8(a)
contract should also apply to the award of a sole source 8(a) order.
That means that a firm must still be an eligible Participant that
qualifies as small as of the date the order is issued. Part of any
eligibility determination for a sole source award is an examination of
a Participant's compliance with its applicable business activity
target. Therefore, SBA adopts the proposed language as final.
In addition, the proposed rule further clarified the rules
pertaining to issuing sole source orders to joint ventures under an
8(a) multiple award contract. There has been some confusion as to
whether the requirement set forth in Sec. 121.103(h) that a joint
venture may not be awarded contracts beyond a two-year period, starting
from the date of the award of the first contract, applies to such sole
source orders and whether SBA must approve the joint venture in
connection with the sole source order as generally required by Sec.
124.513(e)(1). The proposed rule specifically clarified that the two-
year restriction does not apply to a sole source 8(a) order under an
8(a) multiple award contract. In other words, the sole source order can
be issued more than two years after the date the joint venture received
its first contract award. In addition, the proposed rule provided that
SBA would not review and approve a joint venture where the joint
venture had already been awarded a competitive 8(a) multiple award
contract and is seeking a sole source 8(a) order under that multiple
award contract at some point during the performance period of the
contract. SBA believes that the general requirement set forth in Sec.
124.513(e)(1) that SBA review a joint venture in connection with a sole
source 8(a) award should not apply to sole source orders issued under a
competitively awarded 8(a) multiple award contract because the joint
venture's eligibility for the contract was already established at the
award of the underlying contract. The procuring agency and other
interested parties had the opportunity to challenge whether the joint
venture was properly formed at that time. SBA received two comments
supporting the proposed clarifications relating to joint ventures and
no comments opposing them. As such, SBA adopts the proposed language in
this final rule.
Finally, in making this clarification to Sec. 124.509, SBA noticed
two instances in SBA's rules where SBA intended to cross reference
Sec. 124.509, but instead cited to Sec. 124.507. This rule amends
Sec. Sec. 124.303(a)(15) and 124.403(c)(1) to change the cross
reference to Sec. 124.509.
Section 124.503(i)(2)(ii)
SBA has received inquiries as to whether an agency can issue an
order under the Federal Supply Schedule (FSS) as an 8(a) award, and if
so, what procedures must be used. As with any unrestricted multiple
award contract, SBA believes that an order can be issued under the FSS
as an 8(a) award if the procedures set forth in Sec. 124.503(i)(2) are
followed. This means that the following requirements must be met: the
order must be offered to and accepted into the 8(a) BD program; the
order must require the concern to comply with applicable limitations on
subcontracting provisions and the nonmanufacturer rule, if applicable,
in the performance of the individual order; before award, SBA must
verify that the identified apparent successful offeror is an eligible
8(a) Participant as of the initial date specified for the receipt of
proposals contained in the order solicitation, or at the date of award
of the order if there is no solicitation; and the order must be
competed exclusively among only the 8(a) awardees of the underlying
multiple award contract. There is some confusion as to what that last
requirement means. In the case of a multiple award contract awarded
under full and open competition, SBA believes that the current
regulatory language is clear. All contract holders that have certified
as 8(a) eligible must be able to submit an offer for the order if they
choose. An agency cannot limit competition to a subset of contract
holders that have claimed to be 8(a) eligible. Of course, the apparent
successful offeror's eligibility must be verified by SBA prior to award
to ensure that the concern was in fact an eligible Participant as of
the initial date specified for the receipt of offers contained in the
order solicitation, or at the date of award of the order if there is no
solicitation. For an order under the FSS that an agency seeks to issue
through the 8(a) BD program, there has been some confusion as to what
procedures must be used to issue the order. Specifically, agencies have
told SBA that it is not clear whether an agency can merely follow the
FAR 8.4 requirements or must allow all FSS holders who claim 8(a)
status the opportunity to compete. SBA believes that orders issued
under the FSS are unique from orders issued under multiple award
contracts competed using full and open competition. GSA has established
procedures for issuing orders under the FSS. SBA believes that those
procedures should be used when an agency seeks to issue an 8(a) award
under the FSS. The proposed rule clarified that distinction. An agency
need not open the order up to competition among all FSS contract
holders claiming 8(a) status. However, an agency must consider the
quote from any FSS contract holder claiming 8(a) status who submits
one. As with 8(a) orders issued under unrestricted multiple award
contracts, however, the apparent successful offeror for an 8(a) order
under the FSS must be an eligible Participant as of the initial date
specified for the receipt of offers contained in the request for quote,
or at the date of award of the order if there is no solicitation.
Several commenters supported these clarifications, and none opposed. As
such, SBA adopts the proposed language as final in this rule.
Section 124.504
Section 124.504(d) sets forth the procedures authorizing release of
a follow-on requirement from the 8(a) BD program. Paragraph (d)(3)
provides that SBA will release a requirement where the procuring
activity agrees to procure
[[Page 26184]]
the requirement as a small business, HUBZone, SDVO small business, or
WOSB set-aside. Some procuring activities have read this to mean that
SBA will always release a requirement from the 8(a) BD program if the
procuring activity agrees to procure the requirement as a small
business, HUBZone, SDVO small business, or WOSB set-aside. That was not
SBA's intent. The 8(a) BD program is a business development program.
SBA takes that purpose seriously and will always consider whether an
incumbent 8(a) contractor would be adversely affected by the release of
a follow-on procurement from the 8(a) BD program. Accordingly, the
proposed rule amended Sec. 124.504(d)(3) by changing the words ``SBA
will release'' to ``SBA may release'' to clarify that SBA has
discretion in any release decision. The fact that a procuring activity
agrees to procure the requirement as a small business, HUBZone, SDVO
small business, or WOSB set-aside is a positive factor for release, but
SBA must still consider any adverse consequences to an incumbent 8(a)
Participant. The release process has also caused some confusion
regarding how a follow-on requirement may be procured if SBA agrees to
release. Again, the current rule provides that release may occur only
where a procuring activity agrees to procure the requirement as a small
business, HUBZone, SDVO small business, or WOSB set-aside. In other
words, a strict reading of the rule would not allow release where an
agency seeks to award a follow-on requirement as a set-aside order
under a multiple award contract that is not itself a set-aside
contract. Thus, even if an agency sought to procure a follow-on
requirement as an 8(a) order under an unrestricted multiple award
contract, the current regulatory language could be read to preclude
that approach. That was not SBA's intent. As long as an agency
identifies a procurement strategy that would target small businesses
for a follow-on procurement, release may occur. In fact, release to
such a contract vehicle may be appropriate where the incumbent 8(a)
contractor has graduated from the program but still qualifies as a
small business, the requirement is critical to the incumbent
contractor's overall business development, the incumbent contractor is
a contract holder on an unrestricted multiple award contract, and the
procuring agency has evidenced its intent to set-aside an order for
small business under the multiple award contract for which the
incumbent contractor is a contract holder. This would give the
incumbent contractor the opportunity to compete for the follow-on
procurement and ensure that award would be made to a small business.
The proposed rule clarified that release may occur whenever a procuring
agency identifies a procurement strategy that would emphasize or target
small business participation.
SBA received 11 comments supporting this clarification and no
comments opposing it. Commenters believed that an 8(a) incumbent
contractor may be seriously hurt by moving a procurement from an 8(a)
sole source or competitive procurement to an 8(a) multiple award
contract to which the incumbent is not a contract holder (such as a FSS
holder) because the incumbent, who may have done a fantastic job in the
past, would have no opportunity to be awarded for the follow-on
contract, nor would it have the opportunity to demonstrate that it
would be adversely impacted by the loss of the opportunity to compete
for the follow-on procurement. Commenters also supported the provision
requiring a procuring agency to ``coordinate with'' SBA when it seeks
to re-procure a follow-on requirement through a pre-existing, limited
contracting vehicle that is not available to all 8(a) Participants.
They believed that this will facilitate meaningful dialogue between the
procurement agency and SBA and promote the purposes of the 8(a)
program. SBA agrees with the comments and adopts the proposed language
in this final rule.
Section 124.506(b)(3)
In explaining SBA's ability to accept a sole source 8(a)
requirement on behalf of a tribally-owned, ANC-owned or NHO-owned
Participant above the general competitive threshold amounts, Sec.
124.506(b)(2) provided that a procurement may not be removed from
competition to award it to a Tribally-owned, ANC-owned or NHO-owned
concern on a sole source basis. There has been some confusion as to
what the phrase ``may not be removed from competition'' means. Some
have misinterpreted this provision to believe that a follow-on
requirement to one that was previously awarded as a competitive 8(a)
procurement cannot be awarded to an entity-owned firm on a sole source
basis above the applicable competitive threshold. That is not SBA's
intent. The provision prohibiting a procurement from being removed from
competition and awarded to an entity-owned Participant on a sole source
basis was meant to apply only to a current procurement, not the
predecessor to a current procurement. A procuring agency may not
evidence its intent to fulfill a requirement as a competitive 8(a)
procurement, through the issuance of a competitive 8(a) solicitation or
otherwise, cancel the solicitation or change its public intent, and
then procure the requirement as a sole source 8(a) procurement to an
entity-owned Participant. A follow-on procurement is a new contracting
action for the same underlying requirement, and if the procuring agency
has not evidenced a public intent to fulfill it as a competitive 8(a)
procurement it can be fulfilled on a sole source basis to an entity-
owned Participant. The proposed rule added language clarifying that
intent. SBA received 12 comments supporting the clarification to allow
a sole source award to an entity-owned Participant where the procuring
activity has not evidenced its intent to fulfill the current
requirement as a competitive 8(a) procurement and no comments opposing
it. As such, SBA adopts the proposed language in this final rule.
The proposed rule also sought comments as to whether a specific
provision should be added to the regulations requiring SBA to consider
the effect that losing an opportunity to compete for a follow-on
contract would have on an incumbent Participant's business development
where the follow-on procurement is offered to SBA as a sole source 8(a)
procurement on behalf of an entity-owned Participant. In response, SBA
received five comments. The comments opposed adding such a provision to
the regulations. Commenters noted that while they understood SBA's
intent to ensure program participants are not negatively impacted when
a follow-on 8(a) procurement is awarded on a sole source basis, they
believed that procuring agencies should have discretion in how best to
procure a requirement through the 8(a) BD program. Commenters also
noted that a procuring agency oftentimes changes its procurement
strategy because of an incumbent's unsatisfactory performance on a
contract. They believed that a procuring agency should not be saddled
with a contractor whose performance is lacking merely because the
contract would advance the firm's business development. Finally, one
commenter also believed that it is important to consider the business
development needs of all Participants, meaning both the entity-owned
Participants as well as the Participants who previously performed
certain incumbent contracts in this context. SBA believes that a
specific regulatory change is not needed to capture SBA's role in
ensuring that
[[Page 26185]]
the business development purposes of the 8(a) BD program are served. As
such, SBA makes no further changes to this section in the final rule.
Section 124.506(d)
The proposed rule clarified SBA's rules pertaining to the award of
sole source 8(a) contracts to individually-owned 8(a) Participants. The
proposed rule added a provision to Sec. 124.506(d) to clarify that an
individually-owned 8(a) Participant could receive a sole source award
in excess of the $4.5M and $7M competitive threshold amounts set forth
in Sec. 124.506(a)(2) where a procuring agency has determined that one
of the exceptions to full and open competition set forth in FAR 6.302
exists. For example, if a procuring agency has determined that an
unusual and compelling urgency exists and has identified an
individually-owned 8(a) Participant that is capable of fulfilling its
needs, the agency can offer that requirement to SBA as a sole source
award on behalf of the identified Participant even if the requirement
exceeds the applicable competitive threshold. Because the agency could
use its authority under FAR 6.302 to award a sole source contract
outside the 8(a) BD program, SBA believes that it only makes sense to
allow the agency to make an award as a sole source contract within the
8(a) BD program if it chooses to do so.
In addition, if such an award exceeds $25M, or $100M for a
Department of Defense (DoD) agency, the proposed rule also clarified
that the agency would be required to justify the use of a sole source
contract under FAR 19.808-1 or Defense Federal Acquisition Regulation
Supplement (DFARS) 219.808-1(a) before SBA could accept the requirement
as a sole source 8(a) award. Although those justifications and
approvals generally apply to sole source 8(a) contracts offered to SBA
on behalf of entity-owned Program Participants, the FAR and DFARS
justification and approval provisions are not restricted to entity-
owned Participants. Instead, those provisions apply to any 8(a) sole
source contract that exceeds the $25M or $100M threshold. As such the
proposed rule merely added language to clarify what SBA believes the
current requirement is and does so in order to avoid any confusion.
SBA received four comments on these proposed clarifications. Three
supported the clarifications and one opposed. The one comment in
opposition believed that allowing a sole source award above the
competitive thresholds to an individually-owned Participant could lead
to small businesses being exploited. The three comments supporting the
changes agreed that if an agency could justify the use of a sole source
award outside the 8(a) program, it makes sense to allow them to use the
8(a) program instead. SBA does not agree with the one commenter's
concerns that a small business could be exploited because of this
change. The authority that SBA recognizes is very limited. A procuring
activity must be able to justify a sole source award to a particular
Participant based on one of the FAR 6.302 exceptions to full and open
competition. If that justification exists, SBA not allowing the
procuring activity to use the 8(a) BD program would not prevent an
award to the identified concern from occurring. The award could still
be made to the same small business concern, and the activity could
still count the award towards its small disadvantaged business goal. A
sole source award outside the 8(a) BD program, however, would not
necessarily require inclusion of the applicable limitations on
subcontracting provision. If the limitations on subcontracting
provision were not included, the concern could subcontract any portion
of the award to one or more other business concerns. SBA believes that
there is a greater chance for exploitation in that scenario than
through an 8(a) award. Thus, SBA adopts the language as proposed in
this final rule.
Section 124.509
Section 124.509 establishes non-8(a) business activity targets to
ensure that Participants do not develop an unreasonable reliance on
8(a) awards. SBA amended this section as part of a comprehensive final
rule in October 2020. See 85 FR 66146, 66189 (Oct. 16, 2020). In that
final rule, SBA recognized that a strict prohibition on a Participant
receiving new sole source 8(a) contracts should be imposed only where
the Participant has not made good faith efforts to meet its applicable
non-8(a) business activity target. Since that rule became effective in
November 2020, Participants have sought guidance as to how they may
demonstrate their good faith efforts. The proposed rule sought to
provide guidance by incorporating SBA's interpretation of good faith
efforts in this context. Specifically, the proposed rule provided two
ways by which a Participant could establish that it has made good faith
efforts. Specifically, a Participant could demonstrate to SBA either
that it submitted offers for one or more non-8(a) procurements which,
if awarded, would have given the Participant sufficient revenues to
achieve the applicable non-8(a) business activity target during its
just completed program year, or explain that there were extenuating
circumstances that adversely impacted its efforts to obtain non-8(a)
revenues. This proposed rule also identified possible extenuating
circumstances, which would include but not be limited to a reduction in
government funding, continuing resolutions and budget uncertainties,
increased competition driving prices down, or having one or more prime
contractors award less work to the Participant than originally
contemplated.
Commenters largely supported SBA's efforts to provide clarity on
how a Participant may demonstrate that it made good faith efforts to
meet its applicable non-8(a) business activity target. One commenter
urged SBA to adjust the period of measurement for submitting offers for
non-8(a) procurements, which, if awarded, would have given the
Participant sufficient non-8(a) revenues to achieve the applicable non-
8(a) business activity target during its just completed program year.
This commenter believed that providing a list of proposals submitted
during the applicable program year (irrespective of award or when
contract revenues would be realized) would provide a more bright-line
and consistent approach. While SBA recognizes the value of clear
regulatory standards, compliance with the business activity target
requirement is measured based on a Participant's 8(a) and non-8(a)
revenues in a given program year. As such, in assessing whether a
Participant has made good faith efforts to meet its applicable non-8(a)
business activity target, SBA believes it should only consider non-8(a)
receipts which would have been realized during the relevant program
year. In addition, it is unclear how SBA should treat contract revenues
that would not be derived in the pertinent program year. In SBA's view,
a Participant must demonstrate to SBA that it submitted offers for one
or more non-8(a) procurements which, if awarded during its just
completed program year, would have given the Participant sufficient
revenues to achieve the applicable non-8(a) business activity target
during that same program year. The final rule revises the proposed
language to clarify this policy. In addition, two commenters urged SBA
to expand the list of extenuating circumstances that may be considered
to include: unanticipated labor or supply shortages which may preclude
a Participant from submitting a proposal;
[[Page 26186]]
and marketing efforts such as responding to an agency's Request for
Information or attendance at industry days or other procurement
conferences. As proposed, the regulatory text provides that the list of
extenuating circumstances is not exhaustive. This is consistent with
SBA's intent to consider all relevant circumstances out of the
Participant's control which adversely impacted its efforts to obtain
sufficient non-8(a) revenues. This rule adopts the proposed language as
final.
There has also been some confusion as to how SBA should best track
business activity targets. The statutory requirement for such targets
relates to program years, meaning a Participant should receive a
certain percentage of non-8(a) business during certain years in the
program. In the October 2020 final rule, SBA changed all references to
looking at business activity compliance from fiscal year to program
year to align with the statutory authority. A program year lines up
with the date that a Participant was certified as eligible to
participate in the 8(a) BD program. That date generally is not the same
as a Participant's fiscal year. Participants have financial statements
relating to their fiscal year activities, but most do not have
financial statements relating to program year. To capture program year
data, SBA has asked Participants to estimate as best they can program
year revenues for both 8(a) and non-8(a) activities. However, it was
brought to SBA's attention that these sales estimates were difficult to
prepare and inaccurate. In response to these concerns, the proposed
rule specifically requested comments as to how firms believe it would
be easiest for them to meet the program year information requirements.
The supplementary information to the proposed rule explained that SBA
was considering an approach to capture program year data based on the
Participant's interim financial statements. This would require a
Participant to submit monthly, quarterly, or semi-annual financial
statements, as appropriate, to SBA where the close of its fiscal year
and its program anniversary date are separated by more than 90 calendar
days. SBA could then assess the Participant's compliance with the
business activity target based on the breakdown of 8(a) and non-8(a)
sales set forth in the applicable interim financial statements. For
example, Participant A's fiscal year closes on December 31, and its
program anniversary date is May 9. In connection with its annual
review, Participant A would submit quarterly financial statements for
the periods of April 1- June 30, July 1-September 30, and October 1-
December 31, from its most recently completed fiscal year, and the
period of January 1-March 31 in its current fiscal year. SBA could then
determine Participant A's compliance with the applicable business
activity target based on the breakdown of 8(a) and non-8(a) sales
during the 12-month period covered by these quarterly financial
statements. While this approach would exclude revenues derived during
the final weeks or months leading up to a Participant's program
anniversary date, SBA explained that it would most closely capture a
Participant's program year activities without placing an undue burden
on the Participant to estimate its 8(a) and non-8(a) revenues on a
program year basis.
Commenters were split on SBA's approach to capture program year
business activity based on interim financial statement figures. Three
commenters confirmed that the incumbent policy requiring Participants
to estimate their 8(a) and non-8(a) sales on a program year basis is
challenging and yields inaccurate figures, especially where a
Participant's program anniversary date falls in the middle of a
calendar month. On the other hand, four commenters voiced concern that
requiring a Participant to submit its interim financial statements
would impose an undue administrative burden and cost on the 8(a)
community. One such commenter urged SBA to accept interim financial
statements prepared in-house if this approach is adopted. Through its
independent research, SBA recognizes that it could be burdensome on
some businesses to report sales estimates based on interim reporting
periods spanning different fiscal years where they do not currently
prepare interim quarterly statements. After carefully considering these
comments and findings, SBA will continue to allow Participants to
estimate as best they can program year revenues for both 8(a) and non-
8(a) activities. The final rule revises Sec. 124.509 to explicitly
incorporate SBA's current business activity reporting policy. However,
as noted above, SBA is mindful that estimating program year sales in
this manner is neither practical nor precise for some 8(a)
Participants. To address these concerns, the final rule will also
revise Sec. 124.509 to permit program year sales reporting based on
the Participant's interim financial statement figures, which may be
prepared in-house. Because SBA does not seek to impose unnecessary
reporting or compliance burdens on the 8(a) portfolio, the final rule
provides that a Participant need not submit the underlying monthly,
quarterly, or semi-annual financial statements in connection with its
annual review. SBA believes this approach will reduce administrative
burdens across the entire 8(a) portfolio while simultaneously promoting
accurate reporting and oversight.
Sections 124.513(a), 126.616(a)(2), 127.506(a)(3), and 128.402(a)(3)
The proposed rule added a new Sec. 124.513(a)(3) to provide that a
Program Participant cannot be a joint venture partner on more than one
joint venture that submits an offer for a specific 8(a) contract.
Although the proposed rule applied this requirement to all contracts,
procuring agencies and small businesses have raised concerns to SBA in
the context of multiple award contracts where it is possible that one
firm could be a member of several joint ventures that receive
contracts. In such a situation, several agencies were troubled that
orders under the multiple award contract may not be fairly competed if
one firm was part of two, three or more quotes. They believed that one
firm having access to pricing information for several quotes could skew
the pricing received for the order.
To ensure that the HUBZone, WOSB and SDVOSB programs have rules as
consistent as possible to those for the 8(a) BD program, the proposed
rule added similar language as that added to Sec. 124.513(a)(3) for
those programs in proposed Sec. 125.18(b) (for SDVOSB), Sec.
126.616(a)(2) (for HUBZone), and Sec. 127.506(a)(3) (for WOSB).
The proposed rule also specifically requested comments as to
whether this provision should be limited only to 8(a)/HUBZone/WOSB/
SDVOSB multiple award contracts or whether it should apply to all
contracts set-aside or reserved for 8(a)/HUBZone/WOSB/SDVOSB, and to
all orders set-aside for such businesses under unrestricted multiple
award contracts.
SBA received seven comments responding to whether a firm should be
able to be a joint venture partner on more than one joint venture that
submits an offer for a specific small business contract. All commenters
supported the proposed change. Commenters believed that the changes
will help maintain fair market competition within the small business
programs and prevent firms from unduly benefiting from the programs at
the expense of other, less sophisticated small business concerns.
Commenters also believed that the rule should apply to all contracts
set-aside or reserved for
[[Page 26187]]
8(a)/HUBZone/WOSB/SDVOSB, and to all orders set-aside for such
businesses under unrestricted multiple award contracts. As such, SBA
adopts the changes to Sec. 124.513(a)(3) (for the 8(a) program), to
Sec. 126.616(a)(2) (for the HUBZone program), and to Sec.
127.506(a)(3) (for the WOSB program). Although the proposed rule also
amended Sec. 125.18(b) for joint ventures relating to the SDVO
program, the final rule modifies Sec. 128.402(a)(3) instead. SBA
included the same provision in the final rule implementing the Veteran
Small Business Certification Program and is already contained in Sec.
128.402(a)(3) of SBA's regulations for the SDVO program. See 87 FR
73400 (Nov. 29, 2022). This final rule slightly modifies the language
in Sec. 128.402(a)(3) to be identical to that for the HUBZone and WOSB
programs. The restriction on being a member of more than one joint
venture will apply equally to apply to all contracts or orders set-
aside or reserved for the 8(a), HUBZone, WOSB, or SDVO programs.
Section 124.515
Section 124.515 implements section 8(a)(21) of the Small Business
Act, 15 U.S.C. 637(a)(21), which generally requires an 8(a) contract to
be performed by the concern that initially received the contract. In
addition, the statute and Sec. 124.515 provide that where the owner or
owners upon whom eligibility was based relinquish ownership or control
of such concern, any 8(a) contract that the concern is performing shall
be terminated for the convenience of the Government unless the SBA
Administrator, on a nondelegable basis, grants a waiver based on one or
more of five statutorily identified reasons. The proposed rule revised
Sec. 124.515(c) for clarity. Specifically, it broke one longer
paragraph into several smaller subparagraphs and clarified that if a
Participant seeks a waiver based on the impairment of the agency's
mission or objectives, it must identify and provide a certification
from the procuring agency relating to each 8(a) contract for which a
waiver is sought.
Under the procedures that existed prior to this rule, a Participant
(or former Participant that is still performing an 8(a) contract)
submitted its request for a waiver to the termination for convenience
requirement to the Participant's (or former Participant's) SBA
servicing district office. These requests for waivers are often
complicated and can take a long time to be approved. Processing a
waiver request can take several months in an SBA district office and
then several months in SBA's Office of Business Development in SBA's
Headquarters. To streamline the process, the proposed rule sought
comments regarding where requests for waivers should be initiated.
Specifically, SBA sought comments as to whether waiver requests should
be sent directly to the AA/BD instead of to the servicing district
office.
SBA received 13 comments regarding the proposed changes to Sec.
124.515. One commenter believed there was no need to change the request
for waiver process. Twelve commenters supported changing the process.
The commenters supporting a change believed that streamlining the
waiver process is beneficial to small businesses. Commenters noted that
the process initiating at the district office level was lengthy and
often dissuaded firms from initiating a waiver request. They believed
that requests get bogged down in SBA for months, which can make deals
fall apart. Commenters noted that disadvantaged individuals are
penalized in the waiver process because it is difficult to negotiate a
price for a business that will be acquired a year or more into the
future. Commenters recommended that waiver requests be initiated with
the AA/BD. Commenters also recommended that time limits be put into the
regulation to provide that SBA will process such requests in a certain
amount of time. SBA agrees that the termination for convenience waiver
process was oftentimes exceedingly lengthy. In order to streamline the
process, the final rule provides that waiver requests will be initiated
with the AA/BD and that SBA will process a request for waiver within 90
days of receipt of a complete waiver package by the AA/BD.
SBA also received a comment questioning SBA's implementation of a
waiver based on the transfer of ownership and control to another
eligible Program Participant. Specifically, the commenter questioned
why SBA would not grant a waiver with respect to a specific 8(a)
contract if the work to be performed under the contract is not similar
to the type of work previously performed by the acquiring 8(a)
Participant. The commenter believed that SBA should be looking at the
eligibility of the acquiring firm, as required by the statutory
authority, but should not be attempting to determine the responsibility
of the acquiring firm to perform the contract prior to the acquisition
or question the acquiring firm's business strategy going forward. SBA
agrees. The statutory authority speaks solely to requiring SBA to
ensure that the acquiring firm is an eligible Participant prior to the
transfer. As such, the final rule deletes the last sentence of current
Sec. 124.515(d), which restricted the transfer of 8(a) contracts to
another Participant that had not previously performed work similar to
that being transferred.
Sections 124.604 and 124.108
Section 124.604 currently requires each Participant owned by a
Tribe, ANC, NHO or CDC to submit to SBA information showing how the
Tribe, ANC, NHO or CDC has provided benefits to the Tribal or native
members and/or the Tribal, native or other community due to the
Tribe's/ANC's/NHO's/CDC's participation in the 8(a) BD program through
one or more firms.
The proposed rule sought to add a requirement that each entity
having one or more Participants in the 8(a) BD program establish a
Community Benefits Plan that outlines the anticipated approach it
expects to deliver to strengthen its Native or underserved community
over the next three or five years. The proposed rule also sought
comments regarding such a Community Benefits Plan and whether and how
SBA should seek to ensure that benefits derived from the 8(a) BD
program flow back to the native or disadvantaged communities served by
tribes, ANCs, NHOs and CDCs. As noted above, SBA held five tribal
consultations and listening sessions to hear from the Native
communities. The tribal, ANC and NHO representatives overwhelmingly
opposed any changes to the benefits reporting provisions. In addition,
in response to the proposed rule SBA received 35 comments further
opposing any changes to the benefits reporting requirements and
imposing a new Community Benefits Plan requirement. One commenter,
however, agreed that entities should have a Community Benefits Plan
given the unique benefits available to entity-owned firms and that it
makes sense that entity-owned firms should demonstrate how they are
substantively improving the lives of the communities they serve. During
the last tribal consultation in Washington, DC, SBA announced that it
would not finalize anything new pertaining to benefits reporting. As
such, this final rule does not adopt any new language to Sec. 124.604
or any new language to Sec. 124.108 dealing with benefits or benefits
reporting.
Section 124.1002
Section 1207 of the National Defense Authorization Act for Fiscal
Year 1987, Public Law 99-661 (100 Stat. 3816, 3973), authorized a set-
aside program at DoD for small disadvantaged businesses, separate from
the authority for contracts
[[Page 26188]]
awarded under the 8(a) BD program. The ``Section 1207'' or SDB Program
also had a price evaluation preference and a subcontracting component.
SBA implemented regulations establishing the eligibility requirements
for the SDB Program and authorizing a protest and appeal process to SBA
regarding the SDB status of apparent successful offerors. In 2008, the
United States Court of Appeals for the Federal Circuit ruled that
preferential treatment in the award of DOD prime defense contracts
based on race under the Section 1207 program (as implemented in 10
U.S.C. 2323) was unconstitutional. Rothe Dev. Corp. v. DOD, 545 F.3d
1023. This effectively eliminated the SDB Program.
In response to the ruling, the FAR Council revised the SBA protest
process for SDBs in the FAR to a ``review'' process in a final rule
effective October 2014 (79 FR 61746). SBA brought its own regulations
up to date in 2020 by removing references to an SDB protest. 85 FR
27290 (May 8, 2020). Recently, SBA's Office of Inspector General (OIG)
has questioned why a protest process no longer exists to challenge a
firm's SDB status. Despite SBA's explanation that the Section 1207
program (the basis for SBA's previous SDB regulatory authorities) no
longer exists, OIG continues to believe that general authority to
protest a firm's SDB status should exist. SBA notes that since the FAR
Council replaced the protest process with a review process in 2014, SBA
has not received any requests for review. Although SBA believes that
such authority would not be often utilized, in response to OIG's
concerns the proposed rule added a new Sec. 124.1002 authorizing
reviews and protests of SDB status in connection with prime contracts
and subcontracts to a federal prime contract. The proposed rule copied
similar text contained in FAR 19.305.
SBA did not receive any comments relating to Sec. 124.1002, and
SBA adopts the proposed language in this final rule. Under the rule,
SBA will be able to initiate the review of the SDB status on any firm
that has represented itself to be an SDB on a prime contract (for
goaling purposes or otherwise) or subcontract to a federal prime
contract whenever it receives credible information calling into
question the SDB status of the firm. In addition, as already stated in
the FAR, a contracting officer or the SBA may protest the SDB status of
a proposed subcontractor or subcontract awardee. Finally, where SBA
determines that a subcontractor does not qualify as an SDB, prime
contractors must exclude subcontracts to that subcontractor as
subcontracts to an SDB in its subcontracting reports, starting from the
time that the protest was decided. SBA believes that a prime contractor
should not get SDB credit for using a subcontractor that does not
qualify as an SDB. However, in order not to penalize a prime contractor
who acted in good faith in awarding a subcontract or to impose an
additional burden of correcting past subcontracting reports, the rule
disallows SDB subcontracting credit only prospectively from the point
of an adverse SDB determination.
Sections 125.1, 125.3(c)(1)(i), 125.3(c)(1)(x), and 125.3(c)(2)
SBA proposed to make changes to several provisions in part 125 that
reference the term commercial item. This is in response to recent
changes made to the FAR with regard to the definition of ``commercial
item''. 86 FR 61017. Primarily, the changes to the FAR split the
definition of commercial items into two categories, commercial products
and commercial services. SBA proposed to amend its regulations to adopt
these changes when SBA's regulation is referring to a commercial
product, a commercial service, or both. Specifically, the proposed rule
amended the definition for ``cost of materials'' in 125.1 to refer only
to commercial products. Further, SBA proposed to amend 125.3(c)(1)(i),
(c)(1)(x), and (c)(2) to update the references to both commercial
products and commercial services.
SBA received no comments in response to these proposed changes and
adopts them as final in this rule.
Section 125.1
The proposed rule added definitions of the terms ``Small business
concerns owned and controlled by socially and economically
disadvantaged individuals'' and ``Socially and economically
disadvantaged individuals'' for purposes of both SBA's subcontracting
assistance program in 15 U.S.C. 637(d) and the goals described in 15
U.S.C. 644(g). The proposed rule sought to implement consistency among
SBA's programs and referred to requirements set forth in part 124 for
8(a) eligibility. SBA received no comments on this proposed change and
adopts it as final in this rule. SBA believes that the change will
provide clarity for small disadvantaged business eligibility
requirements contained in other statutes that refer to 15 U.S.C. 637(d)
for their eligibility.
SBA also proposed to include blanket purchase agreements (BPAs) in
the list of contracting vehicles that are covered by the definitions of
consolidation and bundling. There are two kinds of BPAs: GSA's FSS BPAs
covered under FAR 8.4 and BPAs established under Simplified Acquisition
Procedures (see FAR 13.303). The proposed rule requested comments as to
whether the list should apply to both types of BPAs, FSS and FAR
13.303, and whether it should apply to both BPAs established with more
than one supplier and BPAs established with a single firm. Generally, a
consolidated requirement is one that consolidates two or more previous
requirements performed under smaller contracts into one action. A
bundled requirement is a type of consolidated requirement in which
multiple small-business requirements are consolidated into a single,
larger requirement that is not likely suitable for award to small
businesses. In most cases, because of the potential negative impact on
small business contracting opportunities, the contracting agency is
required to conduct a financial analysis, execute a determination that
the action is necessary and justified, and in some cases notify
impacted small businesses and the public, before proceeding with a
bundled or consolidated requirement. The Small Business Act, 15 U.S.C.
632(j), requires agencies to avoid unnecessary bundling of ``contract
requirements.'' SBA interprets the term ``contract requirements'' to
include BPAs for the purposes of this statutory provision on avoiding
bundling. This is similar to how SBA interprets the term ``proposed
procurement'' under the Small Business Act's requirement for agencies
to coordinate with procurement center representatives on prime contract
opportunities.
SBA thus intended the consolidation and bundling provisions to
apply to BPAs. The Government Accountability Office (GAO), however,
ruled in two recent bid protests that, because SBA's regulations do not
specifically address BPAs, the consolidation and bundling procedures do
not apply when the resulting requirement is a BPA.
SBA routinely sees consolidation in BPAs. Bundling on a BPA has the
same detrimental effect on small-business incumbents as bundling on
other vehicles, such as contracts or orders. Regardless of whether the
resulting requirement is a BPA, the bundled action will convert
multiple small business contracting actions into a single action to be
awarded to a large business. If agencies are not required to follow SBA
regulations regarding notification and a written determination for
bundled BPAs, the small business incumbents may not know that work that
they are currently performing has been bundled and moved to a single
[[Page 26189]]
award to a large business and may not have the opportunity to challenge
such action. Awarding a requirement as a BPA does not lessen the
negative impact of bundling on small businesses, and, therefore, SBA
proposes to incorporate into the regulations its current belief that
the bundling and consolidation rules should apply with equal force
where the resulting award will be a BPA.
SBA received ten comments regarding the change to include BPAs in
the definition of bundling. All ten commenters supported the inclusion
of BPAs. Commenters agreed that the consolidation and bundling
requirements should not be limited to either BPAs established with more
than one supplier or a single firm and should apply to both BPAs
established under FAR Part 8 or Part 13 procedures. One commenter
commended SBA for this change, believing that it can prevent contracts
from being bundled and taken away from small business. Several
commenters also recommended that SBA amend the definition of
consolidation to include BPAs as well. SBA agrees that the
consolidation and bundling requirements should apply to BPAs
established with a more than one supplier or a single firm and to both
BPAs established under FAR Part 8 or Part 13 procedures. SBA has added
BPAs to both the definitions of bundling and consolidation in this
final rule.
Additionally, several procuring agencies have asserted that the
analysis, determination, and notification requirements for
consolidation or bundling do not apply when existing requirements are
combined with new requirements. SBA disagrees. There is no basis in
statute, regulation, or case law for agencies to interpret
``requirement'' as excluding a combination of existing and new work.
The statutory language speaks solely to the value of existing work. As
long as the combined existing work is greater than $2 million, the
statute defines it to be consolidation. New work is not relevant to
that determination. To eliminate any confusion, the proposed rule
clarified SBA's current position that agencies are required to comply
with the Small Business Act and all SBA regulations regarding
consolidation or bundling regardless of whether the requirement at
issue combines both existing and new requirements into one larger
procurement that is considered to be ``new.'' Commenters agreed that
``consolidation'' and ``bundling'' can occur regardless of whether an
agency adds additional new requirements to a procurement or whether the
overall requirement can be considered ``new'' due to its increase in
scope, value or magnitude. SBA adopts that language in this final rule.
Section 125.2
Section 125.2 sets forth guidance as to SBA's and procuring
agencies' responsibilities when providing contracting assistance to
small businesses. Paragraph 125.2(d) contains guidance on how procuring
agencies determine whether contract bundling and substantial bundling
is necessary and justified. Specifically, Sec. 125.2(d)(2)(ii) states
that a cost or price analysis may be included to support an agency's
determination of the benefits of bundling. This language combined with
the language at Sec. 125.2(d)(2)(v) is intended to mean that price
analysis is always necessary, and, if the analysis results in a price
reduction, the agency may use the price reduction to demonstrate
benefits of the bundled approach. In order to demonstrate ``measurably
substantial'' benefits as required by the Small Business Act, SBA's
regulations and the FAR (benefits equivalent to 10 percent of the
contract or order value where the contract or order value is $94
million or less, or benefits equivalent to 5 percent of the contract or
order value or $9.4 million, whichever is greater, where the contract
or order value exceeds $94 million), SBA believes that a cost or price
analysis must be conducted. Some have argued that the Small Business
Act does not require a cost/price analysis. They point to the language
of Sec. 15(e)(2)(B) of the Small Business Act which provides that in
demonstrating ``measurably substantial benefits'' the identified
benefits ``may include'' cost savings, quality improvements, reduction
in acquisition cycle times, better terms and conditions, and any other
benefits. 15 U.S.C. 644(e)(2)(B). However, if a cost/price analysis is
not required, SBA does not believe that it is possible to demonstrate
benefits equivalent to 10 percent (or 5 percent/$9.4 million) of the
contract or order value--exactly what is required by SBA's regulations
and the FAR. This interpretation is even clearer in paragraph
125.2(d)(2)(v), which acknowledges that an agency will perform a price
analysis and describes a specific type of price comparison to include
in the analysis.
In order to clarify any misperceptions, SBA proposed to clarify
Sec. 125.2(d)(2)(ii) to plainly state that an analysis comparing the
cumulative total value of all separate smaller contracts with the
estimated cumulative total value of the bundled procurement is required
as part of the analysis of whether bundling is necessary and justified.
Neither a procuring agency nor SBA can have a complete view of the
small business contract dollars impacted by a bundled procurement if
this price analysis is not performed. The analysis requires that an
agency identify all impacted separate smaller contracts. An agency can
search the Federal Procurement Data System or use the agency's own
contract records to determine the complete universe of separate
contracts impacted by the bundled procurement. Identification of every
impacted firm is not only important for purposes of the price analysis
but is also necessary to comply with the statutory and regulatory
notice requirements for bundled contracts. Furthermore, if 8(a)
contracts will be subsumed in the bundled procurement, an agency must
know which 8(a) contracts are impacted in order to comply with the
required 8(a) program release or notification requirements.
SBA received five comments on the proposal to require a cost/price
comparative analysis as part of any bundling justification. Commenters
first noted that bundling has a serious negative impact on small
businesses because the requirements will result in diminished
opportunities for many small businesses to compete for prime contracts.
One commenter believed such a comparative analysis was not necessary
without providing any reasons for that belief. Four commenters agreed
that no bundling analysis could have real meaning without such a
comparison. They believed that a procuring activity could not
adequately justify any consolidation or bundling without comparing the
cost/price to previously acquire the goods or services to the projected
cost/price to acquire those same goods or services through the
consolidated or bundled requirement and demonstrating the required
savings. A commenter also noted that if services that were previously
provided in-house were added to a consolidated or bundled requirement,
the analysis should include a comparison of Government in-house cost to
that of the projected contract cost. SBA agrees such an analysis should
be performed in those circumstances. SBA adopts the proposed
comparative cost/price analysis language in this final rule.
Section 125.3
Section 125.3 discusses the types of subcontracting assistance that
are available to small businesses and the rules pertaining to
subcontracting generally. Paragraph 125.3(a)(1)(i)(B) provides that
purchases from a corporation, company, or subdivision that is an
affiliate of the prime
[[Page 26190]]
contractor or subcontractor are not included in the subcontracting
base. SBA received an inquiry as to whether this language would allow a
prime contractor to count an award to a joint venture in which it is a
partner as subcontracting credit. That was not SBA's intent. SBA
believes that exclusion is covered in the current regulatory text,
which already alludes to not counting awards to affiliates.
Nevertheless, in order to clarify that a prime contractor cannot count
an award to a joint venture in which it is a partner as subcontracting
credit, SBA proposed to add clarifying language to that effect.
Several commenters sought revisions to the clarifying language and
argued that the proposal is, in fact, a change in policy and not a
clarification. One commenter asked that SBA still allow subcontracting
credit for the amount performed by the small business partner in a
joint venture. Another asked that ``or sales to'' be removed from the
proposed language, believing that is the exact opposite of what the
proposal is seeking to do. One commenter noted that SBA's proposed
language does not implement its intended change to the rule, because it
states, ``joint venture . . . that is an affiliate of the prime
contractor.'' The commenter pointed out that a large business that is
also a minority-member of a mentor-prot[eacute]g[eacute] joint venture
is not affiliated with that joint venture due to the exclusion to
affiliation afforded mentor-prot[eacute]g[eacute] joint ventures. As a
result, SBA's proposed language would not effectuate the rule change it
seeks. SBA agrees that the proposed language did not adequately capture
SBA's intent and clarifies that intent in this final rule. First, the
final rule separates out the treatment of joint ventures from that of
affiliates. Second, SBA is not including the ``or sales to'' language
in the final rule. SBA notes that, where an other-than-small contractor
subcontracts to its own unpopulated joint venture, the work performed
by a small-business member of that joint venture is considered a
subcontract and the contractor may take subcontracting credit for that
small-business work.
SBA also proposed to amend Sec. 125.3(a)(1)(iii) to delete bank
fees from the list of exclusions from the subcontracting base. SBA's
current regulations provide that bank fees are excluded from the
subcontracting base. This means that when a large contractor is
calculating the percentage of work being subcontracted to small
businesses, it does not have to factor bank fees into this calculation.
This gives the contractor little incentive to work with small banks.
However, there are over 900 small businesses registered in the Dynamic
Small Business Search (DSBS) database under banking NAICS codes. Given
the number of small banks available to do work on federal prime
contracts, SBA did not believe bank fees should be excluded from the
subcontracting base. SBA received several comments supporting this
change. One commenter opposed this change, arguing that bank fees are
often not allowable expenses. SBA's exclusions, though, do not apply
broadly to all unallowable expenses, so that classification as
unallowable does not, by itself, mean that bank fees should be excluded
from the subcontracting plan.
In addition, SBA proposed to amend Sec. 125.3(c)(1)(iv) to require
that large businesses include indirect costs in their subcontracting
plans. Currently, large businesses have the option of including or
excluding indirect costs in their individual subcontracting plans. Many
large businesses opt to exclude indirect costs. As a result, small
businesses that provide services generally considered to be indirect
costs--such as legal services, accounting services, investment banking,
and asset management--are often overlooked by large contractors. SBA
stated that by requiring indirect costs to be included in their
individual subcontracting plans, large businesses will have an
incentive to give work to small businesses that provide those services.
SBA received some supportive comments to the proposal, but comments
were primarily negative. Commenters asserted that tracking, collecting,
and allocating indirect costs will be overly burdensome on the
businesses with subcontracting plans. They also observed that indirect
costs already are included in summary subcontracting reports, but those
costs are unpredictable, making it very difficult to include them in
subcontracting goals. Another commenter observed that SBA's definition
of ``subcontracts'' does not cover the indirect costs that SBA was most
concerned with because those costs are not typically related to the
work that the contractor with the plan has undertaken. The same
commenter questioned whether contractors with subcontracting plans are
properly recording the size of their subcontractors.
To the comment about SBA's definition of subcontract, SBA did not
propose to change the present definition. Such a change would be a
major change in practice, and SBA did not intend to change what types
of work fall under that definition. Instead, SBA sought to have some
accountability for the indirect costs that contractors currently report
on their summary subcontracting plans. Based on the comments received,
SBA understands including indirect costs in all subcontracting plans
would result in a significant, widespread burden. Therefore, SBA is
limiting the revision in three ways. First, only prime contractors
would be required to include indirect costs in the individual
subcontracting plans and reports; other contractors may continue to
choose whether or not to continue to include them. Second, including
the indirect costs would be required only for contracts valued at $7.5
million or more, which is 10 times the threshold at which a
subcontracting plan is required for most contracts. Third, prime
contractors may rely on a pro-rata formula to allocate indirect costs
to covered individual contracts, to the extent that the indirect costs
are not already allocable to specific contracts.
Section 125.6
Section 125.6 sets forth the requirements pertaining to the
limitations on subcontracting applicable to prime contractors for
contracts and orders set-aside or reserved for small business. Section
125.6(d) provides that the period of time used to determine compliance
for a total or partial set-aside contract will generally be the base
term and then each subsequent option period. This makes sense when one
agency oversees and monitors a contract. However, on a multi-agency
set-aside contract, where more than one agency can issue orders under
the contract, no one agency can practically monitor and track
compliance. In order to ensure that this statutory requirement is met
for the contract, SBA believes that compliance should be measured order
by order by each ordering agency. The proposed rule clarified Sec.
125.6(d) accordingly.
SBA received five comments on the proposed clarification to Sec.
125.6(d). Four comments, including one executive agency, supported the
change, agreeing that no procuring activity is accountable where no one
tracks the cumulative work ordered under a multi-agency set aside
contract. These commenters wanted to ensure that small businesses
(either directly or with similarly situated entities) actually
performed the required percentages of work and that large businesses or
non-similarly situated small businesses did not unduly benefit from
small business set aside contracts. One commenter believed that the
change was not needed since the rules currently permit
[[Page 26191]]
contracting officers from ordering agencies to require compliance with
the limitations on subcontracting on an order-by-order basis. SBA
believes this comment misses the point. SBA recognizes that contracting
officers may require compliance with the limitations on subcontracting
on an order-by-order basis. However, if they do not, there is no one
agency tracking overall limitations on subcontracting compliance with
the aggregate of all orders issued by multiple agencies. SBA adopts the
proposed language in this final rule.
SBA also proposed to add a new Sec. 125.6(e) to provide
consequences to a small business where a contracting officer determines
at the conclusion of contract performance that the business did not
meet the applicable limitation on subcontracting on any set-aside
contract (small business set-aside; 8(a); WOSB; HUBZone; or SDVOSB).
The current rules provide discretion to contracting officers to require
contractors to demonstrate compliance with the limitations on
subcontracting at any time during performance and upon completion of a
contract. SBA's current rules do not, however, address what happens if
a contracting officer determines that a firm fails to meet the
statutorily required limitation on subcontracting requirement at the
conclusion of contract performance. SBA's proposed rule provided that a
contracting officer could not give a satisfactory/positive past
performance evaluation for the appropriate evaluation factor or
subfactor to a contractor that the contracting officer determined did
not meet the applicable limitation on subcontracting requirement at the
conclusion of contract performance.
SBA received comments both supporting and opposing this proposal.
Those supporting the proposal believed that in order to promote the
integrity of small business contracting, there should be consequences
for those business concerns that do not take seriously the limitations
on subcontracting and make minimal, superficial efforts to meet the
applicable requirement. Several commenters who opposed the proposal
believed that compliance with the limitations on subcontracting is a
complex calculation, that there should be a safe harbor for contractors
that made good faith efforts to meet the application limitation on
subcontracting, and that a contractor should be able to provide
extenuating or mitigating circumstances that impacted its ability to
meet the applicable requirement. SBA maintains that having negative
consequences for not meeting the applicable limitation on
subcontracting would help ensure the requirements are being met, and
that set-aside contracts are being performed in a manner consistent
with SBA's regulations and the Small Business Act. However, SBA also
believes that a contractor should not be penalized for circumstances
beyond its control. In extenuating circumstances, SBA supports
providing discretion authorizing a contracting officer to give a
satisfactory orpositive past performance evaluation for the appropriate
evaluation factor or subfactor to a contractor that did not meet the
applicable limitation on subcontracting requirement. SBA is concerned
that a negative past performance evaluation could be repeatedly avoided
in situations in which a concern continually and knowingly exceeds the
limitation on subcontracting, as extenuating circumstances could be
argued by such a concern in every instance where the limitation is not
met under a contract or order. SBA believes there should be greater
accountability for these determinations, through the use of higher-
level review, to ensure that concerns that knowingly exceed the
limitations experience adverse consequences.
Whenever a contracting officer determines at the conclusion of
contract performance that a small business did not meet the applicable
limitation on subcontracting on any set-aside contract, the final rule
would first give the business concern the opportunity to explain
contributing circumstances that negatively impacted its ability to do
so. The final rule adds language authorizing a contracting officer to
give a satisfactory orpositive past performance evaluation for the
appropriate evaluation factor or subfactor to a contractor that did not
meet the applicable limitation on subcontracting requirement where the
contracting officer determines that the reason for noncompliance was
outside of the firm's control and an individual at least one level
above the contracting officer concurs with that determination. Examples
of extenuating or mitigating circumstances that could lead to a
satisfactory/positive rating include, but are not limited to,
unforeseen labor shortages, modifications to the contract's scope of
work which were requested or directed by the Government, emergency or
rapid response requirements that demand immediate subcontracting
actions by the prime small business concern, unexpected changes to a
subcontractor's designation as a similarly situated entity (as defined
in Sec. 125.1), differing site or environmental conditions which arose
during the course of performance, force majeure events, and the
contractor's good faith reliance upon a similarly situated
subcontractor's representation of size or relevant socioeconomic
status. The contracting officer could not rely on any circumstances
that were within the contractor's control, or those which could have
been mitigated without imposing an undue cost or burden on the
contractor. Without this discretionary authority, SBA agrees that long-
term deleterious consequences could result to otherwise well-performing
small business prime contractors.
Section 125.9
Section 125.9 sets forth the rules governing SBA's small business
mentor-prot[eacute]g[eacute] program. SBA's regulations currently
provide that a mentor can have no more than three prot[eacute]g[eacute]
small business concerns at one time. SBA has been asked whether a
mentor that purchases another business concern that is also an SBA-
approved mentor can take on those mentor-prot[eacute]g[eacute]
relationships if the total number of prot[eacute]g[eacute]s would
exceed three. The reason SBA has limited the number of
prot[eacute]g[eacute] firms one mentor can have at any time is to
ensure that a large business mentor does not unduly benefit from
programs intended to benefit small businesses. That is also the reason
that the limit of three prot[eacute]g[eacute]s applies to the mentor
family (i.e., the parent and all of its subsidiaries in the aggregate
cannot have more than three prot[eacute]g[eacute] small business
concerns at one time). If each separate business entity could itself
have three prot[eacute]g[eacute]s, conceivably a parent with three
subsidiaries could have 12 small business prot[eacute]g[eacute] firms.
SBA believes that would allow a large business to unduly benefit from
small business programs. The regulations implementing the mentor-
prot[eacute]g[eacute] program also provide that a small business can
have only two mentor-prot[eacute]g[eacute] relationships in total.
Thus, if SBA were to say that a mentor that purchased another business
entity which is also a mentor could not take on the selling business
entity's mentor-prot[eacute]g[eacute] relationships, the ones who would
be hurt the most would be the small business prot[eacute]g[eacute]s of
the selling business. Their mentor-prot[eacute]g[eacute] relationships
with the selling mentor would end early and would count as one of the
two mentor-prot[eacute]g[eacute] relationships that they were
authorized to have. Because SBA did not intend to
[[Page 26192]]
adversely affect prot[eacute]g[eacute] firms in these circumstances,
SBA has informally permitted a mentor to take on the mentor-
prot[eacute]g[eacute] relationships of a firm that it purchased even
where its total number of mentor-prot[eacute]g[eacute] relationships
would exceed three. The proposed rule added language to Sec.
125.9(b)(3)(ii) to recognize this exemption. Specifically, the proposed
rule added a paragraph that where a mentor purchases another business
entity that is also an SBA-approved mentor of one or more
prot[eacute]g[eacute] small business concerns and the purchasing mentor
commits to honoring the obligations under the seller's mentor-
prot[eacute]g[eacute] agreement(s), that entity may have more than
three prot[eacute]g[eacute]s. In such a case, the entity could not add
another prot[eacute]g[eacute] until it fell below three in total.
SBA received six comments in response to this proposed
clarification. Five commenters supported the proposal and one opposed.
The commenter opposing the clarification believed that the current
three prot[eacute]g[eacute] limit is a good one. SBA generally agrees
with the current provision limiting a mentor to three
prot[eacute]g[eacute] firms at one time. However, as noted above,
imposing that limit in the context of an acquisition by a firm that is
a mentor could harm small business prot[eacute]g[eacute]s. SBA believes
that the exception in the context of one mentor purchasing another
makes sense. SBA also believes that this is not something that will
occur often, but that protection of prot[eacute]g[eacute] firms should
be in place in those limited instances when it does. The five comments
supporting the clarification cited SBA's intent to not harm
prot[eacute]g[eacute] firms as a worthwhile objective. SBA adopts the
proposed language in this final rule.
The proposed rule also amended Sec. 125.9(e) to add language
recognizing that a mentor that is a parent or subsidiary of a larger
family group may identify one or more subsidiary firms that it plans to
participate in the mentor-prot[eacute]g[eacute] arrangement by
providing assistance and/or participating in joint ventures with the
prot[eacute]g[eacute] firm. The proposed rule provided that all
entities intended to participate in the mentor-prot[eacute]g[eacute]
relationship should be identified in the mentor-prot[eacute]g[eacute]
agreement itself.
SBA received five comments in response to this proposed change.
Commenters agreed with SBA's proposal to allow mentor companies
additional flexibility in assigning their subsidiaries to assist
prot[eacute]g[eacute] small business concerns. In addition to making
the terms more attractive to mentors, they believed that this change
will also benefit those prot[eacute]g[eacute]s where the mentor parent
company is not specialized in the prot[eacute]g[eacute]'s industry. One
commenter was concerned with allowing a subsidiary company with no
experience in a prot[eacute]g[eacute]'s primary industry to joint
venture with the prot[eacute]g[eacute], limiting the role of and
benefit to the prot[eacute]g[eacute]. SBA believes this comment misses
the intent of the change. The purpose of allowing subsidiary companies
of a mentor to participate in the business development of a
prot[eacute]g[eacute] firm and to form joint ventures to seek
procurement opportunities with the prot[eacute]g[eacute] is to broaden
the prot[eacute]g[eacute]'s experience, not limit it. In most cases,
the parent mentor has experience in the primary industry of the
prot[eacute]g[eacute] business concern. The prot[eacute]g[eacute]
expects to joint venture with and gain experience from that parent
mentor in that industry. However, if a subsidiary of the mentor has
experience in a different industry in which the prot[eacute]g[eacute]
seeks to enter, that subsidiary should be able to assist the
prot[eacute]g[eacute] firm gain experience in that distinct industry as
well. SBA adopts the proposed language in this final rule.
Finally, one commenter sought clarification as to whether a
prot[eacute]g[eacute] could extend or renew its mentor-
prot[eacute]g[eacute] relationship for an additional six years with the
same mentor instead of ending that relationship at the end of six years
and seeking a new business entity to be its mentor. SBA believes that
the current regulations allow that to occur and has administratively
permitted it in appropriate circumstances. The final rule adds specific
language authorizing a second six-year mentor-prot[eacute]g[eacute]
relationship with the same mentor. In order for SBA to approve a second
six-year mentor-prot[eacute]g[eacute] relationship with the same
mentor, the mentor-prot[eacute]g[eacute] agreement for the second six-
year term must provide additional business development assistance to
the prot[eacute]g[eacute] firm.
Sections 126.306(b), 127.304(c), and 128.302(d)
Sections 126.306 and 127.304 set forth the procedures by which SBA
processes applications for the HUBZone and WOSB programs, respectively.
The proposed rule added language to both processes to provide that
where SBA is unable to determine a concern's compliance with any of the
HUBZone or WOSB/EDWOSB eligibility requirements due to inconsistent
information contained in the application, SBA will decline the
concern's application. In addition, the proposed rule added language
providing that if, during the processing of an application, SBA
determines that an applicant has knowingly submitted false information,
regardless of whether correct information would cause SBA to deny the
application, and regardless of whether correct information was given to
SBA in accompanying documents, SBA will deny the application. This
language is consistent with that already appearing in SBA's regulations
for the 8(a) BD program, and SBA believes that all of SBA's
certification programs should have similar language on this issue. SBA
received four comments in response to these proposed changes. All four
comments supported the proposals as consistent with the 8(a)
application procedures. Commenters believed all SBA certification
programs should have similar provisions. The final rule adopts the
proposed language with clarifying edits and also adds identical
language to the provisions pertaining to VOSB and SDVOSB certification
in Sec. 128.302(d).
Sections 126.503(c), 127.405(d), and 128.310(d)
The proposed rule amended Sec. 126.503 by adding a new paragraph
(c) to specifically authorize SBA to initiate decertification
proceedings if after admission to the HUBZone program SBA discovers
that false information has been knowingly submitted by a certified
HUBZone small business concern. SBA believes that this is currently
permitted under the HUBZone regulations but proposed to add this
provision to eliminate any doubt. SBA received four comments supporting
this provision and no comments opposing it. As such, SBA adopts the
proposed language in this final rule. SBA also adds the same language
to Sec. 127.405(d) for the WOSB program. The SDVO program has similar
language contained in Sec. 128.201(b). The final rule deletes that
language from Sec. 128.201(b) and instead adopts the identical
language that was added for the HUBZone and WOSB programs to Sec.
128.310(d) for the SDVO program. SBA believes that Sec. 128.310(d) is
a better location than Sec. 128.201(b) since that section pertains to
decertification, which is the same substantive topic as that contained
in Sec. Sec. 126.503(c) and 127.405(d) for the HUBZone and WOSB
programs, respectively.
Section 126.601(d)
The proposed rule amended Sec. 126.601(d) to clarify how the
ostensible subcontractor rule may affect a concern's eligibility for a
HUBZone contract. Where a subcontractor that is not a certified HUBZone
small business will perform the primary and vital
[[Page 26193]]
requirements of a HUBZone contract, or where a HUBZone prime contractor
is unduly reliant on one or more small businesses that are not HUBZone-
certified to perform the HUBZone contract, the prime contractor would
not be eligible for award of that HUBZone contract. SBA received five
comments supporting this clarification and no comments opposing it. As
such, SBA adopts the proposed language in this final rule.
Section 126.616(a)(1)
The proposed rule amended Sec. 126.616(a) to clarify that a
HUBZone joint venture should be registered in SAM (or successor system)
and identified as a HUBZone joint venture, with the HUBZone-certified
joint venture partner identified. SBA has received numerous questions
from HUBZone firms and contracting officers expressing confusion about
how to determine whether an entity qualifies as a HUBZone joint venture
and thus is eligible to submit an offer for a HUBZone contract. Part of
the confusion stems from the fact that there is no way for an entity to
be designated as a HUBZone joint venture in SBA's DSBS database; this
certification can only be made in SAM. In addition, the process for
self-certifying as a HUBZone joint venture in SAM is apparently unclear
because such certification does not appear in the same section as the
other socioeconomic self-certifications. Since it is not known when
these systems might be updated to clear up this confusion, SBA proposed
to amend Sec. 126.616(a) by adding a new subparagraph (a)(1) to help
HUBZone firms and contracting officers understand how to determine
whether an entity may be eligible to submit an offer as a HUBZone joint
venture. Two commenters supported the proposed change. One of the two
also requested that SBA clarify whether and if so how this applies to
multiple award contracts. Section 126.616(a) provides that a certified
HUBZone small business concern may enter into a joint venture agreement
with one or more other small business concerns or with an SBA-approved
mentor for the purpose of submitting an offer for a HUBZone contract.
Thus, the provision applies whenever submitting an offer for ``a
HUBZone contract.'' That is meant to apply to all HUBZone contracts,
whether a single award or multiple award contract. SBA does not believe
that further clarification is necessary. SBA adopts the proposed
language in this final rule.
Section 126.801
The proposed rule amended Sec. 126.801(b) to clarify the bases on
which a HUBZone protest may be filed, which include: (i) the protested
concern did not meet the HUBZone eligibility requirements set forth in
Sec. 126.200 at the time the concern applied for HUBZone certification
or on the anniversary date of such certification; (ii) the protested
joint venture does not meet the requirements set forth in Sec.
126.616; (iii) the protested concern, as a HUBZone prime contractor, is
unduly reliant on one or more small subcontractors that are not
HUBZone-certified, or subcontractors that are not HUBZone-certified
will perform the primary and vital requirements of the contract; and/or
(iv) the protested concern, on the anniversary date of its initial
HUBZone certification, failed to attempt to maintain compliance with
the 35% HUBZone residence requirement. The proposed rule also amended
Sec. 126.801(d)(1), addressing timeliness for HUBZone protests.
The proposed rule added a new subparagraph (d)(1)(i) to clarify the
timeliness rules for protests relating to orders or agreements that are
set-aside for certified HUBZone small business concerns where the
underlying multiple award contract was not itself set-aside or reserved
for certified HUBZone small business concerns. Specifically, a protest
challenging the HUBZone status of an apparent successful offeror for
such an order or agreement will be considered timely if it is submitted
within 5 business days of notification of the identity of the apparent
successful offeror for the order or agreement. The proposed rule also
added a new subparagraph (d)(1)(ii) to clarify that where a contracting
officer requires recertification in connection with a specific order
under a multiple award contract that itself was set-aside or reserved
for certified HUBZone small business concerns, a protest challenging
the HUBZone status of an apparent successful offeror will be considered
timely if it is submitted within five business days of notification of
the identity of the apparent successful offeror for the order.
SBA received four comments in response to the proposed changes to
Sec. 126.801. All four supported the proposed changes without any
further comment. As such, SBA adopts the proposed language in this
final rule.
126.801(e)(2) and 127.603(d)(2)
For purposes of HUBZone and WOSB/EDWOSB contracts, the HUBZone/
WOSB/EDWOSB prime contractor together with any similarly situated
entities must meet the applicable limitation on subcontracting (or must
perform a certain portion of the contract). If a subcontractor is
intended to perform primary and vital aspects of the contract, the
subcontractor may be determined to be an ostensible subcontractor under
proposed Sec. 121.103(h)(3), and the prime contractor and its
ostensible subcontractor would be treated as a joint venture. However,
if the ostensible subcontractor qualifies independently as a small
business, a size protest would not find the arrangement ineligible for
any small business contract. To address that situation, the current
regulations for the HUBZone program (in Sec. Sec. 126.601(d) and
126.801(a)(1)) and the WOSB program (in Sec. Sec. 127.504(g) and
127.602(a)) prohibit a non-similarly situated subcontractor from
performing primary and vital requirements of a contract and permit a
HUBZone/WOSB/EDWOSB status protest where an interested party believes
that will occur. The proposed rule added a paragraph to each of the
HUBZone/WOSB/EDWOSB status protest provisions to clarify that any
protests relating to whether a non-similarly situated subcontractor
will perform primary and vital aspects of the contract will be reviewed
by the SBA Government Contracting Area Office serving the geographic
area in which the principal office of the HUBZone/WOSB/EDWOSB business
is located. SBA's Government Contracting Area Offices are the offices
that decide size protests and render formal size determinations. They
are the offices with the expertise to decide ostensible subcontractor
issues. Thus, for example, if a status protest filed in connection with
a WOSB contract alleges that the apparent successful offeror should not
qualify as a WOSB because (1) the husband of the firm's owner actually
controls the business, and (2) a non-WOSB subcontractor will perform
primary and vital requirements of the contract, SBA's WOSB staff in the
Office of Government Contracting will review the control issue and
refer the ostensible subcontractor issue to the appropriate SBA
Government Contracting Area Office. The SBA Government Contracting Area
Office would determine whether the proposed subcontractor should be
considered an ostensible subcontractor and send that determination to
the Director of Government Contracting, who then would issue one WOSB
status determination addressing both the ostensible subcontractor and
control issues. The same would be true for
[[Page 26194]]
HUBZone status protests (except that in the HUBZone context the
Director of the Office of HUBZones would issue the HUBZone status
determination). To accomplish this, the proposed rule added clarifying
language in Sec. 126.801(e)(2) (for HUBZone), and Sec. 127.603(d)
(for WOSB/EDWOSB). The proposed rule also added similar language in
Sec. 125.28(e) (for SDVO status protests). The language added with
respect to SDVO status has been overcome by SBA's implementation of the
Veteran Small Business Certification Program. See 87 FR 73400 (Nov. 29,
2022). That rule authorized OHA to hear and decide protests relating to
VOSB and SDVOSB status. That office will decide all issues relating to
VOSB and SDVOSB status, including issues relating to the ostensible
subcontractor rule. As such, there is no need to involve SBA's
Government Contracting Area Offices in VOSB and SDVOSB status protests
relating to the ostensible subcontractor rule. The Veteran Small
Business Certification Program rule specifically recognizes OHA's
authority to decide protests relating to the ostensible subcontractor
rule in Sec. 134.1003(c). Thus, the final rule adopts the proposed
changes relating to the WOSB and HUBZone programs, but not those with
respect to the SDVO program.
Section 127.102
SBA proposed to amend the definition of WOSB to clarify that the
definition applies to any certification as to a concern's status as a
WOSB, not solely to those certifications relating to a WOSB contract.
SBA has received inquiries as to whether this definition applies to a
firm that certifies as a WOSB for goaling purposes on an unrestricted
procurement. It has always been SBA's intent to apply that definition
to all instances where a concern certifies as a WOSB, and this proposed
rule merely clarified that intent.
SBA received three comments on this proposed change, two of which
supported the revised definition. The third commenter was opposed, but
the purported opposition is based on a misunderstanding of the proposed
change. The commenter mistakenly thought SBA was proposing to permit a
WOSB Program participant to compete for a WOSB set-aside award even if
the participant was not small for the NAICS code attached to the award;
the proposed language would not affect this rule. SBA adopts the change
as proposed.
Sections 127.200 and 126.200
Section 127.200 specifies the requirements a concern must meet to
qualify as an EDWOSB or WOSB. To qualify as an EDWOSB, an entity must
be a small business. Paragraph 127.200(a)(1) requires a concern to be a
small business for its primary industry classification to qualify as an
EDWOSB, while Sec. 127.200(b)(1) merely states that a concern must be
a small business to qualify as a WOSB. The proposed rule provided that
the applicant must represent that it qualifies as small under the size
standard corresponding to any NAICS code under which it currently
conducts business activities. SBA believes that this standard makes
more sense than requiring an applicant to qualify as small under the
size standard corresponding to its primary industry classification. To
be eligible for a specific WOSB/EDWOSB contract, a firm must qualify as
small under the size standard corresponding to the NAICS code assigned
to that contract. Whether a firm qualifies as small under its primary
industry classification is not relevant to that determination (unless
the size standard for the firm's primary industry classification is
that same as that for the NAICS code assigned to the contract, but even
then, the only relevant size standard is that corresponding to the
NAICS code assigned to the contract). SBA believes that a firm that
does not qualify as small under its primary industry classification
should not be precluded from seeking and being awarded WOSB/EDWOSB
contracts if it qualifies as small for those contracts. The
certification process should ensure that an applicant is owned and
controlled by one or more women and that it could qualify as a small
business for a WOSB/EDWOSB set-aside contract.
SBA received six comments on the proposed changes to Section
127.200. All six supported bringing Sec. 127.200(a) in line with Sec.
127.200(b). The proposed rule also noted that SBA believes it is
important to align the WOSB/EDWOSB eligibility requirements with the
eligibility requirements for veteran-owned small business (VOSB)
concerns and service-disabled veteran-owned small business (SDVOSB)
concerns wherever possible. SBA finalized its rules pertaining to VOSB
and SDVOSB certification on November 29, 2022. 87 FR 73400. In that
final rule, SBA requires a VOSB/SDVOSB to be a small business concern
as defined in part 121 under the size standard corresponding to any
NAICS code listed in its SAM profile. See 13 CFR 128.200(a)(1). To
ensure consistency between the WOSB and SDVOSB programs, the final rule
modifies the WOSB regulations regarding size to adopt the same language
as that used in the VOSB/SDVOSB regulations. Specifically, the final
rule changes the requirement that a WOSB must qualify as small for the
size standard corresponding to any NAICS code under which it currently
conducts business activities to requiring a WOSB to be small under the
size standard corresponding to any NAICS code listed in its profile in
the System for Award Management (SAM.gov). The wording of both
provisions was intended to have the same meaning. However, to avoid any
confusion and to dispel any concerns that SBA intended to apply size
requirements differently between the two programs, SBA adopts the
SDVOSB program language in the WOSB regulations. Since all comments
supported the changes to Sec. 127.200, no other changes are being made
to that section in this final rule.
Finally, one commenter recommended that the same rule should apply
to initial HUBZone eligibility. In other words, the commenter
recommended that an applicant to the HUBZone program should qualify as
a small business concern for HUBZone certification purposes if it meets
the size standard corresponding to any NAICS code listed in its SAM.gov
profile. SBA agrees. Unlike the 8(a) BD program, the HUBZone program is
not a business development program, and the focus is not on developing
a business in any one particular area. It is more in line with the WOSB
and SDVO programs in which SBA certifies general eligibility and a
certified business concern can then submit offers and seek awards for
any HUBZone contracts for which the concern qualifies as small under
the size standard corresponding to the NAICS code assigned to the
contract. Thus, the final rule amends Sec. 126.200 to change initial
size eligibility to be in line with the WOSB and SDVO programs. In
making the change to Sec. 126.200, SBA noticed that the same
requirements contained in Sec. 126.200 are also contained in Sec.
126.203. This final rule removes the provisions contained in Sec.
126.203 as duplicative and unnecessary.
Section 127.201(b)
Section 127.201 sets forth the requirements for control of a WOSB
or EDWOSB. Paragraph (b) specifies that one or more women or
economically disadvantaged women must unconditionally own the concern
seeking WOSB or EDWOSB status. The proposed rule clarified that this
requirement was not meant to preclude
[[Page 26195]]
a condition that can be given effect only after the death or incapacity
of the woman owner. The proposed change intended to make the WOSB
Program unconditional ownership requirement the same as that for
eligibility for the 8(a) BD program.
SBA received four comments on Sec. 127.201(b). All four supported
SBA clarifying the unconditional ownership requirements for WOSBs and
EDWOSBs. As such, SBA adopts the language as proposed.
Section 127.202(c)
Section 127.202 sets forth the requirements for control of a WOSB
or EDWOSB. The current regulatory language has caused confusion as to
whether a woman or economically-disadvantaged woman claiming to control
a WOSB or EDWOSB can engage in employment other than that for the WOSB
or EDWOSB. The current regulations provide that the woman or
economically-disadvantaged woman who holds the highest officer position
may not engage in outside employment that prevents her from devoting
sufficient time and attention to the daily affairs of the concern to
control its management and daily business operations. The regulations
also provide that such individual must manage the business concern on a
full-time basis and devote full-time to it during the normal working
hours of business concerns in the same or similar line of business.
Taken together, the two provisions allow a woman or economically-
disadvantaged woman to engage in outside employment, but only if such
employment occurs outside the normal working hours of business concerns
in the same or similar line of business and does not prevent her from
devoting sufficient time and attention to control the concern's
management and daily business operations. SBA believes that this
requirement is overly restrictive.
The proposed rule revised the limitations on outside activities.
SBA views its role as ensuring that one or more women or economically
disadvantaged women actually control the long-term planning and daily
operations of the business, not ensuring that they are physically
present at the business location during the normal hours of operation
for similar businesses or prohibiting them from engaging in outside
employment that does not affect their ability to control the business.
If a woman starts a small business that she alone operates, SBA does
not believe that it makes sense to conclude that she does not control
the business simply because she operates it outside the normal hours of
similar businesses. Whether the business can win and perform government
contracts is a different question, and not one contemplated by SBA's
regulations. Where a woman is the sole individual involved in operating
a specific business, there is no question that she controls the
business, regardless of whether the number of hours she devotes to the
business aligns with those working in similar businesses, and SBA
believes that such a business should be eligible to be certified by SBA
as a WOSB.
SBA received ten comments on the proposed changes to the WOSB
Program's limitations on outside employment. Seven supported, two
opposed, and one misunderstood the change. The seven commenters in
support of the change all noted that the new regulatory language would
provide valuable flexibility to women small business owners. The
mistaken commenter articulated opposition to the WOSB Program's current
limitation on outside employment, not the proposed revision. The two
commenters opposed both thought that the proposed rule was overly
broad. One thought that the language requiring a managing woman to
devote ``sufficient time and attention'' to the business was too
ambiguous, and that SBA must define the number of hours per week, as
well as when the woman manager must work at the small business concern.
The second commenter recommended that SBA specifically require the
woman manager to be ``involved to some extent during normal business
hours.'' SBA agrees that the individual identified as the one who
controls the business concern must spend some time actually managing
the concern, but believes that both commenters' recommendations are
unduly limiting. SBA does not believe that such control necessarily
must be exercised only during normal business hours or across a
specified number of hours. As noted above, where an identified woman is
the only individual involved in a specific business concern and
operates that business 10, 20 or any other number fewer than 40 hours
per week, there is no doubt that a woman ``controls'' that business.
That is what SBA is charged with determining--whether the business
concern is controlled by one or more women. Determining who controls a
business, including whether there is any negative control that can be
exercised by one or more individuals who are not women, is a factual
issue. SBA must consider all the facts presented by each applicant.
Where the identified managing woman spends no time at a business that
employs several people and operates 40 hours per week but claims to
manage the business in her spare time, the facts would lead SBA to
question her management role in that business. SBA is cognizant of
ineligible individuals who may seek to gain entry into the program
through the use of front companies. However, SBA firmly believes that a
proper analysis of all the facts will expose those companies. Thus,
although SBA understands the concerns raised by the commenters, SBA
believes that the flexibility that 70% of commenters noted would be
welcome and beneficial to women business owners outweighs those
concerns and that moving forward with the revised requirement on
outside employment will help a greater number of eligible women
entrepreneurs who are juggling multiple priorities.
One commenter in opposition suggested that if SBA were going to go
forward with the revision, it should change the proposed language
referring to ``outside obligations'' to ``multiple professional or
employment obligations.'' SBA agrees that ``[l]imitation on outside
obligations'' does not capture its intent, which is to offer women
small business owners flexibility in their professional pursuits.
``Limitation on outside obligations'' could potentially imply that a
woman small business owner's eligibility could be affected by factors
outside of the professional realm, which it cannot. Accordingly, SBA is
changing the proposed language in Sec. 127.202(c) from ``[l]imitation
on outside obligations'' to read ``[l]imitation on outside
employment.'' SBA adopts the rest of the proposed language as written.
In the interest of regulatory alignment and consistency, the final
rule also revises Sec. 128.203(i) in the SDVO regulations to change
``outside obligations'' to ``outside employment'' to clarify that SBA
does not intend to require or consider different factors in determining
whether a woman or a veteran or service-disabled veteran controls the
business concern at issue.
Section 127.400
Section 127.400 describes how a concern maintains its certification
as a WOSB or EDWOSB. SBA proposed to amend Sec. 127.400 by omitting
Sec. 127.400(a), which requires a certified concern to annually
represent to SBA that it meets all program eligibility requirements,
and replacing it with Sec. 127.400(b), which states that a certified
concern must undergo a program examination at least every three years
to maintain program
[[Page 26196]]
eligibility. SBA believes that these program examinations, in
conjunction with other eligibility assessments like material change
reviews, status protests, third-party certifier compliance reviews, and
program audits, will sufficiently capture eligibility information. The
proposed rule also amended the examples to Sec. 127.400 to reflect the
proposed change.
SBA received nine comments on the proposed removal of Sec.
127.400(a). Seven supported the change, one opposed, and one discussed
the details of a different proposed change. The supportive commenters
noted that removing the annual attestation requirement would
significantly reduce the administrative burden on small businesses. One
noted that the change would bring the WOSB Program re-certification
timeframe in line with other certification programs. Another agreed
that SBA will be able to assess ongoing eligibility for the WOSB
Program through other means. The commenter opposed to removing Sec.
127.400(a) believed that three years is too long for a firm to operate
under the assumption of eligibility. The commenter expressed concern
that a firm could receive several contracts during its three-year
certification period, even if its ownership changed during that period.
The commenter asserted that this would be unfair to eligible WOSBs and
EDWOSBs in the same industry. SBA believes that the reduced burdens on
WOSBs and SBA outweigh any potential eligibility issues that could
arise during a firm's three-year certification period. WOSBs will still
be required to notify SBA of material changes that affect eligibility,
which includes changes in ownership. SBA believes material change
reviews, along with all the other program eligibility assessments,
including program examinations and status protests, address the
commenter's concerns that ineligible firms may get contracts that would
have otherwise been awarded to eligible WOSBs and EDWOSBs in the same
industry.
One commenter who supported the change also noted that SBA should
remove the requirement that applicants must use third-party certifiers
to re-certify. The WOSB Program regulations have never required
applicants to use third-party certifiers for re-certification and this
has not changed. SBA adopts the changes to Sec. 127.400 as proposed.
Compliance With Executive Orders 12866, 12988, 13132, 13563, the
Congressional Review Act (5 U.S.C. 801-808), the Paperwork Reduction
Act (44 U.S.C. Ch. 35), and the Regulatory Flexibility Act (5 U.S.C.
601-612):
Executive Order 12866
The Office of Management and Budget (OMB) has determined that this
rule is a significant regulatory action and, therefore, was subject to
review under section 6(b) of Executive Order 12866, Regulatory Planning
and Review, dated September 30, 1993. Accordingly, the next section
contains SBA's Regulatory Impact Analysis.
Regulatory Impact Analysis
1. Is there a need for the regulatory action?
This action implements a statutory enactment--the NDAA FY22--as
well as codifies a federal court decision into regulation, and revises
SBA guidelines on 8(a) BD program eligibility, 8(a) BD program
participation, and subcontracting plan compliance. With respect to the
8(a) BD program, this action is needed to clarify several policies that
SBA already has put in place and to apply existing regulations to new
scenarios, such as the recently amended SBA mentor-
prot[eacute]g[eacute] program. This action also is needed to integrate
section 863 of NDAA FY22 into SBA regulations and to adopt the holding
of a recent federal court decision.
2. What is the baseline, and the incremental benefits and costs of this
regulatory action?
SBA has determined that this rule includes eight provisions that
are associated with incremental benefits or incremental costs. Outside
of the following eight provisions, the other changes merely clarify
existing policy, modify language to avoid confusion, or adopt
interpretations already issued by SBA's Office of Hearings and Appeals
or through SBA casework.
a. Require a firm to update SAM within two days and notify certain
contracting officers if the firm is found ineligible through size
determination, SDVO SBC protests, HUBZone protests, or WOSB Program
protests.
SBA amends section 127.405(c) to provide that a firm found
ineligible through a final WOSB program protest must update SAM.gov
within two days with its new status and notify agencies with which it
has pending offers that are affected by the status change. This
requirement already exists in SBA's regulations for size protests and
SDVOSB protests.
The change extends the requirement to the WOSB program. SBA has
determined that this change will impose costs on the business
associated with its notification of contracting agencies of the adverse
decision. The number of adverse protest decisions in the WOSB programs
is less than five per year. For each such protest, the ineligible
business is estimated to be required to notify two agencies. The
notification does not take any particular form, so SBA estimates that
each notification would take 15 minutes. Thus, the total cost of this
change would be 2.5 hours across all firms. At a project-manager-
equivalent level, the total cost is less than $280 annually.\1\
---------------------------------------------------------------------------
\1\ From 2.5 hours saved valued at the mean wage of $55.41 for
General and Operations Managers, according to the BLS General and
Operations Managers (bls.gov) (retrieved April 12, 2022), plus 100%
for benefits and overhead.
---------------------------------------------------------------------------
b. Prohibit nonmanufacturer rule waivers from specifically applying
to a contract with a duration longer than five years, including
options.
SBA amends section 121.1203 to restrict the grant of individual
(i.e., contract-specific) nonmanufacturer rule waivers to contracts
with durations of five years or less. A procuring agency may seek, and
SBA may grant, a waiver for an additional five years on the same long-
term contract if, after conducting market research at the end of five
years, the procuring agency demonstrates that there continues to be no
available small business manufacturers and that a waiver remains
appropriate.
In the prior fiscal year, SBA granted 24 individual waivers for
contracts that exceed five years. The estimated total value for
contracts covered by these waivers was $4.6 billion.
The most probable effect of denying waivers for such contracts in
the future is that the procuring agencies will choose not to set aside
those contracts for small business resellers. Instead, the procuring
agencies may solicit many of those contracts as full-and-open
competitions. It is also possible, however, that the agencies could
limit the duration of the contracts to five years in order to promote
small-business opportunity through the use of a set-aside.
Of those two possibilities, the first (a full-and-open
solicitation) is an economic transfer of the reseller's markup from a
small business reseller to what most likely would be an other-than-
small reseller. The second (limiting the contract to five years)
creates possible benefits at the sixth year for newly established
domestic small-business manufacturers. Under the current policy, those
manufacturers
[[Page 26197]]
might be overlooked by the agency and its contractors (i.e., resellers)
because the ongoing contract does not require the contractor to
purchase from a domestic small-business manufacturer.
SBA estimates that, in a quarter of the cases in which an agency
would otherwise seek a waiver for a contract exceeding five years, the
agencies would choose to limit the contract (and thus the effect of the
waiver) to five years. This amounts to six contracts, with a total
value of $1.2 billion. Assuming that these contracts are ten years in
length and agencies would recompete the contracts in the five final
years, the potential recompeted value is $575 million, unadjusted for
inflation. However, it is unknown whether domestic small-business
manufacturers would be available to supply the resellers at the point
of recompetition--five years after the initial award. Thus, although
this change results in potential more opportunities for small business
manufacturers in years six and beyond, the benefits of the additional
opportunities are not quantifiable because of lack of information about
the domestic small-business manufacturing base in the future.
c. Require information from 8(a) applicants about the terms and
restrictions of a retirement account only at the request of SBA,
instead of in every instance.
SBA amends section 124.104(c)(2)(ii) to eliminate the prior
requirement that 8(a) applicants must provide the terms and conditions
of retirement accounts in order to have the values of those accounts
excluded from the owner's net worth. Instead, SBA will require the
applicant to submit documentation of a retirement account only upon
SBA's request.
SBA processes approximately 600 8(a) applications from individual-
owned firms per year. Based on sampling, SBA found that 70 percent of
those applications disclosed retirement accounts to SBA. Thus, this
regulatory change will reduce the documentation burden for about 420
8(a) applicants per year. SBA estimates the existing burden to be 20
minutes per applicant, and the benefit of the rule's cancellation of
the documentation requirement therefore to be about $15,500 per
year.\2\
---------------------------------------------------------------------------
\2\ From 20 minutes of time saved by 420 applicants valued at
the mean wage of $55.41 for General and Operations Managers,
according to the BLS General and Operations Managers (bls.gov)
(retrieved April 12, 2022), plus 100% for benefits and overhead.
---------------------------------------------------------------------------
d. Permit 8(a) applications to go forward where the firm or its
affected principals can demonstrate that federal financial obligations
have been settled and discharged or forgiven by the Federal Government.
The final rule amends Sec. 124.108(e) to provide that an applicant
will not be denied eligibility to the 8(a) program on the basis that
the applicant's prior federal financial obligations have been settled
and either discharged or forgiven by the Federal Government. In rare
cases, SBA has denied 8(a) eligibility based on prior federal financial
obligations, even though the government has discharged the obligation.
SBA internal data shows that SBA rejects approximately two applications
per year on this basis. SBA estimates that the average financial
obligation in those cases is $10,000. Therefore, this change results in
an estimated annual benefit to future 8(a) applications of $20,000,
from an average of two applicants annually with obligations of $10,000
each.
e. Delete bank fees from the list of exclusions in the
subcontracting base.
SBA amends section 125.3(a)(1)(iii) to delete bank fees from the
list of costs excludable from the subcontracting base when a contractor
seeks to comply with a subcontracting plan. After reviewing FDIC and
Federal Reserve data, SBA estimates that the average bank fee expense
per account holder is $300 per year. The number of contractors that
hold a subcontracting plan is 5,500. Thus, the total amount to be added
to the subcontracting base across all contractors is $1.65 million.
The benefit to small-business subcontractors of the amendment will
be additional dollars subcontracted to small business. Assuming that
the total level of small-business subcontracting stays consistent at
32%, contractors will spend $525,000 of the added amount with small
businesses. However, 18% of economy-wide spending on banking services
is spent with banks that qualify as small businesses. Assuming
contractor spending approximates economy-wide spending, this equates to
$297,000 of the current spending on bank fees through contractors with
subcontracting plans. Thus, after subtracting the amount already spent
with small-business banks, new spending with small business
subcontractors will be about $228,000 annually.
The final rule poses a cost to contractors to track their spending
on bank fees in order to include them in the subcontracting base. This
may require updating vendor management systems. To determine a cost per
contractor for this change, SBA reviewed the Paperwork Reduction Act
Supporting Statement for the FAR's Subcontracting Plan forms, under OMB
Control No. 9000-0007. Considering the burdens estimated in the
Supporting Statement, SBA estimates that the average cost of this
change will come to $100 per contractor annually. The cost therefore
amounts to $550,000 across all contractors with subcontracting plans.
The total regulatory impact is therefore a net cost of $322,000
annually. The benefits accrue to small business subcontractors, whereas
the cost is borne by other-than-small prime contractors with
subcontracting plans.
f. Require businesses to include indirect costs in their
subcontracting plans.
Section 125.3(c)(1)(iv) requires prime contractors with individual
subcontracting plans to report indirect costs in their individual
subcontracting reports (ISRs) where the contract value exceeds $7.5
million. Contractors already are required to report indirect costs in
their summary subcontracting reports (SSRs). Thus, the only cost
associated with the change will be the cost of allocating indirect
costs to the ISRs. To determine a cost per contractor for this change,
SBA reviewed the Paperwork Reduction Act Supporting Statement for the
FAR's Subcontracting Plan forms, under OMB Control No. 9000-0007.
Considering the burdens estimated in the Supporting Statement and
responses received from public comment, SBA estimates the cost to be
$100 per ISR.\3\ Between FY18 and FY22, there were 8,172 contracts
awarded that exceeded $7.5 million in total base-plus-options value and
that required individual subcontracting plans. Those contracts were
awarded to 3,126 vendors. Based on the number of vendors affected, the
aggregate cost of this change amounts to $312,600 annually.
---------------------------------------------------------------------------
\3\ This number is based on results from OMB's ICR Agency
Submission, dated March 15, 2022, available at https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=202203-9000-003.
---------------------------------------------------------------------------
There may be a benefit to the change because agencies use the ISR
to evaluate a contractor's compliance with its subcontracting plan.
Thus, by including more indirect costs in the base subcontracting
value, contractors will have the incentive to subcontract more to small
businesses in order to meet small business goals in their
subcontracting plans. This effect may be short-lived because
contractors can compensate by negotiating lower subcontracting goals.
Thus, SBA cannot quantify the potential benefit for this change.
g. Require agencies to assign a negative past performance rating to
a small-business contract awardee where
[[Page 26198]]
the contracting officer determined that the small business failed to
meet required limitations on subcontracting.
The final rule requires that where a contracting officer determines
at the conclusion of contract performance that a small business
contractor fails to satisfy the limitations on subcontracting for a
particular contract and that the reason for noncompliance was outside
of the firm's control, that contractor would receive a negative past-
performance rating for that contract for the appropriate factor or
subfactor in accordance with FAR 42.1503. SBA determines that this
change does not have any incremental cost or incremental benefit.
Agencies already are required to submit past performance ratings, and
the final rule gives procuring agencies discretion to give positive
evaluations where the contracting officer determines compliance to be
outside the small business' control. Though a negative rating might
affect a firm's ability to obtain a contract in the future, there is no
way to gauge the impact on the firm's odds, and, regardless, the end
result would likely be only a transfer in the contract award from the
noncompliant firm to a firm without a negative past-performance rating.
This change therefore does not present a net cost nor net benefit.
3. What are the alternatives to this rule?
The alternative to the final rule would be to keep SBA's processes
and procedures as currently stated in the Code of Federal Regulations.
However, because so much of this rule codifies practices and
interpretations already in place, using the alternative would impose an
information-search cost on 8(a) BD participants in particular and small
business contractors in general. Many of the clarifications in this
rule already have been applied at the case level but are not widely
known. This rule makes those clarifications known to the public.
Additionally, this rule implements section 863 of NDAA FY22,
regarding changes to SAM.gov after an adverse SBA status decision.
There is no alternative to implementing this statutory requirement.
Summary of Costs and Cost Savings
SBA calculates $262,000 in annual aggregate benefits, and
approximately $770,500 in annual aggregate costs, with many costs and
benefits uncertain. SBA calculates the net annual cost of the rule to
be $500,000.
Executive Order 12988
This action meets applicable standards set forth in Sections 3(a)
and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize
litigation, eliminate ambiguity, and reduce burden. The action does not
have retroactive or preemptive effect.
Executive Order 13132
For the purposes of Executive Order 13132, SBA has determined that
this 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 13563
Executive Order 13563, Improving Regulation and Regulatory Review,
directs agencies to, among other things: (a) afford the public a
meaningful opportunity to comment through the internet on proposed
regulations, with a comment period that should generally consist of not
less than 60 days; (b) provide for an ``open exchange'' of information
among government officials, experts, stakeholders, and the 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 Executive Order
12866 (e.g., identifying changing future compliance costs that might
result from technological innovation or anticipated behavioral
changes)?
To the extent possible, the agency utilized the most recent data
available in the Federal Procurement Data System--Next Generation, DSBS
and SAM.
Public participation: Did the agency: (a) afford the public a
meaningful opportunity to comment through the internet on any proposed
regulation, with a comment period that should generally consist of not
less than 60 days; (b) provide for an ``open exchange'' of information
among government officials, experts, stakeholders, and the public; (c)
provide timely online access to the rulemaking docket on
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?
SBA afforded a 60-day comment period to the proposed rule and
posted comments on www.regulations.gov to allow the public to comment
meaningfully on its provisions. SBA received over 650 comments from 125
commenters, with a high percentage of commenters favoring the proposed
changes. SBA also discussed the proposals in the proposed rule with
stakeholders at various small business on-line procurement conferences.
Flexibility: Did the agency identify and consider regulatory
approaches that reduce burdens and maintain flexibility and freedom of
choice for the public?
The final rule is intended to eliminate confusion in its existing
regulations and reduce unnecessary burdens on small business.
Congressional Review Act (5 U.S.C. 801-808)
The Congressional Review Act, 5 U.S.C. 801 et seq., as amended by
the Small Business Regulatory Enforcement Fairness Act of 1996,
generally provides that before a ``major rule'' may take effect, the
agency promulgating the rule must submit a rule report, which includes
a copy of the rule, to each House of the Congress and to the
Comptroller General of the United States. SBA will submit a report
containing this rule and other required information to the U.S. Senate,
the U.S. House of Representatives, and the Comptroller General of the
United States. A major rule cannot take effect until 60 days after it
is published in the Federal Register. This rule is not a ``major rule''
under 5 U.S.C. 804(2).
Paperwork Reduction Act, 44 U.S.C. Ch. 35
This rule does not impose additional reporting or recordkeeping
requirements under the Paperwork Reduction Act, 44 U.S.C. Chapter 35.
In 2019, SBA revised its regulations to give contracting officers
discretion to request information demonstrating compliance with the
limitations on subcontracting requirements. See 84 FR 65647 (Nov. 29,
2019). In conjunction with this revision, SBA requested an Information
Collection Review by OMB (Limitations on Subcontracting Reporting, OMB
Control Number 3245-0400). OMB approved the Information Collection.
This final rule does not alter the contracting officer's discretion to
require a contractor to demonstrate its compliance with the limitations
on subcontracting at any time during
[[Page 26199]]
performance and upon completion of a contract. It merely provides
consequences where a contracting officer, utilizing his or her
discretion, determines that a contractor did not meet the applicable
limitation of subcontracting requirement. The estimated number of
respondents, burden hours, and costs remain the same as that identified
by SBA in the previous Information Collection. As such, SBA believes
this provision is covered by its existing Information Collection,
Limitations on Subcontracting Reporting.
Regulatory Flexibility Act, 5 U.S.C. 601-612
The Regulatory Flexibility Act (RFA), 5 U.S.C. 601, requires
administrative agencies to consider the effect of their actions on
small entities, small nonprofit enterprises, and small local
governments. Pursuant to the RFA, when an agency issues a rulemaking,
the agency must prepare a regulatory flexibility analysis which
describes the impact of the rule on small entities. However, section
605 of the RFA allows an agency to certify a rule, in lieu of preparing
an analysis if the rulemaking is not expected to have a significant
economic impact on a substantial number of small entities.
The RFA defines ``small entity'' to include small businesses, small
organizations, and small governmental jurisdictions. This final rule
involves requirements for participation in SBA's 8(a) Business
Development (BD) Program. Some BD Participants are owned by Tribes,
ANCs, NHOs, or CDCs. As such, the rule relates to various small
entities. The number of entities affected by the rule includes all
Participants in SBA's 8(a) BD program. For reference, SBA Business
Opportunity Specialists assisted over 11,000 entities in 2020.
This final rule implements a statutory enactment and a federal
court decision and codifies practices and interpretations already in
place for Participants. In doing so, it adds reporting requirements,
but these requirements relate to information collected in the normal
course of business. SBA therefore expects the collection costs to be de
minimis and the costs of reporting to be minimal. Moreover, the
reporting requirements, such as the requirement that contractors report
indirect costs in their individual subcontracting reports (ISRs), will
not fall on small entities. Some of the final rule's changes, such as
that to documentation for retirement plans, reduce reporting
requirements for small entities that are Participants. Additionally,
the final rule's clarification of practices and interpretations
decreases uncertainty for Participants. Therefore, SBA does not believe
the rule will have a disparate impact on small entities or will impose
any additional significant costs on them. For the reasons discussed,
SBA certifies that this final rule does not have a significant economic
impact on a substantial number of small entities.
List of Subjects
13 CFR Part 121
Administrative practice and procedure, Government procurement,
Government property, Grant programs--business, Individuals with
disabilities, Loan programs--business, Small businesses.
13 CFR Part 124
Administrative practice and procedure, Government procurement,
Government property, Small businesses.
13 CFR Part 125
Government contracts, Government procurement, Reporting and
recordkeeping requirements, Small businesses, Technical assistance.
13 CFR Part 126
Administrative practice and procedure, Government procurement,
Penalties, Reporting and recordkeeping requirements, Small businesses.
13 CFR Part 127
Government contracts, Reporting and recordkeeping requirements,
Small businesses.
13 CFR Part 128
Government contracts, Government procurement, Reporting and
recordkeeping requirements, Small businesses, Technical assistance,
Veterans.
Accordingly, for the reasons stated in the preamble, SBA amends 13
CFR parts 121, 124, 125, 126, 127 and 128 as follows:
PART 121--SMALL BUSINESS SIZE REGULATIONS
0
1. The authority citation for part 121 is revised to read as follows:
Authority: 15 U.S.C. 632, 634(b)(6), 636(a)(36), 662, 694a(9),
and 9012.
0
2. Amend Sec. 121.103 by:
0
a. Revising paragraph (h) introductory text and the third sentence of
Example 2 to paragraph (h) introductory text;
0
b. Redesignating paragraphs (h)(1) through (h)(4) as paragraphs (h)(2)
through (h)(5), respectively;
0
c. Adding a new paragraph (h)(1);
0
d. Revising newly redesignated paragraphs (h)(3) and (h)(4); and
0
e. Adding paragraph (i).
The revisions and additions to read as follows:
Sec. 121.103 How does SBA determine affiliation?
* * * * *
(h) Affiliation based on joint ventures. A joint venture is an
association of individuals and/or concerns with interests in any degree
or proportion intending to engage in and carry out business ventures
for joint profit over a two-year period, for which purpose they combine
their efforts, property, money, skill, or knowledge, but not on a
continuing or permanent basis for conducting business generally. This
means that a specific joint venture generally may not be awarded
contracts beyond a two-year period, starting from the date of the award
of the first contract, without the partners to the joint venture being
deemed affiliated for the joint venture. However, a joint venture may
be issued an order under a previously awarded contract beyond the two-
year period. Once a joint venture receives a contract, it may submit
additional offers for a period of two years from the date of that first
award. An individual joint venture may be awarded one or more contracts
after that two-year period as long as it submitted an offer prior to
the end of that two-year period. SBA will find joint venture partners
to be affiliated, and thus will aggregate their receipts and/or
employees in determining the size of the joint venture for all small
business programs, where the joint venture submits an offer after two
years from the date of the first award. The same two (or more) entities
may create additional joint ventures, and each new joint venture may
submit offers for a period of two years from the date of the first
contract to the joint venture without the partners to the joint venture
being deemed affiliates. At some point, however, such a longstanding
inter-relationship or contractual dependence between the same joint
venture partners may lead to a finding of general affiliation between
and among them. SBA may also determine that the relationship between a
prime contractor and its subcontractor is a joint venture pursuant to
paragraph (h)(3) of this section. For purposes of this paragraph (h),
contract refers to prime contracts, novations of prime contracts, and
any subcontract in which the joint venture is treated as a similarly
situated entity
[[Page 26200]]
as the term is defined in part 125 of this chapter.
* * * * *
Example 2 to paragraph (h) introductory text. * * * On March 19,
year 3, XY receives its fifth contract. * * *
* * * * *
(1) Form of joint venture. A joint venture: must be in writing;
must do business under its own name and be identified as a joint
venture in the System for Award Management (SAM) for the award of a
prime contract or agreement; and may be in the form of a formal or
informal partnership or exist as a separate limited liability company
or other separate legal entity.
(i) If a joint venture exists as a formal separate legal entity, it
cannot be populated with individuals intended to perform contracts
awarded to the joint venture for any contract or agreement which is set
aside or reserved for small business, unless all parties to the joint
venture are similarly situated as that term is defined in part 125 of
this chapter (i.e., the joint venture may have its own separate
employees to perform administrative functions, including one or more
Facility Security Officer(s), but may not have its own separate
employees to perform contracts awarded to the joint venture).
(ii) A populated joint venture that is not comprised entirely of
similarly situated entities will be ineligible for any contract or
agreement which is set aside or reserved for small business.
(iii) In determining the size of a populated joint venture (whether
one involving similarly situated entities or not), SBA will aggregate
the revenues or employees of all partners to the joint venture.
* * * * *
(3) Ostensible subcontractors. A contractor and its ostensible
subcontractor are treated as joint venturers for size determination
purposes. An ostensible subcontractor is a subcontractor that is not a
similarly situated entity, as that term is defined in Sec. 125.1 of
this chapter, and performs primary and vital requirements of a
contract, or of an order, or is a subcontractor upon which the prime
contractor is unusually reliant. As long as each concern is small under
the size standard corresponding to the NAICS code assigned to the
contract (or the prime contractor is small if the subcontractor is the
SBA-approved mentor to the prime contractor), the arrangement will
qualify as a small business.
(i) All aspects of the relationship between the prime and
subcontractor are considered, including, but not limited to, the terms
of the proposal (such as contract management, transfer of the
subcontractor's incumbent managers, technical responsibilities, and the
percentage of subcontracted work), agreements between the prime and
subcontractor (such as bonding assistance or the teaming agreement),
whether the subcontractor is the incumbent contractor and is ineligible
to submit a proposal because it exceeds the applicable size standard
for that solicitation, and whether the prime contractor relies solely
on the subcontractor's experience because it lacks any relevant
experience of its own. No one factor is determinative.
(ii) A prime contractor may use the experience and past performance
of a subcontractor to enhance or strengthen its offer, including that
of an incumbent contractor. It is only where that subcontractor will
perform primary and vital requirements of a contract or order, or the
prime contractor is unusually reliant on the subcontractor, that SBA
will find the subcontractor to be an ostensible subcontractor.
(iii) In the case of a contract or order set-aside or reserved for
small business for services, specialty trade construction or supplies,
SBA will find that a small business prime contractor is performing the
primary and vital requirements of the contract or order, and is not
unduly reliant on one or more subcontractors that are not small
businesses, where the prime contractor can demonstrate that it,
together with any subcontractors that qualify as small businesses, will
meet the limitations on subcontracting provisions set forth in Sec.
125.6 of this chapter.
(iv) In a general construction contract, the primary and vital
requirements of the contract are the management, supervision and
oversight of the project, including coordinating the work of various
subcontractors, not the actual construction work performed.
(4) Receipts/employees attributable to joint venture partners. For
size purposes, a concern must include in its receipts its proportionate
share of joint venture receipts. Proportionate receipts do not include
proceeds from transactions between the concern and its joint ventures
(e.g., subcontracts from a joint venture entity to joint venture
partners) already accounted for in the concern's tax return. In
determining the number of employees, a concern must include in its
total number of employees its proportionate share of individuals
employed by the joint venture. For the calculation of receipts, the
appropriate proportionate share is the same percentage of receipts or
employees as the joint venture partner's percentage share of the work
performed by the joint venture. For a populated joint venture (where
work is performed by the joint venture entity itself and not by the
individual joint venture partners) the appropriate share is the same
percentage as the joint venture partner's percentage ownership share in
the joint venture. For the calculation of employees, the appropriate
share is the same percentage of employees as the joint venture
partner's percentage ownership share in the joint venture, after first
subtracting any joint venture employee already accounted for in one of
the partner's employee counts.
* * * * *
(i) Affiliation based on franchise and license agreements. The
restraints imposed on a franchisee or licensee by its franchise or
license agreement relating to standardized quality, advertising,
accounting format and other similar provisions, generally will not be
considered in determining whether the franchisor or licensor is
affiliated with the franchisee or licensee provided the franchisee or
licensee has the right to profit from its efforts and bears the risk of
loss commensurate with ownership. Affiliation may arise, however,
through other means, such as common ownership, common management or
excessive restrictions upon the sale of the franchise interest.
Sec. 121.401 [Amended]
0
3. Amend Sec. 121.401 by removing the words ``Sec. Sec. 121.401
through 121.413'' and adding in their place the words ``Sec. Sec.
121.401 through 121.412''.
0
4. Amend Sec. 121.404 by:
0
a. Revising paragraphs (a)(1)(i)(B), (a)(1)(ii)(B), and (a)(1)(iv);
0
b. Removing the reference to ``Sec. 121.103(h)(2)'' in paragraph (d)
and adding in its place a reference to ``Sec. 121.103(h)(3)'';
0
c. Revising the first sentence in paragraph (g)(2)(i) and the second
sentence in paragraph (g)(2)(iii);
0
d. Removing the reference to ``Sec. 121.103(h)(4)'' in paragraph
(g)(5) and adding in its place a reference to ``Sec. 121.103(h)(3)'';
and
0
e. Adding paragraph (g)(6).
The revisions and addition to read as follows:
Sec. 121.404 When is the size status of a business concern
determined?
(a) * * *
(1) * * *
(i) * * *
(B) Set-aside Multiple Award Contracts. Except as set forth in
Sec. 124.503(i)(1)(iv) for sole source 8(a)
[[Page 26201]]
orders, for a Multiple Award Contract that is set aside or reserved for
small business (i.e., small business set-aside, 8(a) small business,
service-disabled veteran-owned small business, HUBZone small business,
or women-owned small business), if a business concern (including a
joint venture) is small at the time of offer and contract-level
recertification for the Multiple Award Contract, it is small for each
order or Blanket Purchase Agreement issued against the contract, unless
a contracting officer requests a size recertification for a specific
order or Blanket Purchase Agreement.
(ii) * * *
(B) Set-aside Multiple Award Contracts. Except as set forth in
Sec. 124.503(i)(1)(iv) for sole source 8(a) orders, for a Multiple
Award Contract that is set aside or reserved for small business (i.e.,
small business set-aside, 8(a) small business, service-disabled
veteran-owned small business, HUBZone small business, or women-owned
small business), if a business concern (including a joint venture) is
small at the time of offer and contract-level recertification for
discrete categories on the Multiple Award Contract, it is small for
each order or Agreement issued against any of those categories, unless
a contracting officer requests a size recertification for a specific
order or Blanket Purchase.
* * * * *
(iv) For a Multiple Award Contract, where concerns are not required
to submit price as part of the offer for the contract, size for the
contract will be determined as of the date of initial offer, which may
not include price. Size for set-aside orders will be determined in
accordance with subparagraphs (i)(A), (i)(B), (ii)(A), or (ii)(B), as
appropriate.
* * * * *
(g) * * *
(2)(i) In the case of a merger, acquisition, or sale which results
in a change in controlling interest under Sec. 121.103, where contract
novation is not required, the contractor must, within 30 days of the
transaction becoming final, recertify its small business size status to
the procuring agency, or inform the procuring agency that it is other
than small. * * *
* * * * *
(iii) * * * If the merger, sale or acquisition (including
agreements in principle) occurs within 180 days of the date of an offer
relating to the award of a contract, order or agreement and the offeror
is unable to recertify as small, it will not be eligible as a small
business to receive the award of the contract, order or agreement. * *
*
* * * * *
(6) Where a joint venture must recertify its small business size
status under paragraph (g), the joint venture can recertify as small
where all parties to the joint venture qualify as small at the time of
recertification, or the prot[eacute]g[eacute] small business in a still
active mentor-prot[eacute]g[eacute] joint venture qualifies as small at
the time of recertification. A joint venture can recertify as small
even though the date of recertification occurs more than two years
after the joint venture received its first contract award (i.e.,
recertification is not considered a new contract award under Sec.
121.103(h)).
* * * * *
0
5. Amend Sec. 121.406 by revising paragraph (c) to read as follows:
Sec. 121.406 How does a small business concern qualify to provide
manufactured products or other supply items under a small business set-
aside, service-disabled veteran-owned small business, HUBZone, WOSB or
EDWOSB, or 8(a) contract?
* * * * *
(c) The limitations on subcontracting (performance of work)
requirements, the ostensible subcontracting rule, and the
nonmanufacturer rule do not apply to small business set-aside
acquisitions with an estimated value between the micro-purchase
threshold and the simplified acquisition threshold (as both terms are
defined in the FAR at 48 CFR 2.101).
* * * * *
0
6. Amend Sec. 121.411 by revising paragraph (c) to read as follows:
Sec. 121.411 What are the size procedures for SBA's Section 8(d)
Subcontracting Program?
* * * * *
(c) Upon determination of the successful subcontract offeror for a
competitive subcontract over the simplified acquisition threshold, but
prior to award, the prime contractor must inform each unsuccessful
subcontract offeror in writing of the name and location of the apparent
successful offeror.
* * * * *
Sec. 121.413 [Removed]
0
7. Remove Sec. 121.413.
0
8. Amend Sec. 121.506 by redesignating paragraphs (a), (b), (c), (d),
and (e), as paragraphs (b), (d), (e), (f), and (g) respectively, and
adding paragraphs (a) and (c) to read as follows:
Sec. 121.506 What definitions are important for sales or leases of
Government-owned timber?
(a) Computation of Market Share means the small business share,
expressed as a percentage for a market area, based on the purchase by
small business over the preceding 5-year period. The computation is
done every five years.
* * * * *
(c) Integrated Resource Timber Contracts means contracts that
combine product removal and service work when the value of included
timber exceeds the value of services.
* * * * *
0
9. Amend Sec. 121.507 by adding new paragraphs (d) and (e) to read as
follows:
Sec. 121.507 What are the size standards and other requirements for
the purchase of Government-owned timber (other than Special Salvage
Timber)?
* * * * *
(d) The Director of Government Contracting may waive one or more of
the requirements set forth in paragraphs (a)(3) and (a)(4) of this
section in limited circumstances where conditions make the
requirement(s) impractical or prohibitive. A request for waiver must be
made to the Director of Government Contracting and contain facts,
arguments, and any appropriate supporting documentation as to why a
waiver should be granted.
(e) Sawtimber volume from Integrated Resource Timber Contracts
shall be included in the Computation of Market Share and set-aside
trigger.
0
10. Amend Sec. 121.702 by:
0
a. In paragraph (c)(7), revising the first sentence and adding a new
second sentence;
0
b. Adding paragraph (c)(11).
The revisions and addition to read as follows:
Sec. 121.702 What size and eligibility standards are applicable to
the SBIR and STTR programs?
* * * * *
(c) * * *
(7) * * * A concern and its ostensible subcontractor are treated as
joint venturers. As such, they are affiliates for size determination
purposes and must meet the ownership and control requirements
applicable to joint ventures. * * *
* * * * *
(11) Exception to affiliation for certain investment companies.
There is an exception to affiliation for Small Business Investment
Companies (SBICs) that invest in SBIR or STTR awardees,
[[Page 26202]]
in accordance with 13 CFR 121.103(b)(1).
* * * * *
0
11. Amend Sec. 121.1001 by revising paragraphs (a)(6)(i), (a)(8)(i)
and (a)(9)(i), paragraph (b)(2)(ii) introductory text, and paragraphs
(b)(2)(ii)(A) and (C) to read as follows:
Sec. 121.1001 Who may initiate a size protest or request a formal
size determination?
(a) * * *
(6) * * *
(i) Any offeror for a specific HUBZone set-aside contract that the
contracting officer has not eliminated from consideration for any
procurement-related reason, such as non-responsiveness, technical
unacceptability or outside of the competitive range;
* * * * *
(8) * * *
(i) Any offeror for a specific service-disabled veteran-owned small
business set-aside contract that the contracting officer has not
eliminated from consideration for any procurement-related reason, such
as non-responsiveness, technical unacceptability or outside of the
competitive range;
* * * * *
(9) * * *
(i) Any offeror for a specific contract set aside for WOSBs or
WOSBs owned by one or more women who are economically disadvantaged
(EDWOSB) that the contracting officer has not eliminated from
consideration for any procurement-related reason, such as non-
responsiveness, technical unacceptability or outside of the competitive
range;
* * * * *
(b) * * *
(2) * * *
(ii) Concerning individual sole source and competitive 8(a)
contract awards where SBA cannot verify the eligibility of the apparent
successful offeror because SBA finds the concern to be other than
small, the following entities may request a formal size determination:
(A) The Participant nominated for award of the particular sole
source contract, or found to be ineligible for a competitive 8(a)
contract due to its size;
* * * * *
(C) The SBA District Director in the district office that services
the Participant, the Associate Administrator for Business Development,
or the Associate General Counsel for Procurement Law.
* * * * *
0
12. Amend Sec. 121.1004 by revising paragraph (a)(1), adding the words
``without a reserve'' at the end of paragraph (a)(2)(iii), and adding
paragraphs (f) and (g) to read as follows:
Sec. 121.1004 What time limits apply to size protests?
(a) * * *
(1) Sealed bids or sales (including protests on partial set-asides
and reserves of Multiple Award Contracts and set-asides of orders
against Multiple Award Contracts). (i) A protest must be received by
the contracting officer prior to the close of business on the 5th day,
exclusive of Saturdays, Sundays, and legal holidays, after bid opening
for
(A) The contract;
(B) An order issued against a Multiple Award Contract if the
contracting officer requested a new size certification in connection
with that order; or
(C) Except for orders or Blanket Purchase Agreements issued under
any Federal Supply Schedule contract, an order or Blanket Purchase
Agreement set aside for small business (i.e., small business set-aside,
8(a) small business, service-disabled veteran-owned small business,
HUBZone small business, or women-owned small business) where the
underlying Multiple Award Contract was awarded on an unrestricted
basis.
(ii) Where the identified low bidder is determined to be ineligible
for award, a protest of any other identified low bidder must be
received prior to the close of business on the 5th day, exclusive of
Saturdays, Sundays, and legal holidays, after the contracting officer
has notified interested parties of the identity of that low bidder.
* * * * *
(f) Apparent successful offeror. A party with standing, as set
forth in Sec. 121.1001(a), may file a protest only against an apparent
successful offeror or an offeror in line to receive an award.
(g) Bid protest corrective action. SBA will generally dismiss any
size protest relating to an initial apparent successful offeror where
an agency decides to reevaluate offers as a corrective action in
response to a FAR subpart 33.1 bid protest.
(1) SBA will complete the size determination where the procuring
agency makes a written request to SBA within two business days of the
agency informing SBA of the corrective action and demonstrates that the
corrective action will not result in a change of the apparent
successful offeror, unless the protest involves size issues determined
as of the date of final proposal revision per Sec. 121.404(d).
(2) When the apparent successful offeror is announced after
reevaluation, interested parties will again have the opportunity to
protest the size of the new or same apparent successful offeror within
five business days after such notification.
0
13. Amend Sec. 121.1009 by:
0
a. Revising paragraph (a)(1);
0
b. Redesignating paragraphs (a)(2) and (a)(3) as paragraphs (a)(3) and
(a)(4), respectively; and adding a new paragraph (a)(2); and
0
c. Revising newly redesignated paragraph (a)(4) and paragraph (g)(5).
The revisions and additions to read as follows:
Sec. 121.1009 What are the procedures for making the size
determination?
(a) * * *
(1) After receipt of a protest or a request for a formal size
determination, if no protest is pending under FAR subpart 33.1, the SBA
Area Office will issue a formal size determination within 15 business
days, if possible;
(2) If a protest is pending under FAR subpart 33.1, the SBA Area
Office will suspend processing a valid, timely and specific size
protest. Once the procuring agency, GAO or the Court of Federal Claims
issues a decision under FAR subpart 33.1, the SBA Area Office will
recommence the size determination process.
(i) If the FAR subpart 33.1 decision denies the protest, SBA will
issue a formal size determination within 15 business days of the
decision, if possible.
(ii) If the decision results in a cancellation of the award or
change of the apparent successful offeror, SBA will dismiss the size
protest as moot.
(iii) If the decision requires re-evaluation of offers or other
corrective action but the award is not cancelled, SBA will continue to
suspend processing the protest.
(A) If after re-evaluation or other corrective action occurs the
protested concern remains the apparent successful offeror, SBA will
issue a formal size determination within 15 business days after
notification of the apparent successful offeror, if possible.
(B) If after re-evaluation or other corrective action occurs a
different apparent successful offeror is identified, SBA will dismiss
the size protest as moot. Interested parties may file a timely size
protest with respect to the newly identified apparent successful
offeror after the notification of award.
* * * * *
(4) If SBA does not issue its determination in accordance with
paragraph (a)(1) of this section (or request an extension that is
granted), the
[[Page 26203]]
contracting officer may award the contract if he or she determines in
writing that there is an immediate need to award the contract and that
waiting until SBA makes its determination will be disadvantageous to
the Government. Notwithstanding such a determination, the provisions of
paragraph (g) of this section apply to the procurement in question.
* * * * *
(g) * * *
(5) A concern determined to be other than small under a particular
size standard is ineligible for any procurement or any assistance
authorized by the Small Business Act or the Small Business Investment
Act of 1958 which requires the same or a lower size standard, unless
SBA recertifies the concern to be small pursuant to Sec. 121.1010 or
OHA reverses the adverse size determination. After an adverse size
determination, a concern cannot self-certify as small under the same or
lower size standard unless it is first recertified as small by SBA. If
a concern does so, it may be in violation of criminal laws, including
section 16(d) of the Small Business Act, 15 U.S.C. 645(d). If the
concern has already certified itself as small under the same or a
smaller size standard on a pending procurement or on an application for
SBA assistance, the concern must immediately inform the contracting
officer or responsible official of the adverse size determination.
(i) Not later than two days after the date on which SBA issues a
final size determination finding a business concern to be other than
small, such concern must update its size status in the System for Award
Management (or any successor system).
(ii) If a business concern fails to update its size status in the
System for Award Management (or any successor system) in response to an
adverse size determination, SBA will make such update within two days
of the business's failure to do so.
* * * * *
0
14. Amend Sec. 121.1203 by redesignating paragraph (d) as paragraph
(g) and by adding new paragraphs (d), (e) and (f) to read as follows:
Sec. 121.1203 When will a waiver of the Nonmanufacturer Rule be
granted for an individual contract?
* * * * *
(d) An individual waiver applies only to the contract for which it
is granted and does not apply to modifications outside the scope of the
contract or other procurement actions (e.g., follow-on or bridge
contracts).
(e) An individual waiver in connection with a long-term contract
(i.e., a contract with a duration of longer than five years, including
options) cannot exceed five years. A procuring agency may seek a new
waiver for an additional five years if, after conducting market
research, it demonstrates that there are no available small business
manufacturers and that a waiver remains appropriate.
(f) For a multiple item procurement, except those described in
Sec. 121.406(d)(1), a waiver must be sought and granted for each item
that the procuring agency believes no small business manufacturer or
processor can reasonably be expected to offer a product meeting the
specifications of the solicitation and which will bring the total value
of items to be procured from small business or subject to a waiver to
at least 50% of the estimated value of the contract.
(1) SBA's waiver applies only to the specific item(s) identified,
not to the entire contract.
(2) The estimated aggregate value of all items manufactured by
small business and those subject to a waiver must equal at least 50% of
the value of the contract. A contracting officer need not seek a waiver
for each item for which the procuring agency believes no small business
manufacturer or processor can reasonably be expected to offer a product
meeting the specifications of the solicitation.
(3) When a contracting officer seeks a waiver for an individual
item, the term ``item'' can be a specific broad identifying thing
(e.g., all spare parts related to aircraft X), but cannot be so broad
as to have no real identification (e.g., all medical supplies).
* * * * *
0
15. Amend Sec. 121.1204 by:
0
a. Revising paragraphs (b)(1)(i) and (ii);
0
b. Adding a new sentence after the first sentence in paragraph
(b)(1)(iii);
0
c. Redesignating paragraphs (b)(2) and (3) as paragraphs (b)(3) and
(4), respectively and adding new paragraph (b)(2)
0
d. Revising newly redesignated paragraph (b)(4) and adding paragraph
(b)(5).
The revisions and additions to read as follows:
Sec. 121.1204 What are the procedures for requesting and granting
waivers?
* * * * *
(b) * * *
(1) * * *
(i) A definitive statement of each specific item sought to be
waived and justification as to why the specific item is required;
(ii) The proposed solicitation number, NAICS code, dollar amount of
the procurement, dollar amount of the item(s) for which a waiver is
sought, and a brief statement of the procurement history;
(iii) * * * For a multiple item procurement, a contracting officer
must determine that no small business manufacturer or processor
reasonably can be expected to offer each item for which a waiver is
sought. * * *
* * * * *
(2) Unless an agency has justified a brand-name acquisition, the
market research conducted to support the waiver request should be
tailored to attract the attention of potential small business
manufacturers or processors, not resellers or distributors.
* * * * *
(4) SBA will examine the contracting officer's determination and
any other information it deems necessary to make an informed decision
on the individual waiver request.
(i) If SBA's research verifies that no small business manufacturers
or processors exist for the item, the Director, Office of Government
Contracting will grant an individual, one-time waiver.
(ii) If a small business manufacturer or processor is found for the
product in question, the Director, Office of Government Contracting
will deny the request.
(iii) Where an agency requests a waiver for multiple items, SBA may
grant a waiver for all items requested, deny a waiver for all items
requested, or grant a waiver for some but not all of the items
requested. SBA's determination will specifically identify the items for
which a waiver is granted, and the procuring agency must then identify
the specific items for which the waiver applies in its solicitation.
(iv) The Director, Office of Government Contracting's decision to
grant or deny a waiver request represents the final agency decision by
SBA.
(5) A nonmanufacturer rule waiver for a specific solicitation
expires one year after SBA's determination to grant the waiver. This
means that contract award must occur within one year of the date SBA
granted the waiver. Where a contract is not awarded within one year,
the procuring agency must come back to SBA with revised market research
requesting that the waiver (or waivers in the case of a multiple item
procurement) be extended.
[[Page 26204]]
Sec. 121.1205 [Amended]
0
16. Amend Sec. 121.1205 by removing ``http://www.sba.gov/aboutsba/sbaprograms/gc/programs/gc_waivers_nonmanufacturer.html'' and adding in
its place ``https://www.sba.gov/document/support-non-manufacturer-rule-class-waiver-list''.
PART 124--8(a) BUSINESS DEVELOPMENT/SMALL DISADVANTAGED BUSINESS
STATUS DETERMINATIONS
0
17. The authority citation for part 124 continues to read as follows:
Authority: 15 U.S.C. 634(b)(6), 636(j), 637(a), 637(d), 644, 42
U.S.C. 9815; and Pub. L. 99-661, 100 Stat. 3816; Sec. 1207, Pub. L.
100-656, 102 Stat. 3853; Pub. L. 101-37, 103 Stat. 70; Pub. L. 101-
574, 104 Stat. 2814; Sec. 8021, Pub. L. 108-87, 117 Stat. 1054; and
Sec. 330, Pub. L. 116-260.
0
18. Amend Sec. 124.3 by revising the definition of ``Bona fide place
of business'' to read as follows:
Sec. 124.3 What definitions are important in the 8(a) BD program?
* * * * *
Bona fide place of business, for purposes of 8(a) construction
procurements, means a location where a Participant regularly maintains
an office within the appropriate geographical boundary which employs at
least one individual who works at least 20 hours per week at that
location. The term does not include construction trailers or other
temporary construction sites.
* * * * *
0
19. Amend Sec. 124.102 by revising paragraph (c) to read as follows:
Sec. 124.102 What size business is eligible to participate in the
8(a) BD program?
* * * * *
(c) A concern whose application is denied due to size by SBA may
request a formal size determination with the SBA Government Contracting
Area Office serving the geographic area in which the principal office
of the business is located under part 121 of this chapter. Where the
SBA Government Contracting Area Office determines that an applicant
qualifies as a small business concern for the size standard
corresponding to its primary NAICS code:
(1) The AA/BD will certify the concern as eligible to participate
in the 8(a) BD program if size was the only reason for decline; or
(2) The concern may reapply for participation in the 8(a) BD
program at any point after 90 days from the AA/BD's decline if size was
not the only reason for decline. In such a case, the AA/BD will accept
the size determination as conclusive of the concern's small business
status, provided the applicant concern has not completed an additional
fiscal year in the intervening period and SBA believes that the
additional fiscal year changes the applicant's size.
Sec. 124.103 [Amended]
0
20. Amend Sec. 124.103 by removing the words ``physical handicap'' in
paragraph (c)(2)(i) and adding in their place the words ``identifiable
disability''.
0
21. Amend Sec. 124.104 by:
0
a. Revising the second sentence of paragraph (c)(2)(ii);
0
b. Removing paragraph (c)(2)(iii); and
0
c. Redesignating paragraph (c)(2)(iv) as paragraph (c)(2)(iii).
The revision to read as follows:
Sec. 124.104 Who is economically disadvantaged?
* * * * *
(c) * * *
(2) * * *
(ii) * * * In order to properly assess whether funds invested in a
retirement account may be excluded from an individual's net worth, SBA
may require the individual to provide information about the terms and
restrictions of the account to SBA and certify that the retirement
account is legitimate.
* * * * *
0
22. Amend Sec. 124.105 by revising paragraphs (h)(2) and (i)(1), and
adding a new sentence after the first sentence in paragraph (i)(2) to
read as follows:
Sec. 124.105 What does it mean to be unconditionally owned by one or
more disadvantaged individuals?
* * * * *
(h) * * *
(2) A non-Participant concern in the same or similar line of
business or a principal of such concern may generally not own more than
a 10 percent interest in a Participant that is in the developmental
stage or more than a 20 percent interest in a Participant in the
transitional stage of the program, except that:
(i) A former Participant in the same or similar line of business or
a principal of such a former Participant (except those that have been
terminated from 8(a) BD program participation pursuant to Sec. Sec.
124.303 and 124.304) may have an equity ownership interest of up to 20
percent in a current Participant in the developmental stage of the
program or up to 30 percent in a transitional stage Participant; and
(ii) A business concern approved by SBA to be a mentor pursuant to
Sec. 125.9 of this chapter may own up to 40 percent of its 8(a)
Participant prot[eacute]g[eacute] as set forth in Sec. 125.9(d)(2) of
this chapter, whether or not that concern is in the same or similar
line of business as the Participant.
(i) * * *
(1) Any Participant or former Participant that is performing one or
more 8(a) contracts may substitute one disadvantaged individual or
entity for another disadvantaged individual or entity without requiring
the termination of those contracts or a request for waiver under Sec.
124.515, as long as it receives SBA's approval prior to the change.
(2) * * * In determining whether a non-disadvantaged individual
involved in a change of ownership has more than a 20 percent interest
in the concern, SBA will aggregate the interests of all immediate
family members as set forth in Sec. 124.3, as well as any individuals
who are affiliated based on an identity of interest under Sec.
121.103(f). * * *
* * * * *
0
23. Amend Sec. 124.107 by revising the introductory text to read as
follows:
Sec. 124.107 What is potential for success?
SBA must determine that with contract, financial, technical, and
management support from the 8(a) BD program, the applicant concern is
able to perform 8(a) contracts and possess reasonable prospects for
success in competing in the private sector. To do so, the applicant
concern must show that it has operated and received contracts (either
in the private sector, at the state or local government level, or with
the Federal Government) in its primary industry classification for at
least two full years immediately prior to the date of its 8(a) BD
application, unless a waiver for this requirement is granted pursuant
to paragraph (b) of this section.
* * * * *
0
24. Amend Sec. 124.108 by adding a new sentence at the end of
paragraph (e) to read as follows:
Sec. 124.108 What other eligibility requirements apply for
individuals or businesses?
* * * * *
(e) * * * However, a firm will not be ineligible to participate in
the 8(a) BD program if the firm or the affected principals can
demonstrate that the financial obligations owed have been settled and
discharged/forgiven by the Federal Government.
0
25. Amend Sec. 124.109 by revising the second sentence of paragraph
(c)(1) and by revising paragraph (c)(6)(i) to read as follows:
[[Page 26205]]
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?
* * * * *
(c) * * *
(1) * * * Where an applicant or participating concern is owned by a
federally recognized tribe, the concern's articles of incorporation,
partnership agreement, limited liability company articles of
organization, or other similar incorporating documents for tribally
incorporated applicants must contain express sovereign immunity waiver
language, or a ``sue and be sued'' clause which designates United
States Federal Courts to be among the courts of competent jurisdiction
for all matters relating to SBA's programs including, but not limited
to, 8(a) BD program participation, loans, and contract performance. * *
*
* * * * *
(6) * * *
(i) It has been in business for at least two years, as evidenced by
income tax returns (individual or consolidated) or financial statements
(either audited, reviewed or in-house as set-forth in Sec. 124.602)
for each of the two previous tax years showing operating revenues in
the primary industry in which the applicant seeks 8(a) BD
certification; or
* * * * *
0
26. Amend Sec. 124.110 by adding paragraph (d)(3), by redesignating
paragraphs (e) through (h) as paragraphs (f) through (i), respectively,
and by adding a new 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?
* * * * *
(d) * * *
(3) The individuals responsible for the management and daily
operations of an NHO-owned concern cannot manage more than two Program
Participants at the same time.
(i) An individual's officer position or membership on the board of
directors does not necessarily imply that the individual is responsible
for the management and daily operations of a given concern. SBA looks
beyond these corporate formalities and examines the totality of the
information submitted by the applicant to determine which individual(s)
manage the actual day-to-day operations of the applicant concern.
(ii) NHO officers and/or board members may control a holding
company overseeing several NHO-owned business concerns, provided they
do not actually control the day-to-day management of more than two
current 8(a) BD Program Participant firms.
(iii) Because an individual may be responsible for the management
and daily business operations of two NHO-owned concerns, the full-time
devotion requirement does not apply to NHO-owned applicants and
Participants.
(e) For corporate entities, an NHO must unconditionally own at
least 51 percent of the voting stock and at least 51 percent of the
aggregate of all classes of stock. For non-corporate entities, an NHO
must unconditionally own at least a 51 percent interest.
* * * * *
Sec. 124.111 [Amended]
0
27. In Sec. 124.111 amend paragraph (d) by removing the words ``SIC
code'' and adding in their place the words ``NAICS code.''
0
28. Amend Sec. 124.204 by revising paragraph (a) to read as follows:
Sec. 124.204 How does SBA process applications for 8(a) BD program
admission?
(a) The AA/BD is authorized to approve or decline applications for
admission to the 8(a) BD program.
(1) Except as set forth in paragraph (a)(2) of this section, the
DPCE will receive, review and evaluate all 8(a) BD applications.
(2) Where an applicant answers on its electronic application that
it is not a for-profit business (see Sec. Sec. 121.105 and 124.104),
that one or more of the individuals upon whom eligibility is based is
not a United States citizen (see Sec. 124.104), that the applicant or
one or more of the individuals upon whom eligibility is based has
previously participated in the 8(a) BD program (see Sec. 124.108(b)),
or that the applicant is not an entity-owned business and has generated
no revenues (see Sec. Sec. 124.107(a) and 124.107(b)(1)(iv)), its
application will be closed automatically and it will be prevented from
completing a full electronic application.
(3) SBA will advise each program applicant within 15 days after the
receipt of an application whether the application is complete and
suitable for evaluation and, if not, what additional information or
clarification is required to complete the application.
(4) SBA will process an application for 8(a) BD program
participation within 90 days of receipt of an application package
deemed complete by the DPCE. Incomplete packages will not be processed.
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.
* * * * *
Sec. 124.302 [Amended]
0
29. Amend Sec. 124.302 by removing paragraph (b), and redesignating
paragraphs (c) and (d) as paragraphs (b) and (c), respectively.
Sec. 124.303 [Amended]
0
30. In Sec. 124.303 amend paragraph (a)(15) by removing the reference
to ``Sec. 124.507'' and adding in its place a reference to ``Sec.
124.509.''
0
31. Amend Sec. 124.304 by:
0
a. revising paragraph (b); and
0
b. In paragraph (f)(3) removing the reference to ``Sec. 124.1010'' and
adding in its place a reference to ``Sec. 124.1002''.
The revision reads follows:
Sec. 124.304 What are the procedures for early graduation and
termination?
* * * * *
(b) Letter of Intent to Terminate or Graduate Early. (1) Except as
set forth in paragraph (b)(2) of this section, when SBA believes that a
Participant should be terminated or graduated prior to the expiration
of its program term, SBA will notify the concern in writing. The Letter
of Intent to Terminate or Graduate Early will set forth the specific
facts and reasons for SBA's findings and will notify the concern that
it has 30 days from the date it receives the letter to submit a written
response to SBA explaining why the proposed ground(s) should not
justify termination or early graduation.
(2) Where SBA obtains evidence that a Participant has ceased its
operations, the AA/BD may immediately terminate a concern's
participation in the 8(a) BD program by notifying the concern of its
termination and right to appeal that decision to OHA.
* * * * *
0
32. Amend Sec. 124.402 by adding a sentence at the end of paragraph
(b) to read as follows:
Sec. 124.402 How does a Participant develop a business plan?
* * * * *
(b) * * * Where a sole source 8(a) requirement is offered to SBA on
behalf of a Participant or a Participant is the apparent successful
offeror for a competitive 8(a) requirement and SBA has not yet approved
the Participant's business plan, SBA will approve the Participant's
business plan as part of its eligibility determination prior to
contract award.
* * * * *
0
33. Amend Sec. 124.403 by
[[Page 26206]]
0
a. In paragraph (a) adding two new sentences after the first sentence;
and
0
b. In paragraph (c)(1) removing the reference to ``Sec. 124.507'' and
adding in its place a reference to ``Sec. 124.509''.
The additions read as follows:
Sec. 124.403 How is a business plan updated and modified?
(a) * * * If there are no changes in a Participant's business plan,
the Participant need not resubmit its business plan. A Participant must
submit a new or modified business plan only if its business plan has
changed from the previous year. * * *
* * * * *
0
34. Amend Sec. 124.501 by:
0
a. Revising paragraph (b);
0
b. Revising paragraph (g) introductory text;
0
c. Revising the first sentence of paragraph (h);
0
d. Revising paragraph (k) introductory text;
0
e. Redesignating paragraphs (k)(4) and (5) as paragraphs (k)(7) and
(8), respectively; and
0
f. Adding new paragraphs (k)(4), (k)(5), (k)(6), and (k)(9).
The revisions and additions to read as follows:
Sec. 124.501 What general provisions apply to the award of 8(a)
contracts?
* * * * *
(b) 8(a) contracts may either be sole source awards or awards won
through competition with other Participants. In addition, for multiple
award contracts not set aside for the 8(a) BD program, a procuring
agency may award an 8(a) sole source order or set aside one or more
specific orders to be competed only among eligible 8(a) Participants.
Such an order may be awarded as an 8(a) award where the order was
offered to and accepted by SBA as an 8(a) award and the order specifies
that the performance of work and/or non-manufacturer rule requirements
apply as appropriate. A procuring activity cannot restrict an 8(a)
competition (for either a contract or order) to require SBA
socioeconomic certifications other than 8(a) certification (i.e., a
competition cannot be limited only to business concerns that are both
8(a) and HUBZone, 8(a) and WOSB, or 8(a) and SDVO) or give evaluation
preferences to firms having one or more other certifications.
* * * * *
(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. Where a joint venture is
the apparent successful offeror in connection with a competitive 8(a)
procurement or is offered a sole source order under a previously
competitively awarded 8(a) multiple award contract, SBA will determine
whether the 8(a) partner to the joint venture is eligible for award,
but will not review the joint venture agreement to determine compliance
with Sec. 124. 513 (see Sec. 124.513(e)(1)). In any case in which an
8(a) Participant is determined to be ineligible, SBA will notify the
8(a) Participant of that determination. Eligibility is based on 8(a) BD
program criteria, including whether the 8(a) Participant:
* * * * *
(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 and must
qualify as small for the size standard corresponding to the NAICS code
assigned to the contract or order on the date the contract or order is
offered to the 8(a) BD program. * * *
* * * * *
(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), a contiguous county
(whether in the same or different state), or the geographical area
serviced by a contiguous SBA district office to where the work will be
performed. A Participant with a bona fide place of business within a
state will be deemed eligible for a construction contract anywhere in
that state (even if that state is serviced by more than one SBA
district office). SBA may also determine that a Participant with a bona
fide place of business in the geographic area served by one of several
SBA district offices or another nearby area is eligible for the award
of an 8(a) construction contract.
* * * * *
(4) If a Participant is currently performing a contract in a
specific state, it qualifies as having a bona fide place of business in
that state for one or more additional contracts. The Participant may
not use contract performance in one state to allow it to be eligible
for an 8(a) contract in a contiguous state unless it officially
establishes a bona fide place of business in the location in which it
is currently performing a contract, in the contiguous state or in a
location in another state in which the geographical area serviced by
the SBA district office is contiguous to the district office in the
state where the work will be performed.
(5) A Participant may establish a bona fide place of business
through a full-time employee in a home office.
(6) An individual designated as the full-time employee of the
Participant seeking to establish a bona fide place of business in a
specific geographic location need not be a resident of the state where
he/she is conducting business.
* * * * *
(9) For an 8(a) construction contract requiring work in multiple
locations, a Participant is eligible if:
(i) For a single award contract, the Participant has a bona fide
place of business where a majority of the work (as identified by the
dollar value of the work) is anticipated to be performed; and
(ii) For a multiple award contract, the Participant has a bona fide
place of business in any location where work is to be performed.
0
35. Amend Sec. 124.502 by revising paragraph (a) to read as follows:
Sec. 124.502 How does an agency offer a procurement to SBA for award
through the 8(a) BD program?
(a) A procuring activity contracting officer indicates his or her
formal intent to award a procurement requirement as an 8(a) contract by
submitting a written offering letter to SBA.
(1) Except as set forth in Sec. 124.503(a)(4)(ii) and Sec.
124.503(i)(1)(ii), a procuring activity contracting officer must submit
an offering letter for each intended 8(a) procurement, including
follow-on 8(a) contracts, competitive 8(a) orders issued under non-8(a)
multiple award contracts, and sole source 8(a) orders issued under 8(a)
multiple award contracts.
(2) The procuring activity may transmit the offering letter to SBA
by electronic mail, if available, or by facsimile transmission, as well
as by mail or commercial delivery service.
* * * * *
0
36. Amend Sec. 124.503 by:
0
a. Revising paragraph (a) introductory text, paragraphs (a)(4)(ii) and
(a)(5);
0
b. Adding two sentences at the end of paragraph (i)(1)(ii); and
0
c. Revising paragraphs (i)(1)(iv) and (i)(2)(ii).
The revisions and additions to read as follows:
[[Page 26207]]
Sec. 124.503 How does SBA accept a procurement for award through the
8(a) BD program?
(a) Acceptance of the requirement. Upon receipt of the procuring
activity's offer of a procurement requirement, SBA will determine
whether it will accept the requirement for the 8(a) BD program. SBA's
decision whether to accept the requirement will be sent to the
procuring activity in writing within 10 business days of receipt of the
written offering letter if the contract is valued at more than the
simplified acquisition threshold, and within two business days of
receipt of the offering letter if the contract is valued at or below
the simplified acquisition threshold, unless SBA requests, and the
procuring activity grants, an extension. SBA and the procuring activity
may agree to a shorter timeframe for SBA's review under a Partnership
Agreement delegating 8(a) contract execution functions to the agency.
SBA is not required to accept any particular procurement offered to the
8(a) BD program.
* * * * *
(4) * * *
(ii) Where SBA has delegated its 8(a) contract execution functions
to an agency through a signed Partnership Agreement, SBA may authorize
the procuring activity to award an 8(a) contract below the simplified
acquisition threshold without requiring an offer and acceptance of the
requirement for the 8(a) BD program. However, the procuring activity
must request SBA to determine the eligibility of the intended awardee
prior to award. SBA shall review the 8(a) Participant's eligibility and
issue an eligibility determination within two business days after a
request from the procuring activity. If SBA does not respond within
this timeframe, the procuring activity may assume the 8(a) Participant
is eligible and proceed with award. The procuring activity shall
provide a copy of the executed contract to the SBA servicing district
office within fifteen business days of award.
(5) Where SBA does not respond to an offering letter within the
normal 10 business-day time period, the procuring activity may seek
SBA's acceptance through the AA/BD. The procuring activity may assume
that SBA accepts its offer for the 8(a) program if it does not receive
a reply from the AA/BD within 5 business days of his or her receipt of
the procuring activity request.
* * * * *
(i) * * *
(1) * * *
(ii) * * * However, where the order includes work that was
previously performed through another 8(a) contract, the procuring
agency must notify and consult with SBA prior to issuing the order that
it intends to procure such specified work through an order under an
8(a) Multiple Award Contract. Consultation with SBA does not require
SBA concurrence or approval. Where that work is critical to the
business development of a current Participant that previously performed
the work through another 8(a) contract and that Participant is not a
contract holder of the 8(a) Multiple Award Contract, SBA may request
that the procuring agency fulfill the requirement through a competition
available to all 8(a) BD Program Participants. SBA will provide any
feedback in response to the procuring agency's notification within 10
business days.
* * * * *
(iv) An agency may issue a sole source award against a Multiple
Award Contract that has been set aside exclusively for 8(a) Program
Participants, partially set-aside for 8(a) BD Program Participants or
reserved solely for 8(a) Program Participants if the required dollar
thresholds for sole source awards are met. Where an agency seeks to
award an order on a sole source basis (i.e., to one particular 8(a)
contract holder without competition among all 8(a) contract holders),
the agency must offer, and SBA must accept, the order into the 8(a)
program on behalf of the identified 8(a) contract holder.
(A) 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 of the order, qualify as small for the size standard
corresponding to the NAICS code assigned to the order on the date the
order is offered to the 8(a) BD program, and be in compliance with any
applicable competitive business mix target established or remedial
measure imposed by Sec. 124.509. Where the intended sole source
recipient is a joint venture, the 8(a) managing partner to the joint
venture is the concern whose eligibility is considered.
(B) Where an agency seeks to issue a sole source order to a joint
venture, the two-year restriction for joint venture awards set forth in
Sec. 121.103(h) does not apply and SBA will not review and approve the
joint venture agreement as set forth in Sec. 124.513(e)(1).
(2) * * *
(ii) The order must be either an 8(a) sole source award or be
competed exclusively among only the 8(a) awardees of the underlying
multiple award contract. Where an agency seeks to issue an 8(a)
competitive order under a multiple award contract that was awarded
under full and open competition or as a small business set-aside, all
eligible 8(a) BD Participants who are contract holders of the
underlying multiple award contract must have the opportunity to compete
for the order. Where an agency seeks to issue an 8(a) competitive order
under the Federal Supply Schedule, an agency can utilize the procedures
set forth in FAR subpart 8.4 (48 CFR part 8, subpart 8.4) to award to
an eligible 8(a) BD Participant. Where an agency seeks to issue an 8(a)
sole source order under a multiple award contract that was awarded
under full and open competition or as a small business set-aside, the
identified 8(a) Participant that is a contract holder of the underlying
multiple award contract must be an eligible Participant on the date of
the issuance of the order
* * * * *
0
37. Amend Sec. 124.504 by:
0
a. In paragraph (d)(1) introductory text:
0
i. Revising the second sentence;
0
ii. Adding a sentence between the second and third sentences; and
0
c. In the fourth sentence, removing the word ``notify'' adding in its
place ``coordinate with''; and
0
d. Revising paragraph (d)(3).
The addition and revisions 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?
* * * * *
(d) * * *
(1) * * * 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 coordinate with the
SBA District Office servicing the 8(a) incumbent firm and the SBA
Procurement Center Representative assigned to the contracting activity
initiating a non-8(a) procurement action that it intends to procure
such specified work outside the 8(a) BD program through a requirement
that it considers to be new. Such notification must identify the scope
and dollar value of any work previously performed through another 8(a)
contract and the scope and dollar value of the contract determined to
be new. * * *
* * * * *
(3) SBA may release a requirement under this paragraph only where
the procuring activity agrees to procure the
[[Page 26208]]
requirement as a small business, HUBZone, SDVO small business, or WOSB
set-aside or otherwise identifies a procurement strategy that would
emphasize or target small business participation.
* * * * *
0
38. Amend Sec. 124.506 by revising paragraph (b)(3) and by adding two
sentences at the end of paragraph (d) to read as follows:
Sec. 124.506 At what dollar threshold must an 8(a) procurement be
competed among eligible Participants?
* * * * *
(b) * * *
(3) There is no requirement that a procurement must be competed
whenever possible before it can be accepted on a sole source basis for
a tribally-owned or ANC-owned concern, or a concern owned by an NHO for
DoD contracts. However, a current procurement requirement may not be
removed from competition and awarded to a tribally-owned, ANC-owned or
NHO-owned concern on a sole source basis (i.e., a procuring agency may
not evidence its intent to fulfill a requirement as a competitive 8(a)
procurement, through the issuance of a competitive 8(a) solicitation or
otherwise, cancel the solicitation or change its public intent, and
then procure the requirement as a sole source 8(a) procurement to an
entity-owned Participant). A follow-on requirement to one that was
previously awarded as a competitive 8(a) procurement may be offered,
accepted and awarded on a sole source basis to a tribally-owned or ANC-
owned concern, or a concern owned by an NHO for DoD contracts.
* * * * *
(d) * * * The AA/BD may also accept a requirement that exceeds the
applicable competitive threshold amount for a sole source 8(a) award if
he or she determines that a FAR exception (48 CFR 6.302) to full and
open competition exists (e.g., unusual and compelling urgency). An
agency may not award an 8(a) sole source contract under this paragraph
for an amount exceeding $25,000,000, or $100,000,000 for an agency of
the Department of Defense, unless the contracting officer justifies the
use of a sole source contract in writing and has obtained the necessary
approval under FAR Sec. 19.808-1 or DFAR Sec. 219.808-1(a).
0
39. Amend Sec. 124.509 by revising paragraph (c)(1) and adding
paragraphs (d)(1)(i) and (ii) to read as follows:
Sec. 124.509 What are non-8(a) business activity targets?
* * * * *
(c) * * *
(1) As part of its annual review after being admitted to the 8(a)
BD program, a Participant must provide to SBA within 30 days from the
end of its program year:
(i) Annual financial statements with a breakdown of 8(a) and non-
8(a) revenue in accord with Sec. 124.602;
(ii) An annual report of all non-8(a) contracts, options, and
modifications affecting price executed during the program year; and
(ii) An estimate of 8(a) and non-8(a) revenue derived during the
program year, which may be obtained from monthly, quarterly or semi-
annual interim financial statements or otherwise.
* * * * *
(d) * * *
(1) * * *
(i) SBA will determine whether the Participant made good faith
efforts to attain the targeted non-8(a) revenues during the just
completed program year. A Participant may establish that it made good
faith efforts by demonstrating to SBA that:
(A) It submitted offers for one or more non-8(a) procurements
which, if awarded to the Participant during its just completed program
year, would have given the Participant sufficient revenues to achieve
the applicable non-8(a) business activity target during that same
program year. In such a case, the Participant must provide copies of
offers submitted in response to solicitations and documentary evidence
of its projected revenues under these missed contract opportunities; or
(B) Individual extenuating circumstances adversely impacted its
efforts to obtain non-8(a) revenues, including but not limited to a
reduction in government funding, continuing resolutions and budget
uncertainties, increased competition driving prices down, or having one
or more prime contractors award less work to the Participant than
originally contemplated.
Where available, supporting information and documentation must be
included to show how such extenuating circumstances specifically
prevented the Participant from attaining its targeted non-8(a) revenues
during the just completed program year.
(ii) The Participant bears the burden of establishing that it made
good faith efforts to meet its non-8(a) business activity target. SBA's
determination as to whether a Participant made good faith efforts is
final and no appeal may be taken with respect to that decision.
* * * * *
0
40. Amend Sec. 124.513 by adding paragraphs (a)(3) and (4) to read as
follows:
Sec. 124.513 Under what circumstances can a joint venture be awarded
an 8(a) contract?
(a) * * *
(3) As long as a joint venture qualifies as small under the size
standard corresponding to the NAICS code assigned to a specific
contract or order (see Sec. 124.513(b)), it will be eligible for award
based on the status of its 8(a) managing venturer.
(4) A Program Participant cannot be a joint venture partner on more
than one joint venture that submits an offer for a specific 8(a)
contract or for an 8(a) order under a multiple award contract that is
not itself an 8(a) contract.
* * * * *
0
41. Amend Sec. 124.515 by revising paragraphs (a)(1) and (c) and
removing the last sentence of 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?
(a) * * *
(1) An 8(a) contract or order, whether in the base or an option
year, must be terminated for the convenience of the Government if one
or more of the individuals upon whom eligibility for the 8(a) BD
program was based relinquishes or enters into any agreement to
relinquish ownership or control of the Participant such that the
Participant would no longer be controlled or at least 51% owned by
disadvantaged individuals.
* * * * *
(c) The 8(a) contractor must request a waiver in writing prior to
the change of ownership and control except in the case of death or
incapacity. A request for waiver due to incapacity or death must be
submitted within 60 calendar days after such occurrence.
(1) A request for a waiver to the termination for convenience
requirement must be sent to the AA/BD.
(2) The Participant seeking to change ownership or control must
specify the grounds upon which it requests a waiver and must
demonstrate that the proposed transaction would meet such grounds.
(3) If a Participant seeks a waiver based on the impairment of the
agency's objectives under paragraph (b)(4) of this section, it must
identify and provide a certification from the procuring agency relating
to each 8(a) contract for which a waiver is sought.
[[Page 26209]]
(4) SBA will process a request for waiver within 90 days of receipt
of a complete waiver package by the AA/BD.
* * * * *
0
42. Amend Sec. 124.521 by revising paragraph (e)(2) to read as
follows:
Sec. 124.521 What are the requirements for representing 8(a) status,
and what are the penalties for misrepresentation?
* * * * *
(e) * * *
(2) For the purposes of 8(a) contracts (including Multiple Award
Contracts) with durations of more than five years (including options),
a contracting officer must verify in SAM.gov (or successor system)
whether a business concern continues to be an eligible 8(a) Participant
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. Where a concern fails to qualify or will no longer qualify
as an eligible 8(a) Participant at any point during the 120 days prior
to the end of the fifth year of the contract, the option shall not be
exercised.
* * * * *
Sec. 124.603 [Amended]
0
43. Amend Sec. 124.603 by removing the words ``graduates or is
terminated from the program'' and adding in their place the words
``leaves the 8(a) BD program (either through the expiration of the
firm's program term, graduation, or termination)''.
0
44. Add Sec. 124.1002 to read as follows:
Sec. 124.1002 Reviews and protests of SDB status.
(a) SBA may initiate the review of SDB status on any firm that has
represented itself to be an SDB on a prime contract (for goaling
purposes or otherwise) or subcontract to a federal prime contract
whenever SBA receives credible information calling into question the
SDB status of the firm.
(b) Requests for an SBA review of SDB status may be forwarded to
the Small Business Administration, Associate Administrator for Business
Development (AA/BD), 409 Third Street SW, Washington, DC 220416.
(c) The contracting officer or the SBA may protest the SDB status
of a proposed subcontractor or subcontract awardee. Other interested
parties may submit information to the contracting officer or the SBA in
an effort to persuade the contracting officer or the SBA to initiate a
protest. Such protests, in order to be considered timely, must be
submitted to the SBA prior to completion of performance by the intended
subcontractor.
(1) SBA will request relevant information from the protested
concern pertaining to: (i) the social and economic disadvantage of the
individual(s) claiming to own and control the protested concern; (ii)
the ownership and control of the protested concern; and (iii) the size
of the protested concern.
(2) The concern whose disadvantaged status is under consideration
has the burden of establishing that it qualifies as an SDB.
(3) Where SBA requests specific information and the concern does
not submit it, SBA may draw adverse inferences against the concern.
(4) SBA will base its SDB determination upon the record, including
reasonable inferences from the record, and will state in writing the
basis for its findings and conclusions.
(d) Where SBA determines that a subcontractor does not qualify as
an SDB, the prime contractor must not include subcontracts to that
subcontractor as subcontracts to an SDB in its subcontracting reports,
starting from the time that the protest was decided.
PART 125--GOVERNMENT CONTRACTING PROGRAMS
0
45. The authority citation for part 125 is revised to read as follows:
Authority: 15 U.S.C. 632(p), (q), 634(b)(6), 637, 644, 657(b),
657(f), 657r, and 657s.
0
46. Amend Sec. 125.1 by:
0
a. Revising the definitions of ``Consolidation of contract
requirements, consolidated contract, or consolidated requirement'', and
``Contract bundling, bundled requirement, bundled contract, or
bundling'';
0
b. In the definition of ``Cost of materials'' removing the words
``commercial items'' and adding in their place the words ``commercial
products'';
0
c. Adding definitions of ``Small business concerns owned and controlled
by socially and economically disadvantaged individuals'' and ``Socially
and economically disadvantaged individuals''; and
0
d. Revising the definition of ``Substantial bundling''.
The revisions and additions to read as follows:
Sec. 125.1 What definitions are important to SBA's Government
Contracting Programs?
* * * * *
Consolidation of contract requirements, consolidated contract, or
consolidated requirement means a solicitation for a single contract, a
Multiple Award Contract, or Blanket Purchase Agreement to:
(1) Satisfy two or more requirements of the Federal agency for
goods or services that have been provided to or performed for the
Federal agency under two or more separate contracts each of which was
lower in cost than the total cost of the contract or agreement for
which the offers are solicited, the total cost of which exceeds $2
million (including options), regardless of whether new work is added to
the solicitation for the contract or agreement; or
(2) Satisfy requirements of the Federal agency for construction
projects to be performed at two or more discrete sites.
* * * * *
Contract bundling, bundled requirement, bundled contract, or
bundling means the consolidation of two or more procurement
requirements for goods or services previously provided or performed
under separate smaller contracts into a solicitation of offers for a
single contract, a Multiple Award Contract, or Blanket Purchase
Agreement that is likely to be unsuitable for award to a small business
concern (but may be suitable for award to a small business with a Small
Business Teaming Arrangement), regardless of whether new work is added
to the solicitation for the contract or agreement, due to:
(1) The diversity, size, or specialized nature of the elements of
the performance specified;
(2) The aggregate dollar value of the anticipated award;
(3) The geographical dispersion of the contract performance sites;
or
(4) Any combination of the factors described in paragraphs (1),
(2), and (3) of this definition.
* * * * *
Small business concern owned and controlled by socially and
economically disadvantaged individuals means, for both SBA's
subcontracting assistance program in 15 U.S.C. 637(d) and for the goals
described in 15 U.S.C. 644(g), a small business concern unconditionally
and directly owned by and controlled by one or more socially and
economically disadvantaged individuals.
Socially and economically disadvantaged individuals, for both SBA's
subcontracting assistance program in 15 U.S.C. 637(d) and for the goals
described in 15 U.S.C. 644(g), means:
(1) Individuals who meet the criteria for social disadvantage in
Sec. 124.103(a) through (c) of this chapter and the criteria for
economic disadvantage in Sec. 124.104(a) and (c) of this chapter;
[[Page 26210]]
(2) Indian tribes and Alaska Native Corporations that satisfy the
ownership, control, and disadvantage criteria in Sec. 124.109 of this
chapter;
(3) Native Hawaiian Organizations that satisfy the ownership,
control, and disadvantage criteria in Sec. 124.110 of this chapter; or
(4) Community Development Corporations that satisfy the ownership
and control criteria in Sec. 124.111 of this chapter.
* * * * *
Substantial bundling means any bundling that meets or exceeds the
following dollar amounts (if the acquisition strategy contemplates
multiple award contracts, orders placed under unrestricted multiple
award contracts, or a Blanket Purchase Agreement issued against a GSA
Schedule contract or a task or delivery order contract awarded by
another agency, these thresholds apply to the cumulative estimated
value of the Multiple Award Contracts, orders, or Blanket Purchase
Agreement, including options):
(1) $8.0 million or more for the Department of Defense;
(2) $6.0 million or more for the National Aeronautics and Space
Administration, the General Services Administration, and the Department
of Energy; and
(3) $2.5 million or more for all other agencies.
* * * * *
0
47. Amend Sec. 125.2 by adding a new sentence after the second
sentence in paragraph (d)(2)(ii), and revising paragraph (d)(3)(i) to
read as follows;
Sec. 125.2 What are SBA's and the procuring agency's responsibilities
when providing contracting assistance to small businesses?
* * * * *
(d) * * *
(2) * * *
(ii) * * * This analysis must include quantification of the
reduction or increase in price of the proposed bundled strategy as
compared to the cumulative value of the separate contracts. * * *
* * * * *
(3) * * *
(i) The analysis for bundled requirements set forth in paragraphs
(d)(2)(i) and (ii) of this section;
0
48. Amend Sec. 125.3 by:
0
a. Revising paragraph (a)(1)(i)(B);
0
b. Removing the words ``bank fees;'' from paragraph (a)(1)(iii);
0
c. Removing the words ``commercial item'' in paragraph (c)(1)(i) and
adding in their place the words ``commercial product or commercial
service'';
0
d. Revising paragraph (c)(1)(iv);
0
e. Revising the first sentence of paragraph (c)(1)(viii);
0
f. Removing the words ``commercial items'' in paragraph (c)(1)(x) and
adding in their place the words ``commercial products or commercial
services''; and
0
g. Revising paragraph (c)(2).
The revisions read as follows:
Sec. 125.3 What types of subcontracting assistance are available to
small businesses?
(a) * * *
(1) * * *
(i) * * *
(B) Purchases from a corporation, company, or subdivision that is
an affiliate of the prime contractor or subcontractor, or a joint
venture in which the contractor is one of the joint venturers, are not
included in the subcontracting base. Subcontracts by first-tier
affiliates, and subcontracts by a joint venture in which the prime
contractor is one of the joint venturers, shall be treated as
subcontracts of the prime.
* * * * *
(c) * * *
(1) * * *
(iv) When developing an individual subcontracting plan (also called
individual contract plan), the contractor must determine whether to
include indirect costs in its subcontracting goals. A prime contractor
must include indirect costs in its subcontracting goals if the contract
exceeds $7.5 million. Below $7.5 million, a prime contractor may
include indirect costs in its subcontracting plan at its option. If
indirect costs are included in the goals, these costs must be included
in the Individual Subcontract Report (ISR) in www.esrs.gov (eSRS) or
Subcontract Reports for Individual Contracts (the paper SF-294, if
authorized). Contractors may use a pro rata formula to allocate
indirect costs to covered individual contracts, if the indirect costs
are not already allocable to specific contracts. Regardless of whether
the contractor has included indirect costs in the subcontracting plan,
indirect costs must be included on a prorated basis in the Summary
Subcontracting Report (SSR) in the eSRS system. A contractor authorized
to use a commercial subcontracting plan must include all indirect costs
in its subcontracting goals and in its SSR;
* * * * *
(viii) The contractor must provide pre-award written notification
to unsuccessful small business offerors on all competitive subcontracts
over the simplified acquisition threshold (as defined in the FAR at 48
CFR 2.101). * * *
* * * * *
(2) A commercial plan, also referred to as an annual plan or
company-wide plan, is the preferred type of subcontracting plan for
contractors furnishing commercial products and commercial services. A
commercial plan covers the offeror's fiscal year and applies to all of
the commercial products and commercial services sold by either the
entire company or a portion thereof (e.g., division, plant, or product
line). Once approved, the plan remains in effect during the federal
fiscal year for all Federal Government contracts in effect during that
period. The contracting officer of the agency that originally approved
the commercial plan will exercise the functions of the contracting
officer on behalf of all agencies that award contracts covered by the
plan.
* * * * *
0
49. Amend Sec. 125.6 by:
0
a. In paragraph (c) in the second sentence:
0
i. Removing the reference to ``Sec. 121.103(h)(4)'' and adding in its
place a reference to ``Sec. 121.103(h)(3)'';
0
ii. Adding a ``.''after the words ``shall be considered subcontracted''
and before the words ``SBA will also'';
0
b. Revising the first sentence of paragraph (d) introductory text and
adding a new second sentence;
0
c. Redesignating paragraphs (e), (f) and (g) as paragraphs (f), (g) and
(h), respectively; and
0
d. Adding a new paragraph (e).
The revision and additions to read as follows:
Sec. 125.6 What are the prime contractor's limitations on
subcontracting?
* * * * *
(d) Determining compliance with applicable limitation on
subcontracting. The period of time used to determine compliance for a
total or partial set-aside contract will generally be the base term and
then each subsequent option period. However, for a multi-agency set
aside contract where more than one agency can issue orders under the
contract, the ordering agency must use the period of performance for
each order to determine compliance. * * *
(e) Past Performance Evaluation. Where an agency determines that a
contractor has not met the applicable limitation on subcontracting
requirement at the conclusion of contract performance, the agency must
notify the business concern and give it the opportunity to explain any
extenuating or mitigating circumstances
[[Page 26211]]
that negatively impacted its ability to do so.
(1) Where a small business does not provide any extenuating or
mitigating circumstances or the agency determines that the concern's
failure to meet the applicable limitation on subcontracting requirement
was not beyond the concern's control, the agency may not give a
satisfactory or higher past performance rating for the appropriate
factor or subfactor in accordance with FAR 42.1503.
(2) Where a contracting officer determines that extenuating
circumstances warrant a satisfactory/positive past performance
evaluation for the appropriate evaluation factor or subfactor and the
individual at least one level above the contracting officer concurs
with that determination, a satisfactory or higher past performance
rating may be given.
(i) Extenuating or mitigating circumstances that could lead to a
satisfactory/positive rating include, but are not limited to,
unforeseen labor shortages, modifications to the contract's scope of
work which were requested or directed by the Government, emergency or
rapid response requirements that demand immediate subcontracting
actions by the prime small business concern, unexpected changes to a
subcontractor's designation as a similarly situated entity (as defined
in Sec. 125.1), differing site or environmental conditions which arose
during the course of performance, force majeure events, and the
contractor's good faith reliance upon a similarly situated
subcontractor's representation of size or relevant socioeconomic
status.
(ii) An agency cannot rely on any circumstances that were within
the contractor's control, or those which could have been mitigated
without imposing an undue cost or burden on the contractor.
* * * * *
0
50. Amend Sec. 125.8 by:
0
a. Removing the reference to ``Sec. 121.103(h)(3)'' in paragraph (a)
and adding in its place a reference to ``Sec. 121.103(h)(4)'';
0
b. Revising paragraph (b)(2) introductory text;
0
c. Adding two sentences at the end of paragraph (b)(2)(ii)(A);
0
d. Removing the reference to ``paragraph (d)'' in paragraph (b)(2)(vii)
wherever it appears and adding in its place a reference to ``paragraph
(c)''; and
0
e. Revising paragraph (h)(2).
The revisions and addition to 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) Every joint venture agreement to perform a contract set aside
or reserved for small business between a prot[eacute]g[eacute] small
business and its SBA-approved mentor authorized by Sec. 125.9 must
contain a provision:
(ii) * * *
(A) * * * The joint venture agreement may not give to a non-
managing venturer negative control over activities of the joint
venture, unless those provisions would otherwise be commercially
customary for a joint venture agreement for a government contract
outside of SBA's programs. A non-managing venturer's approval may be
required in, among other things, determining what contract
opportunities the joint venture should seek and initiating litigation
on behalf of the joint venture.
* * * * *
(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 the joint venture, any funds
remaining in the joint venture bank account shall be distributed
according to the percentage of ownership;
* * * * *
(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
prior to contract completion, 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
51. Amend Sec. 125.9 by:
0
a. Revising paragraph (b)(3)(ii);
0
b. Redesignating paragraphs (e)(1)(ii) and (iii) as paragraphs
(e)(1)(iii) and (iv), respectively;
0
c. Adding a new paragraph (e)(1)(ii); and
0
d. Adding paragraph (e)(6)(iv).
The revision and addition to read as follows:
Sec. 125.9 What are the rules governing SBA's small business mentor-
prot[eacute]g[eacute] program?
* * * * *
(b) * * *
(3) * * *
(ii) A mentor (including in the aggregate a parent company and all
of its subsidiaries) generally cannot have more than three
prot[eacute]g[eacute]s at one time.
(A) 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.
(B) Where a mentor purchases another business entity that is also
an SBA-approved mentor of one or more prot[eacute]g[eacute] small
business concerns and the purchasing mentor commits to honoring the
obligations under the seller's mentor-prot[eacute]g[eacute]
agreement(s), that entity may have more than three
prot[eacute]g[eacute]s (i.e., those of the purchased concern in
addition to those of its own). In such a case, the entity could not add
another prot[eacute]g[eacute] until it fell below three in total.
* * * * *
(e) * * *
(1) * * *
(ii) Identify the specific entity or entities that will provide
assistance to or participate in joint ventures with the
prot[eacute]g[eacute] where the mentor is a parent or subsidiary
concern;
* * * * *
(6) * * *
(iv) Instead of having a six-year mentor-prot[eacute]g[eacute]
relationship with two separate mentors, a prot[eacute]g[eacute] may
elect to extend or renew a mentor-prot[eacute]g[eacute] relationship
with the same mentor for a second six-year term. In order for SBA to
approve an extension or renewal of a mentor-prot[eacute]g[eacute]
relationship with the same mentor, the mentor must commit to providing
additional business development assistance to the
prot[eacute]g[eacute].
* * * * *
PART 126--HUBZONE PROGRAM
0
52. 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.
[[Page 26212]]
0
53. Amend Sec. 126.200 by revising paragraph (b)
Sec. 126.200 What requirements must a concern meet to be eligible as
a certified HUBZone small business concern?
* * * * *
(b) Size. (1) In order to be eligible for HUBZone certification and
remain eligible as a certified HUBZone small business concern, a
concern, together with its affiliates, must qualify as a small business
concern as defined in part 121 of this chapter under the size standard
corresponding to any NAICS code listed in its profile in the System for
Award Management (SAM.gov).
(2) In order to be eligible for a HUBZone contract, a certified
HUBZone small business concern must qualify as small under the size
standard corresponding to the NAICS code assigned to the HUBZone
contract.
(3) If the concern is a small agricultural cooperative, in
determining size, the small agricultural cooperative is treated as a
``business concern'' and its member shareholders are not considered
affiliated with the cooperative by virtue of their membership in the
cooperative.
Sec. 126.203 [Removed and Reserved]
0
54. Remove and reserve Sec. 126.203.
0
55. Amend Sec. 126.306 by adding paragraphs (b)(1) and (b)(2) to read
as follows:
Sec. 126.306 How will SBA process an application for HUBZone
certification?
* * * * *
(b) * * *
(1) If a concern submits inconsistent information that results in
SBA's inability to determine the concern's compliance with any of the
HUBZone eligibility requirements, SBA will decline the concern's
application.
(2) If, during the processing of an application, SBA determines
that an applicant has knowingly submitted false information, regardless
of whether correct information would cause SBA to deny the application,
and regardless of whether correct information was given to SBA in
accompanying documents, SBA will deny the application.
* * * * *
0
56. Amend Sec. 126.503 by revising paragraph (a)(2), and adding
paragraphs (c) and (d) to read as follows:
Sec. 126.503 What happens if SBA is unable to verify a HUBZone small
business concern's eligibility or determines that a concern is no
longer eligible for the program?
(a) * * *
(2) SBA's decision. SBA will determine whether the HUBZone small
business concern remains eligible for the program within 90 calendar
days after receiving all requested information, when practicable. The
D/HUB will provide written notice to the concern stating the basis for
the determination.
(i) If SBA finds that the concern is not eligible, the D/HUB will
decertify the concern and remove its designation as a certified HUBZone
small business concern in DSBS and the System for Award Management (or
successor system) within four business days of the determination.
(ii) If SBA finds that the concern is eligible, the concern will
continue to be designated as a certified HUBZone small business concern
in DSBS (or successor system).
* * * * *
(c) Decertification due to submission of false information. If SBA
discovers that a certified HUBZone small business concern or its
representative knowingly submitted false information, SBA will propose
the firm for decertification. In addition, SBA will refer the matter to
the SBA Office of Inspector General for review and may request that
Government-wide debarment or suspension proceedings be initiated by the
agency.
(d) Effect of decertification. Once SBA has decertified a concern,
the concern cannot submit an offer or quote as a HUBZone small business
concern. If a concern does so, it may be in violation of criminal laws,
including section 16(d) of the Small Business Act, 15 U.S.C. 645(d). If
the concern has already certified as a HUBZone small business on a
pending procurement, the concern must immediately inform the
contracting officer for the procuring agency of the adverse eligibility
determination. A contracting officer shall not award a HUBZone contract
to a concern that the D/HUB has determined is not an eligible HUBZone
small business concern for the procurement in question.
0
57. Amend Sec. 126.601 by revising paragraph (d) and adding paragraph
(e) to read as follows:
Sec. 126.601 What additional requirements must a certified HUBZone
small business concern meet to submit an offer on a HUBZone contract?
* * * * *
(d) Where a subcontractor that is not a certified HUBZone small
business will perform the primary and vital requirements of a HUBZone
contract, or where a HUBZone prime contractor is unduly reliant on one
or more small businesses that are not HUBZone-certified to perform the
HUBZone contract, the prime contractor is not eligible for award of
that HUBZone contract.
(1) When the subcontractor qualifies as small for the size standard
assigned to the procurement, this issue may be grounds for a HUBZone
status protest, as described in Sec. 126.801. When the subcontractor
is alleged to be other than small for the size standard assigned to the
procurement, this issue may be grounds for a size protest under the
ostensible subcontractor rule, as described at Sec. 121.103(h)(3) of
this chapter.
(2) In the case of a contract or order for services, specialty
trade construction or supplies, SBA will find that a prime HUBZone
contractor is performing the primary and vital requirements of the
contract or order, and is not unduly reliant on one or more
subcontractors that are not HUBZone-certified, where the prime
contractor can demonstrate that it, together with any subcontractors
that are certified HUBZone small business concerns, will meet the
limitations on subcontracting provisions set forth in Sec. 125.6 of
this chapter.
(3) In a general construction contract, the primary and vital
requirements of the contract are the management, supervision and
oversight of the project, including coordinating the work of various
subcontractors, not the actual construction work performed.
(e) For two-step procurements (including architect-engineering and
design-build procurements) to be awarded as HUBZone contracts, a
concern must be a certified HUBZone small business concern as of the
date that it submits its initial bid or proposal (which may or may not
include price) during phase one.
0
58. Add Sec. 126.609 to read as follows:
Sec. 126.609 Can a HUBZone competition be limited or authorize
preferences to small business concerns having additional socioeconomic
certifications?
A procuring activity cannot restrict a HUBZone competition (for
either a contract or order) to require SBA socioeconomic certifications
other than HUBZone certification (i.e., a competition cannot be limited
only to business concerns that are both HUBZone and 8(a), HUBZone and
WOSB, or HUBZone and SDVO) or give evaluation preferences to firms
having one or more other certifications.
0
59. Amend Sec. 126.616 by revising paragraph (a) to read as follows:
[[Page 26213]]
Sec. 126.616 What requirements must a joint venture satisfy to submit
an offer and be eligible to perform on a HUBZone contract?
(a) General. A certified HUBZone small business concern may enter
into a joint venture agreement with one or more other small business
concerns, or with an SBA-approved mentor authorized by Sec. 125.9 of
this chapter, for the purpose of submitting an offer for a HUBZone
contract.
(1) The joint venture itself need not be a certified HUBZone small
business concern, but the joint venture should be designated as a
HUBZone joint venture in SAM (or successor system) with the HUBZone-
certified joint venture partner identified.
(2) A certified HUBZone small business concern cannot be a joint
venture partner on more than one joint venture that submits an offer
for a specific contract or order set-aside or reserved for certified
HUBZone small business concerns.
* * * * *
Sec. 126.618 [Amended]
0
60. Amend Sec. 126.618 in paragraph (c)(2) by removing the reference
to ``Sec. 121.103(h)(4)'' and adding in its place a reference to
``Sec. 121.103(h)(3)''.
0
61. Amend Sec. 126.801 by revising paragraphs (b), (d) introductory
text, (d)(1) and (2), and (e) to read as follows:
Sec. 126.801 How does an interested party file a HUBZone status
protest?
* * * * *
(b) Format and specificity. (1) Protests must be in writing and
must state all specific grounds as to why the protestor believes the
protested concern should not qualify as a certified HUBZone small
business concern. Specifically, a protestor must explain why:
(i) The protested concern did not meet the HUBZone eligibility
requirements set forth in Sec. 126.200;
(ii) The protested joint venture does not meet the requirements set
forth in Sec. 126.616;
(iii) The protested concern, as a HUBZone prime contractor, is
unduly reliant on one or more small subcontractors that are not
HUBZone-certified, or subcontractors that are not HUBZone-certified
will perform the primary and vital requirements of the contract; and/or
(iv) The protested concern, on the anniversary date of its initial
HUBZone certification, failed to attempt to maintain compliance with
the 35% HUBZone residency requirement during the performance of a
HUBZone contract.
(2) Specificity requires more than conclusions of ineligibility. A
protest merely asserting that the protested concern did not qualify as
a HUBZone small business concern, or that it did not meet the principal
office and/or 35% residency requirements, without setting forth
specific facts or allegations, is insufficient and will be dismissed.
(3) For a protest filed against a HUBZone joint venture, the
protest must state all specific grounds as to why:
(i) The HUBZone small business partner to the joint venture did not
meet the HUBZone eligibility requirements set forth in Sec. 126.200 at
the time the concern applied for certification or on the anniversary of
such certification; and/or
(ii) The protested HUBZone joint venture does not meet the
requirements set forth in Sec. 126.616.
(4) For a protest alleging that the prime contractor has an
ostensible subcontractor, the protest must state all specific grounds
as to why:
(i) The protested concern is unduly reliant on one or more small
subcontractors that are not HUBZone-certified, or
(ii) One or more subcontractors that are not HUBZone-certified will
perform the primary and vital requirements of the contract.
(5) For a protest alleging that the protested concern failed to
attempt to maintain compliance with the 35% HUBZone residency
requirement during the performance of a HUBZone contract, the protest
must state all specific grounds explaining why the protester believes
that at least 20% of the protested firm's employees do not reside in a
HUBZone.
* * * * *
(d) Timeliness. A protest challenging the HUBZone status of an
apparent successful offeror on a HUBZone contract must be timely, or it
will be dismissed.
(1) For negotiated acquisitions, an interested party must submit
its protest by close of business on the fifth business day after
notification by the contracting officer of the apparent successful
offeror.
(i) Except for an order or Blanket Purchase Agreement issued under
a Federal Supply Schedule contract, for an order or Agreement that is
set-aside for certified HUBZone small business concerns under a
multiple award contract that was not itself set aside or reserved for
certified HUBZone small business concerns, an interested party must
submit its protest by close of business on the fifth business day after
notification by the contracting officer of the intended awardee of the
order or Agreement.
(ii) Where a contracting officer has required offerors for a
specific order under a multiple award HUBZone contract to recertify
their HUBZone status, an interested party must submit its protest by
close of business on the fifth business day after notification by the
contracting officer of the intended awardee of the order.
(2) For sealed bid acquisitions:
(i) An interested party must submit its protest by close of
business on the fifth business day after bid opening, or where the
identified low bidder is determined to be ineligible for award, by
close of business on the fifth business day after the contracting
officer has notified interested parties of the identity of that low
bidder, or
(ii) If the price evaluation preference was not applied at the time
of bid opening, an interested party must submit its protest by close of
business on the fifth business day after the date of identification of
the apparent successful low bidder.
* * * * *
(e) Referral to SBA. The contracting officer must forward to SBA
any non-premature HUBZone status protest received, notwithstanding
whether he or she believes it is sufficiently specific or timely. The
contracting officer must send the protest, along with a referral
letter, to the D/HUB by email to [email protected].
(1) The contracting officer's referral letter must include
information pertaining to the solicitation that may be necessary for
SBA to determine timeliness and standing, including the following:
(i) The solicitation number;
(ii) The name, address, telephone number, email address, and
facsimile number of the contracting officer;
(iii) The type of HUBZone contract at issue (i.e., HUBZone set-
aside; HUBZone sole source; full and open competition with a HUBZone
price evaluation preference applied; reserve for HUBZone small business
concerns under a Multiple Award Contract; or order set-aside for
HUBZone small business concerns against a Multiple Award Contract);
(iv) If the procurement was conducted using full and open
competition with a HUBZone price evaluation preference, whether the
protester's opportunity for award was affected by the preference;
(v) If the procurement was a HUBZone set-aside, whether the
protester submitted an offer;
(vi) Whether the protested concern was the apparent successful
offeror;
(vii) Whether the procurement was conducted using sealed bid or
negotiated procedures;
[[Page 26214]]
(viii) If the procurement was conducted using sealed bid
procedures, the bid opening date;
(ix) The date the protester was notified of the apparent successful
offeror;
(x) The date the protest was submitted to the contracting officer;
(xi) The date the protested concern submitted its initial offer or
bid to the contracting activity; and
(xii) Whether a contract has been awarded, and if applicable, the
date of contract award and contract number.
(2) Where a protestor alleges that a certified HUBZone small
business concern is unduly reliant on one or more subcontractors that
are not certified HUBZone small business concerns or a subcontractor
that is not a certified HUBZone small business concern will perform
primary and vital requirements of the contract, the D/HUB will refer
the matter to the Government Contracting Area Office serving the
geographic area in which the principal office of the certified HUBZone
small business concern is located for a determination as to whether the
ostensible subcontractor rule has been met.
PART 127--WOMEN-OWNED SMALL BUSINESS FEDERAL CONTRACT PROGRAM
0
62. 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.
0
63. Amend Sec. 127.102 by revising the definition of ``WOSB'' to read
as follows:
Sec. 127.102 What are the definitions of the terms used in this part?
* * * * *
Women-Owned Small Business (WOSB) means a concern that qualifies as
small pursuant to part 121 of this chapter under the size standard
corresponding to any NAICS code listed in its SAM profile, and that is
at least 51 percent owned and controlled by one or more women who are
citizens in accordance with Sec. Sec. 127.200, 127.201 and 127.202.
This definition applies to any certification as to a concern's status
as a WOSB, not solely to those certifications relating to a WOSB
contract.
* * * * *
0
64. Amend Sec. 127.200 by revising paragraphs (a)(1) and (b)(1) to
read as follows:
Sec. 127.200 What are the requirements a concern must meet to
qualify as an EDWOSB or WOSB?
(a) * * *
(1) A small business concern as defined in part 121 of this chapter
under the size standard corresponding to any NAICS code listed in its
SAM profile; and
* * * * *
(b) * * *
(1) A small business as defined in part 121 of this chapter for the
size standard corresponding to any NAICS code listed in its SAM
profile; and
* * * * *
0
65. Amend Sec. 127.201 by revising the first sentence of paragraph (b)
to read as follows:
Sec. 127.201 What are the requirements for ownership of an EDWOSB and
WOSB?
* * * * *
(b) * * * To be considered unconditional, the ownership must not be
subject to any conditions, executory agreements, voting trusts, or
other arrangements that cause or potentially cause ownership benefits
to go to another (other than after death or incapacity). * * *
* * * * *
0
66. Amend Sec. 127.202 by revising paragraph (c) to read as follows:
Sec. 127.202 What are the requirements for control of an EDWOSB or
WOSB?
* * * * *
(c) Limitation on outside employment. The woman or economically-
disadvantaged woman who holds the highest officer position of the
business concern may not engage in outside employment that prevent her
from devoting sufficient time and attention to the business concern to
control its management and daily operations. Where a woman or
economically disadvantaged woman claiming to control a business concern
devotes fewer hours to the business than its normal hours of operation,
there is a rebuttable presumption that she does not control the
business concern. In such a case, the woman must provide evidence that
she has ultimate managerial and supervisory control over both the long-
term decision making and day-to-day management and administration of
the business.
* * * * *
0
67. Amend Sec. 127.304 by adding paragraphs (c)(1), (c)(2), (g)(1),
and (g)(2) to read as follows:
Sec. 127.304 How is an application for certification processed?
* * * * *
(c) * * *
(1) If a concern submits inconsistent information that results in
SBA's inability to determine the concern's compliance with any of the
WOSB or EDWOSB eligibility requirements, SBA will decline the concern's
application.
(2) If, during the processing of an application, SBA determines
that an applicant or its representative has knowingly submitted false
information, regardless of whether correct information would cause SBA
to deny the application, and regardless of whether correct information
was given to SBA in accompanying documents, SBA will deny the
application.
* * * * *
(g) * * *
(1) If SBA denies a business concern's application for WOSB
certification based on lack of ownership or lack of control by women,
within two days of SBA's denial, the applicant concern must update its
WOSB self-certification status in the System for Award Management (or
any successor system) to reflect that the concern is not an eligible
WOSB.
(2) If a business concern fails to update its WOSB self-
certification status in the System for Award Management (or any
successor system), SBA will make such update within two days of the
business's failure to do so.
* * * * *
0
68. Revise Sec. 127.400 to read as follows:
Sec. 127.400 How does a concern maintain its WOSB or EDWOSB
certification?
Any concern seeking to remain a certified WOSB or EDWOSB must
undergo a program examination every three years.
(a) SBA or a third-party certifier will conduct a program
examination three years after the concern's initial WOSB or EDWOSB
certification (whether by SBA or a third-party certifier) or three
years after the date of the concern's last program examination,
whichever date is later.
Example to paragraph (a). Concern A is certified by SBA to be
eligible for the WOSB Program on March 31, 2023. Concern A is
considered a certified WOSB that is eligible to receive WOSB contracts
(as long as it is small for the size standard corresponding to the
NAICS code assigned to the contract) through March 30, 2026. On April
22, 2025, after Concern A is identified as the apparent successful
offeror on a WOSB set-aside contract, its status as an eligible WOSB is
protested. On May 15, 2025, Concern A receives a positive determination
from SBA confirming that
[[Page 26215]]
it is an eligible WOSB. Concern A's new certification date is May 15,
2025. Concern A is now considered a certified WOSB that is eligible to
receive WOSB contracts (as long as it is small for the size standard
corresponding to the NAICS code assigned to the contract) through May
14, 2028.
(b) The concern must either request a program examination from SBA
or notify SBA that it has requested a program examination from a third-
party certifier no later than 30 days prior to its certification
anniversary. Failure to do so will result in the concern being
decertified.
Example to paragraph (b). Concern B is certified by a third-party
certifier to be eligible for the WOSB Program on July 20, 2023. Concern
B is considered a certified WOSB that is eligible to receive WOSB
contracts (as long as it is small for the size standard corresponding
to the NAICS code assigned to the contract) through July 19, 2026.
Concern B must request a program examination from SBA or notify SBA
that it has requested a program examination from a third-party
certifier, by June 20, 2026, to continue participating in the WOSB
Program after July 19, 2026.
0
69. Amend Sec. 127.405 by redesignating paragraph (c) as paragraph
(f), and by adding new paragraphs (c), (d) and (e) to read as follows:
Sec. 127.405 What happens if SBA determines that the concern is no
longer eligible for the program?
* * * * *
(c) Decertification in response to adverse protest decision. SBA
will decertify a concern found to be ineligible during a WOSB/EDWOSB
status protest.
(d) Decertification due to submission of false information. If SBA
discovers that a WOSB or EDWOSB or its representative knowingly
submitted false information, SBA will propose the firm for
decertification. In addition, SBA will refer the matter to the SBA
Office of Inspector General for review and may request that Government-
wide debarment or suspension proceedings be initiated by the agency.
(e) Effect of decertification. Once SBA has decertified a concern,
the concern cannot self-certify as a WOSB or EDWOSB, as applicable, for
any WOSB or EDWOSB contract. If a concern does so, it may be in
violation of criminal laws, including section 16(d) of the Small
Business Act, 15 U.S.C. 645(d). If the concern has already certified
itself as a WOSB or EDWOSB on a pending procurement, the concern must
immediately inform the contracting officer for the procuring agency of
its decertification.
(1) Not later than two days after the date on which SBA decertifies
a business concern, such concern must update its WOSB/EDWOSB status in
the System for Award Management (or any successor system).
(2) If a business concern fails to update its WOSB/EDWOSB status in
the System for Award Management (or any successor system) in response
to decertification, SBA will make such update within two days of the
business's failure to do so.
* * * * *
0
70. Amend Sec. 127.503 by redesignating paragraphs (e), (f) and (g) as
paragraphs (f), (g), and (h), respectively, and by adding a new
paragraph (e) to read as follows:
Sec. 127.503 When is a contracting officer authorized to restrict
competition or award a sole source contract or order under this part?
* * * * *
(e) Competitions requiring or favoring additional socioeconomic
certifications. A procuring activity cannot restrict a WOSB or EDWOSB
competition (for either a contract or order) to require SBA
socioeconomic certifications other than WOSB/EDWOSB certification
(i.e., a competition cannot be limited only to business concerns that
are both WOSB/EDWOSB and 8(a), WOSB/EDWOSB and HUBZone, or WOSB/EDWOSB
and SDVO) or give evaluation preferences to firms having one or more
other certifications.
* * * * *
0
71. Amend Sec. 127.504 by
0
a. In paragraph (g)(1) removing the reference to ``Sec.
121.103(h)(2)'' and adding in its place a reference to ``Sec.
121.103(h)(3)'';
0
b. Revising paragraph (g)(2), and
0
c. Adding paragraph (g)(3).
The addition and revision read as follows:
Sec. 127.504 What requirements must an EDWOSB or WOSB meet to be
eligible for an EDWOSB or WOSB requirement?
* * * * *
(g) * * *
(2) In the case of a contract or order for services, specialty
trade construction or supplies, SBA will find that a prime WOSB or
EDWOSB contractor is performing the primary and vital requirements of
the contract or order, and is not unduly reliant on one or more
subcontractors that are not certified WOSBs or EDWOSBs, where the prime
contractor can demonstrate that it, together with any subcontractors
that are certified WOSBs or EDWOSBs, will meet the limitations on
subcontracting provisions set forth in Sec. 125.6 of this chapter.
(3) In a general construction contract, the primary and vital
requirements of the contract are the management, supervision and
oversight of the project, including coordinating the work of various
subcontractors, not the actual construction work performed.
* * * * *
0
72. Amend Sec. 127.506 by adding paragraph (a)(3) to read as follows:
Sec. 127.506 May a joint venture submit an offer on an EDWOSB or WOSB
requirement?
* * * * *
(a) * * *
(3) A WOSB or EDWOSB cannot be a joint venture partner on more than
one joint venture that submits an offer for a specific contract or
order set-aside or reserved for WOSBs or EDWOSBs.
* * * * *
0
73. Amend Sec. 127.603 by adding a sentence to the end of paragraph
(c)(2) and revising paragraph (d) to read as follows:
Sec. 127.603 What are the requirements for filing an EDWOSB or WOSB
status protest?
* * * * *
(c) * * *
(2) * * * Where the identified low bidder is determined to be
ineligible for award, a protest of any other identified low bidder must
be received prior to the close of business on the 5th business day
after the contracting officer has notified interested parties of the
identity of that low bidder.
* * * * *
(d) Referral to SBA. The contracting officer must forward to SBA
any WOSB or EDWOSB status protest received, notwithstanding whether he
or she believes it is premature, sufficiently specific, or timely. The
contracting officer must send all WOSB and EDWOSB status protests,
along with a referral letter and documents, directly to the Director
for Government Contracting, U.S. Small Business Administration, 409
Third Street SW, Washington, DC 20416, or by fax to (202) 205-6390,
Attn: Women-Owned Small Business Status Protest.
(1) The contracting officer's referral letter must include
information pertaining to the solicitation that may be necessary for
SBA to determine timeliness and standing, including: the solicitation
number; the name, address, telephone number and facsimile number of the
contracting officer; whether the protestor submitted an offer; whether
the protested concern was the apparent
[[Page 26216]]
successful offeror; when the protested concern submitted its offer;
whether the procurement was conducted using sealed bid or negotiated
procedures; the bid opening date, if applicable; when the protest was
submitted to the contracting officer; when the protestor received
notification about the apparent successful offeror, if applicable; and
whether a contract has been awarded.
(2) Where a protestor alleges that a WOSB/EDWOSB is unduly reliant
on one or more subcontractors that are not WOSBs/EDWOSBs or a
subcontractor that is not a WOSB/EDWOSB will perform primary and vital
requirements of the contract, the D/GC or designee will refer the
matter to the Government Contracting Area Office serving the geographic
area in which the principal office of the SDVO SBC is located for a
determination as to whether the ostensible subcontractor rule has been
met.
(3) The D/GC or designee will decide the merits of EDWOSB or WOSB
status protests.
PART 128--VETERAN SMALL BUSINESS CERTIFICATION PROGRAM
0
74. The authority citation for part 128 continues to read as follows:
Authority: 15 U.S.C. 15 U.S.C. 632(q), 634(b)(6), 644, 645,
657f, 657f-1.
Sec. 128.201 [Amended]
0
75. Amend Sec. 128.201 by removing paragraph (b) and redesignating
paragraph (c) as paragraph (b).
Sec. 128.203 [Amended]
0
76. In Sec. 128.203 amend paragraph (i) by removing the words
``outside obligations'' wherever they appear and adding in their place
the words ``outside employment''.
0
77. Amend Sec. 128.302 by adding paragraphs (d)(1), (d)(2), (f)(1),
and (f)(2) to read as follows:
Sec. 128.302 How does SBA process applications for certification?
* * * * *
(d) * * *
(1) If a concern submits inconsistent information that results in
SBA's inability to determine the concern's compliance with any of the
VOSB or SDVOSB eligibility requirements, SBA will decline the concern's
application.
(2) If, during the processing of an application, SBA determines
that an applicant has knowingly submitted false information, regardless
of whether correct information would cause SBA to deny the application,
and regardless of whether correct information was given to SBA in
accompanying documents, SBA will deny the application.
* * * * *
(f) * * *
(1) If SBA denies a business concern's application for VOSB or
SDVOSB certification, within two days of SBA's denial becoming a final
agency decision, the applicant concern must update its VOSB or SDVOSB
self-certification status in the System for Award Management (or any
successor system) to reflect that the concern is not an eligible VOSB
or SDVOSB.
(i) If an applicant appeals the D/GC's denial decision to SBA's
Office of Hearings and Appeals (OHA) in accordance with part 134 of
this chapter and OHA affirms the ineligibility determination, the two-
day requirement applies immediately upon OHA's final decision.
(ii) If an applicant does not appeal the D/GC's denial decision to
OHA, the two-day requirement begins 10 business days after receipt of
the D/GC's denial.
(2) If a business concern fails to update its VOSB or SDVOSB self-
certification status in the System for Award Management (or any
successor system) after a final SBA decision, SBA will make such update
within two days of the business's failure to do so.
0
78. Amend Sec. 128.310 by redesignating paragraphs (d) and (e) as
paragraphs (e) and (f) respectively, and by adding a new paragraph (d)
to read as follows:
Sec. 128.310 What are the procedures for decertification?
* * * * *
(d) Decertification due to submission of false information. If SBA
discovers that a VOSB/SDVOSB or its representative knowingly submitted
false information, SBA will propose the firm for decertification. In
addition, SBA will refer the matter to the SBA Office of Inspector
General for review and may request that Government-wide debarment or
suspension proceedings be initiated by the agency.
* * * * *
0
79. Amend Sec. 128.401 by revising paragraph (g)(2) and adding
paragraph (g)(3) to read as follows:
Sec. 128.401 What requirements must a VOSB or SDVOSB meet to submit
an offer on a contract?
* * * * *
(g) * * *
(2) In the case of a contract or order for services, specialty
trade construction or supplies, SBA will find that a prime VOSB or
SDVOSB contractor is performing the primary and vital requirements of
the contract or order, and is not unduly reliant on one or more
subcontractors that are not certified VOSBs or SDVOSBs, where the prime
contractor can demonstrate that it, together with any subcontractors
that are certified VOSBs or SDVOSBs, will meet the limitations on
subcontracting provisions set forth in Sec. 125.6 of this chapter.
(3) In a general construction contract, the primary and vital
requirements of the contract are the management, supervision and
oversight of the project, including coordinating the work of various
subcontractors, not the actual construction work performed.
* * * * *
0
80. Amend Sec. 128.402 by revising paragraph (a)(3) to read as
follows:
Sec. 128.402 When may a joint venture submit an offer on a VOSB or
SDVOSB contract?
* * * * *
(a) * * *
(3) A VOSB or SDVOSB cannot be a joint venture partner on more than
one joint venture that submits an offer for a specific contract or
order set-aside or reserved for VOSBs or SDVOSBs.
* * * * *
0
81. Amend Sec. 128.404 by revising paragraph (d) to read as follows:
Sec. 128.404 When may a contracting officer set aside a procurement
for VOSBs or SDVOSBs?
* * * * *
(d) Prohibition on competitions requiring or favoring additional
socioeconomic certifications. A procuring activity cannot restrict an
SDVOSB competition (for either a contract or order) to require
certifications other than SDVOSB certification (i.e., a competition
cannot be limited only to business concerns that are both SDVOSB and
8(a), SDVOSB and HUBZone, or SDVOSB and WOSB) or give evaluation
preferences to firms having one or more other certifications.
0
82. Amend Sec. 128.500 by adding paragraph (d) to read as follows:
Sec. 128.500 What are the requirements for filing a VOSB or SDVOSB
status protest?
* * * * *
(d) A concern found not to qualify as a VOSB or SDVOSB in a status
protest may not submit an offer on a future VOSB or SDVOSB procurement
until the protested concern reapplies to the Veteran Small Business
Certification Program and has been designated by SBA as a VOSB or
SDVOSB into the certification database. If a concern found to be
ineligible submits an offer, it may be in violation of criminal laws,
including section 16(d) of the Small Business Act, 15 U.S.C. 645(d). If
the
[[Page 26217]]
concern has already certified itself as a VOSB or SDVOSB on a pending
procurement, the concern must immediately inform the contracting
officer for the procuring agency of the adverse determination.
(1) Not later than two days after SBA's final determination finding
a concern ineligible as a VOSB or SDVOSB, such concern must update its
VOSB or SDVOSB status in the System for Award Management (or any
successor system).
(2) If a business concern fails to update its VOSB or SDVOSB status
in the System for Award Management (or any successor system) in
response to decertification, SBA will make such update within two days
of the business's failure to do so.
Isabella Casillas Guzman,
Administrator.
[FR Doc. 2023-07855 Filed 4-26-23; 8:45 am]
BILLING CODE 8026-03-P
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