70180 Federal Register / Vol. 69, No. 232 / Friday, December 3, 2004 / Rules and Regulations 

§ 166.15 [Amended]

■ 2. Section 166.15 is amended as 

follows:

■ a. In paragraph (a), by adding, in 

alphabetical order, the word 

‘‘Kentucky,’’.

■ b. In paragraph (b), by removing the 

word ‘‘Kentucky,’’.

■ c. In paragraph (d), by removing the 

word ‘‘Kentucky,’’.

Done in Washington, DC, this 29th day of 

November, 2004. 

Elizabeth E. Gaston, 

Acting Administrator, Animal and Plant 

Health Inspection Service.

[FR Doc. 04–26613 Filed 12–2–04; 8:45 am] 

BILLING CODE 3410–34–P

SMALL BUSINESS ADMINISTRATION

13 CFR Part 121

RIN 3245–AE76

Small Business Size Regulations; 

Small Business Innovation Research 

Program

AGENCY: Small Business Administration 

(SBA).

ACTION: Final rule.

SUMMARY: The U.S. Small Business 

Administration (SBA or Agency) is 

revising its small business size 

regulations regarding ownership and 

control of Small Business Innovation 

Research (SBIR) Program awardees. The 

final rule provides that an SBIR awardee 

must meet the following requirements: 

It must be a for-profit business concern 

that is at least 51% owned and 

controlled by one or more individuals 

who are citizens of, or permanent 

resident aliens in, the United States (as 

the regulations currently require); or it 

must be a for-profit business concern 

that is at least 51% owned and 

controlled by another for-profit business 

concern that is at least 51% owned and 

controlled by one or more individuals 

who are citizens of, or permanent 

resident aliens in, the United States. 

This rule does not change the size 

standard requiring that an SBIR 

awardee, together with its affiliates, 

have no more than 500 employees. 

Because SBA received a large number of 

comments concerning ownership of 

SBIR Program participants by Venture 

Capital Companies, SBA will issue an 

Advanced Notice of Proposed 

Rulemaking seeking additional 

information this issue.

DATES: This rule is effective January 3, 

2005.

FOR FURTHER INFORMATION CONTACT: Carl 

Jordan, Office of Size Standards, at (202) 

205–6618, or Edsel Brown, Assistant 

Administrator for Technology, at (202) 

205–6540. You may also e-mail 

questions to sizestandards@SBA.gov.

SUPPLEMENTARY INFORMATION: 

Introduction 

On June 4, 2003, the SBA published 

in the Federal Register (68 FR 33412) a 

proposed rule to modify the eligibility 

requirements for the SBIR Program. The 

proposed rule provided that small 

business concerns (SBCs), which are 

100% owned and controlled by another 

concern, could receive SBIR awards so 

long as the concern that owned and 

controlled the awardee was at least 51% 

owned and controlled by one or more 

individuals who are citizens of, or 

permanent resident aliens in, the United 

States. In addition, the SBIR awardee, 

including its affiliates (the parent 

company and any other affiliates), 

would have to meet the 500-employee 

size standard. 

The SBA sought comments on its 

proposed rule together with alternatives 

that it considered. Below is a summary 

and discussion of the comments the 

SBA received, as well as a summary of 

the final rule. 

Summary of Comments 

The SBA received 164 comments on 

the proposed rule. Although the 

majority of the comments supported a 

change to the eligibility requirements 

for the SBIR Program, many of them 

recommended additional changes. The 

significant issues raised by the 

comments included: (1) Less than 100% 

ownership and control by one other 

concern; (2) majority ownership and 

control by large businesses; (3) 

ownership and control by more than 

one concern; (4) foreign ownership and 

control; (5) majority ownership and 

control by venture capital companies 

(VCCs); (6) ownership by Small 

Business Investment Companies 

(SBICs), employee stock option plans 

(ESOPs) and trusts; (7) joint ventures 

(JVs) in relation to the proposed rule; 

and (8) the 500-employee size standard. 

Ownership by Other Concerns or 

Entities and Foreign Ownership 

The SBA received several comments 

recommending a rule that would allow 

less than 100% ownership and control 

of an SBIR participant by another 

concern. Some of these comments stated 

that the level of ownership or control is 

not material to the overall success of the 

SBIR Program. Others contended that 

allowing less than 100% ownership or 

control is consistent with the Small 

Business Innovation Development Act 

(SBIDA) of 1982 (which can be found at 

http://thomas.loc.gov/bss/d097/

d097laws.html) and its legislative 

history, and in fact furthers the SBIDA’s 

intent. One commenter added that 

requiring 100% ownership would stifle 

investment from others. 

Several commenters recommended a 

regulation that would allow an SBIR 

awardee to be owned and controlled by 

two or more other business concerns, 

which in turn are at least 51% owned 

and controlled by U.S. citizens or 

permanent resident aliens. Four 

commenters supported the idea of 

multiple corporate owners because it 

would permit one concern to ‘‘spin off’’

another, and then add one or more other 

corporate investors in the ‘‘spin off.’’

Other commenters recommended 

variations of the proposed rule, 

including: Allowing indirect ownership 

by U.S. citizens or permanent resident 

aliens, defining the term individuals to 

include U.S. corporations, and 

providing for a net worth test for the 

parent company. 

Three commenters argued that 

allowing foreign ownership and control 

would be consistent with Federal 

procurement regulations. One 

commenter stated that it needed to go 

overseas to raise funds through the 

London Stock Exchange. Several 

commenters believed that rather than 

have a U.S. citizen or permanent 

resident alien ownership requirement, 

SBA should require the SBIR participant 

to have a base of operations in the 

United States, incorporate in the United 

States, employ U.S. citizens and/or pay 

taxes to the United States. 

One commenter recommended 

allowing nonprofits to own and control 

more than 49% of the SBIR participant, 

but require the non-profit to license its 

technology exclusively to the start-up so 

that the non-profit cannot use the 

program to its advantage. Several 

commenters supported ownership and 

control of an SBIR participant by SBICs. 

One commenter stated that it believed 

the statutes and rules governing SBICs, 

as well as the SBA’s regulatory authority 

over them, could provide adequate 

safeguards against abuse of the SBIR 

program by such larger businesses. One 

commenter did not support allowing 

more than 49% ownership by an SBIC. 

Other commenters supported ownership 

and control by trusts for estate/tax 

planning purposes and by Employee 

Stock Ownership Plans (ESOPs) for 

investment and employee incentive 

purposes. 

Conversely, 50 commenters expressed 

concern that permitting another 

business concern to own an SBIR 

Program participant could permit large 

companies to participate in the SBIR 

Federal Register / Vol. 69, No. 232 / Friday, December 3, 2004 / Rules and Regulations 70181

Program via a subsidiary. These 

commenters opposed the rule change 

and argued that business concerns 

owned by other business concerns have 

more money than most SBIR 

participants, which may have only 10 to 

50 employees. In those instances, these 

smaller SBIR participants will be 

competing against larger participants 

(which, together with the parent 

company, meet the 500-employee size 

standard). These commenters did not 

believe this met the purpose and intent 

of SBIDA. Although several commenters 

supported allowing more than one 

business concern to own and control an 

SBIR awardee, many also likewise 

believed that the SBA must ensure that 

only true SBCs receive the SBIR award 

and directly benefit from the program. 

SBA thoroughly reviewed each of the 

comments received and believes that 

allowing one business concern to own 

or control at least 51% of an SBIR 

participant, which is in turn at least 

51% owned and controlled by U.S. 

citizens or permanent resident aliens, 

provides SBIR participants with the 

flexibility they need to leverage money 

and bring in other funding sources (such 

as SBICs) and yet remain small. 

Pursuant to the final rule, ownership of 

an SBIR awardee is limited to one of the 

two following ways: (1) The awardee 

must be at least 51% owned and 

controlled by citizens of, or permanent 

resident aliens in, the United States; or, 

(2) it must be at least 51% owned and 

controlled by one for-profit business 

concern that itself is at least 51% owned 

and controlled by citizens of, or 

permanent resident aliens in, the United 

States. With respect to the first 

eligibility criterion, if the SBIR awardee 

is at least 51% owned and controlled by 

citizens of, or permanent resident aliens 

in, the United States, other concerns (or 

entities such as non-profits) may 

participate in its ownership and control, 

but only so long as these concerns 

together do not own any more than 49% 

of the SBIR concern and do not control 

the concern as a result of their 

ownership interest. With respect to the 

second eligibility criterion, one forprofit business concern must have 51% 

or more ownership and control of an 

eligible SBIR awardee (if the awardee is 

not at least 51% owned and controlled 

by citizens of, or permanent resident 

aliens in, the United States). Other 

concerns (and entities such as nonprofits) may have an ownership interest 

in the SBIR participant, but they are 

limited to 49%, individually or together.

The SBA believes that requiring that 

the business concern with the 

controlling interest be at least 51% 

owned and controlled by U.S. citizens 

or permanent resident aliens (note that 

SBA does not consider entities to be 

individuals or citizens or permanent 

resident aliens) supports the intent and 

purpose of SBIDA that the research and 

development (R&D) advances resulting 

from this program remain in this 

country and benefit the United States. 

Specifically, SBIDA was enacted 

because ‘‘the rate of productivity 

increase in the United States ha[d] been 

well below that of all the leading 

industrial nations, most notably Japan 

and Germany. While this relative 

decline in American productivity [wa]s 

due to many factors, a major one [wa]s 

certainly the slowdown in our 

technological innovation.’’ S. Rep. No. 

194, 97th Cong., 1st Sess. 1 (1982). 

House Report No. 349, Part I, further 

stated that Federal support for R&D was 

concentrated in big businesses, 

laboratories, universities, and non-profit 

organizations. It was believed that this 

concentration of private R&D in a few 

large entities was contrary to the 

national interest and that small science 

and technology-based enterprises, 

thought of as the most innovative sector 

of the American economy, was excluded 

from effective participation. H.R. Rep. 

No. 349, 97th Cong., 1st Sess., pt. 1, at 

9 (1981). The purpose of SBIDA was, 

and still is, to encourage small business 

participation in R&D to stimulate the 

American economy. 

Because the purpose of the SBIR 

program is to increase the rate of 

productivity in the United States by 

increasing technological innovations, 

especially those innovations of SBCs 

here in the United States, the SBA 

believes that the legislative history of 

and purpose of SBIDA does not support 

more than 49% ownership by foreign 

investors or nonprofit institutions. The 

SBA notes that this rule does not 

preclude foreign or nonprofit 

investment; it merely limits the amount 

of investment. The SBA also notes that 

this regulation does not create the 

anomalous situation where an SBIR 

participant concern is owned and 

controlled by U.S. citizens or permanent 

resident aliens or a business concern 

that is owned and controlled by U.S. 

citizens or permanent resident aliens, 

but has a place of business overseas. 

The regulations, set forth at 13 CFR 

121.105, specifically define the term 

‘‘concern’’ or ‘‘business concern’’ to 

mean one that is organized for profit, 

with a place of business located in the 

United States, and which operates 

primarily within the United States or 

which makes a significant contribution 

to the U.S. economy through payment of 

taxes or use of American products, 

materials or labor. Therefore, in 

addition to meeting the 51% ownership 

and control requirements, the SBIR 

participant must meet this definition of 

‘‘concern’’ or ‘‘business concern.’’ The 

SBA notes that this is not a change in 

policy; all business concerns eligible for 

the SBA assistance as a small business 

concern must meet this definition. 

In addition, the SBA does not believe 

that allowing ownership by other 

concerns would allow large businesses 

to participate in the SBIR program. For 

purposes of the SBIR Program, an SBIR 

awardee, together with its affiliates, 

must be ‘‘small’’ for purposes of the 

program, and a concern, together with 

its affiliates, is deemed to be small only 

when it has no more than 500 

employees. The SBA’s Small Business 

Size Regulations set forth in 13 CFR 

121.103 define affiliation with another 

business concern. According to 

§ 121.103, concerns are affiliates of each 

other when one concern controls or has 

the power to control the other, or a third 

party or parties controls or has the 

power to control both. The SBA 

considers factors such as common 

ownership, common management and 

identity of interest (often found in 

members of the same family) to indicate 

affiliation. Although control exists when 

a party or parties has more than 50% 

ownership, it may also exist with 

considerably less than 50% ownership. 

As a result of these affiliation rules, 

employees of businesses that have 

ownership interests in or control of an 

SBIR awardee may be counted toward 

the size of the SBIR awardee. Where one 

firm is a subsidiary of another, the 

parent and subsidiary are affiliates for 

size purposes and their employees 

would be aggregated in determining 

whether the subsidiary qualified as a 

small business. Thus, these rules would 

prevent ‘‘large’’ businesses from 

participating in the SBIR Program via a 

subsidiary. 

Further, the SBA notes that under the 

former rules, a business concern could 

still own an SBIR participant, but was 

limited to 49% ownership. The new 

rule provides more flexibility in the 

ownership and control of an SBIR 

participant while still ensuring that only 

SBCs (those with not more than 500 

employees, including affiliates) 

participate in the Program. 

The SBA responded by letter or email 

to those commenters opposed to 

allowing businesses to own an SBIR 

awardee to clarify what it believed was 

a misunderstanding of the SBA’s 

affiliation regulations and how those 

regulations apply to all of the SBA’s 

programs, including the SBIR Program. 

In response, 15 of the 50 commenters 

70182 Federal Register / Vol. 69, No. 232 / Friday, December 3, 2004 / Rules and Regulations 

withdrew their opposition to the 

proposed rule and two stated that they 

remained opposed to the proposed rule. 

Finally, the SBA would like to clarify 

that ESOPs can own SBIR awardees and 

the Agency has specifically addressed 

this issue in the final regulation to avoid 

any confusion. SBA has also amended 

the final rule to address the issue of 

ownership by trusts. The SBA 

understands that trusts are oftentimes 

established for tax reasons, where, as at 

least one commenter explained, an 

owner may establish a family trust for 

the benefit of her children. The 

commenter believed that such situations 

should be addressed in the regulations 

and the SBA agrees. For purposes of an 

ESOP, SBA will treat the plan members 

and trustees as owners. For purposes of 

a trust, SBA will treat the trustee and 

beneficiaries as owners of the SBIR 

awardee. 

Ownership by VCCs 

The SBA received 60 comments 

specifically addressing whether VCCs 

should own and control 51% or more of 

an SBIR awardee. Several commenters 

argued that VCCs should be allowed to 

own and control 51% or more of an 

SBIR awardee because small innovative 

business concerns, especially those in 

the biotechnology field, need this 

capital investment. In addition, because 

many of these VCCs have institutional 

investors, these commenters did not 

believe that there should be a U.S. 

citizen ownership and control test for 

such VCC-backed business concerns. As 

a result, some commenters 

recommended disregarding VCC 

ownership altogether when determining 

the 51% or more ownership and control 

requirement or suggested that the SBA 

deem U.S. investment companies to be 

individuals and U.S. citizens for 

purposes of this rule. In addition, some 

argued that the SBA should modify its 

affiliation provision to disregard 

affiliation with such VCCs. 

Meanwhile, 20 commenters opposed 

allowing concerns majority owned and 

controlled by VCCs to be eligible for the 

SBIR Program. These commenters 

believe that such concerns do not need 

further funding—such as Government 

funding through an SBIR award—

because they already receive help from 

the VCC. In addition, these commenters 

expressed concern about the impact on 

existing SBCs in seeking R&D support if 

concerns that are majority owned and 

controlled by VCCs were allowed to 

obtain SBIR funding awards. 

The SBA notes that this final rule 

makes no distinction between a VCC 

and other for-profit entities. This rule 

allows a VCC to own and control an 

SBIR awardee, as long as the VCC is 

itself at least 51% owned and controlled 

by U.S. citizens and permanent resident 

aliens and the SBIR awardee, together 

with its affiliates, meets the 500-

employee size standard. However, the 

specific nature of the relationship 

between a VCC or other investment 

vehicle, which is in turn more than 50% 

owned by institutional investors, with 

an SBIR participant is a broader policy 

question than SBA sought to address 

with the proposed rule. When VCCs 

have control of a firm in which they 

invest, they are considered affiliated 

with that firm under current rules 

(§ 121.103, ‘‘What is affiliation?’’), just 

as any other business entity would be if 

it had ownership or control. Business 

concerns owned and controlled by VCCs 

with institutional investors would be 

affiliated with those VCCs and 

institutional investors and, thus, may 

not meet the SBIR Program’s 500-

employee size standard. The SBA stated 

in the proposed rule that it was not 

changing the rule that a concern, 

together with its affiliates, must meet 

the 500 employee small business size 

standard. 

Because of the large number of 

comments SBA received on the issue of 

affiliation for VCCs, the SBA believes 

that it warrants further consideration. 

SBA will issue an Advance Notice of 

Proposed Rulemaking seeking 

additional information on this issue. 

This action ensures that the small 

business community is aware of SBA’s 

consideration of a significant change to 

the eligibility criteria for the SBIR 

Program and that it has an opportunity 

to provide information to assist SBA 

with the evaluation of the issue.

The Effects of the Rule on Joint 

Ventures (JVs) 

Two commenters questioned whether 

this rule would comply with existing 

provisions on JVs as set forth in the 

SBA’s SBIR Policy Directive and 

whether JVs must have a separate 

Employer Identification Number (EIN). 

First, the SBA notes that this final rule 

does not effect the eligibility of JVs for 

SBIR awards as set forth in the SBA’s 

SBIR Policy Directive, 67 FR 60072 

(Sept. 24, 2002), which was 

promulgated pursuant to notice and 

comment rulemaking. SBA notes that in 

addition to amending the SBIR Policy 

Directive on this issue, it proposed an 

amendment to 13 CFR 121.702(a) in 67 

FR 70339 (Nov. 22, 2002) to address JVs 

in the SBIR Program. SBA received no 

comments on that proposal, which was 

identical to the rule set forth in the SBIR 

Policy Directive. As a result, the SBA is 

amending the regulation to address this 

issue. The final regulation, like the 

Policy Directive, states that joint 

ventures are eligible for an SBIR award 

if each entity that is part of the venture 

meets the SBIR ownership and control 

requirements. 

Second, and with respect to the EIN 

number, this issue was addressed in the 

preamble to the final SBIR Policy 

Directive. For purposes of the SBIR 

Program, a JV is an association of 

concerns with interests in any degree or 

proportion by way of a contract, express 

or implied, consorting to engage in and 

carry out a specific business venture for 

joint profit, for which purpose they 

combine their efforts, property, money, 

skill, or knowledge, but not on a 

continuing or permanent basis for 

conducting business generally. Further, 

for purposes of the SBIR Program, a JV 

is viewed as a business entity in 

determining power to control its 

management. Therefore, a JV can have 

its own EIN, but it is not required to 

have one, so long as the purpose of the 

JV is to engage in and carry out a 

specific business venture. 

The 500-Employee Size Standard 

A few commenters recommended that 

the SBA amend the SBIR program size 

standard from 500 employees to 250 or 

even 50 employees. One commenter 

maintained that companies with more 

than 250 employees generate $15 

million to $20 million annually while 

another commenter believed that 

companies with 500 employees generate 

$50 million in sales. Both commenters 

argued that these companies should 

pursue standard government grants and 

contracts, leaving SBIR funds for 

smaller companies. One commenter 

maintained that the value of the SBIR 

Program is greatest for the smallest 

entities, such as those with less than 50 

employees, who cannot fund 

innovations from their own profits. 

The proposed rule specifically stated 

that the SBA was not amending the size 

standard for the SBIR Program and 

therefore the SBA did not propose any 

alternate size standards. If the SBA 

determines that it is necessary to amend 

the size standard for the SBIR Program, 

it will do so through a separate 

rulemaking action, which includes 

proposing a standard for public 

comment. 

Time of Eligibility 

The SBA received one comment on its 

proposal to revise the first sentence of 

§ 121.702 by changing ‘‘To be eligible to 

compete for award * * *’’ to read ‘‘To 

be eligible for award * * *.’’ With this 

change, an SBIR awardee would not 

need to meet the eligibility requirements 

Federal Register / Vol. 69, No. 232 / Friday, December 3, 2004 / Rules and Regulations 70183

when it submits its proposal. Rather, the 

awardee would need to be eligible at the 

time of the award. According to the 

commenter, this change would allow 

large businesses to use resources to 

apply for SBIR funding and then 

establish a small business for purposes 

of the award. 

The SBA disagrees with this 

comment. First, the SBA has been 

issuing size determinations for SBIR 

participants at the time of award for 

several years and is not aware of any 

instances where a large business has 

become ‘‘small’’ for purposes of an SBIR 

award. The SBA believes that, generally, 

this process proposed by the commenter 

would be too time and money 

consuming. 

Second, the reason for the departure 

from the time of self-certification with 

the proposal submission requirement 

applicable to other programs is the 

concern that potential SBIR 

entrepreneurs often are working at large 

concerns or non-profit institutions (e.g., 

universities) at the time of their initial 

proposal and, thus, would be precluded 

from the SBIR Program by a ‘‘time of 

offer’’ rule. These offerors typically 

leave their position with the affiliated 

entity upon approval of their proposal 

and prior to award. Therefore, the SBA 

is promulgating the final rule as 

proposed. 

The SBA’s Decision 

In sum, this final rule adopts a 

modification to the SBA’s proposed 

rule. Although the SBA had proposed to 

allow another concern to own an SBIR 

awardee, the proposal required 100% 

ownership and control. Based on 

comments received and discussed 

above, the SBA believes that its 

proposal was unnecessarily limiting. 

Therefore, without modifying the size 

standard requiring that an SBIR 

awardee, together with its affiliates, 

have no more than 500 employees, the 

SBA is revising § 121.702 to allow an 

SBIR funding awardee to be either:

(1) A for-profit business concern, as 

defined in § 121.105, that is at least 51% 

owned and controlled by one or more 

individuals who are citizens of the 

United States, or permanent resident 

aliens in the United States; or, 

(2) A for-profit business concern, as 

defined in § 121.105, that is at least 51% 

owned and controlled by another forprofit business concern, as defined in 

§ 121.105, that is itself at least 51% 

owned and controlled by individuals 

who are citizens of, or permanent 

resident aliens in, the United States. 

This final rule also adopts the SBA’s 

proposal to revise the first sentence of 

§ 121.702 by changing ‘‘To be eligible to 

compete for award * * *’’ to read ‘‘To 

be eligible for award * * *.’’ With this 

change, an SBIR awardee does not need 

to meet the eligibility requirements 

when it submits its proposal. Rather, the 

awardee must be eligible at the time of 

the award. 

Compliance With Executive Orders 

12866, 12988, and 13132, the 

Paperwork Reduction Act (44 U.S.C. 

Ch. 35), and the Regulatory Flexibility 

Act (5 U.S.C. 601–612) 

The Office of Management and Budget 

(OMB) has determined that this rule is 

a significant regulatory action for 

purposes of Executive Order 12866. 

Small business size standards determine 

what businesses are eligible for Federal 

small business programs. This rule does 

not effect small business size standards, 

but may effect the number of awards to 

different small businesses under the 

SBIR Program. This is not a major rule, 

however, under the Congressional 

Review Act, 5 U.S.C. 800. For purposes 

of Executive Order 12988, the SBA has 

determined that this rule has been 

drafted, to the extent practicable, in 

accordance with the standards set forth 

in that order. For purposes of Executive 

Order 13132, the SBA has determined 

that this rule does not have any 

federalism implications warranting the 

preparation of a Federalism Assessment. 

For purposes of the Paperwork 

Reduction Act, 44 U.S.C. Ch. 35, the 

SBA has determined that this rule does 

not impose new reporting or 

recordkeeping requirements, other than 

those now required of the SBA and 

Federal agencies that request R&D 

proposals under the SBIR Program. The 

SBA’s Final Regulatory Impact Analysis 

follows. 

Regulatory Impact Analysis 

1. Need for This Regulatory Action 

The SBA’s experience over the last 

several years led it to believe that it 

should reconsider its policy on 

eligibility for SBIR awardees. The SBA 

believes that the former regulation was 

unnecessarily restrictive. The revised 

rule now allows small businesses 

owned and controlled by no more than 

one other for-profit business concern to 

participate in the SBIR Program. The 

SBA believes this regulation will 

increase the number of SBCs eligible for 

the SBIR Program and therefore increase 

the number and quality of technological 

innovations by SBCs. As a result, this 

rule, despite the fact it broadens the 

eligibility requirements for SBIR 

awardees, is still consistent with SBIDA 

and its legislative history. 

The mission of SBA is to aid and 

assist small businesses through a variety 

of financial, procurement, business 

development and advocacy programs. 

To effectively assist intended 

beneficiaries of these programs, the SBA 

must establish distinct definitions of 

what it means to be a small business 

and define what small businesses are 

eligible for various Federal Government 

programs. The Small Business Act (15 

U.S.C. 632(a)) delegates broad 

responsibility for establishing small 

business definitions to the SBA 

Administrator. 

This rule is consistent with the SBA’s 

statutory mandate to assist small 

business. This action will promote the 

Administrator’s objectives to help 

individual small businesses succeed 

through fair and equitable access to 

capital and credit. Reviewing and 

modifying the SBA’s Small Business 

Size Regulations, when appropriate, 

ensures that intended beneficiaries have 

access to small business programs 

designed to assist them. 

2. Potential Benefits and Costs of This 

Regulation 

Small R&D concerns that will become 

eligible for SBIR Program awards are the 

primary beneficiaries of this rule. 

Specifically, benefits will flow to 

concerns that were ineligible for SBIR 

awards solely because they were owned 

and controlled by other concerns, rather 

than natural persons. In addition, 

companies owned and controlled by 

SBIR participants, which were 

previously ineligible to participate in 

the SBIR Program, are now eligible. 

In the proposed rule, the SBA could 

not predict with confidence the 

distributional impact of the rule. The 

SBA believed that there would be about 

50 to 100 concerns that might benefit, 

based on information that, in the past, 

agencies have not awarded 

approximately 50 to 100 SBIR proposals 

as a result of the former ownership 

restrictions. Although the SBA 

specifically requested comments on this 

issue, commenters did not offer 

estimates, but generally agreed with the 

SBA’s estimates. 

In fiscal year 2002, there were 

approximately 5,000 SBIR awards that 

received approximately $1.5 billion in 

funding. Therefore, if 100 newly eligible 

firms win SBIR awards, the SBA 

estimates that approximately $30 

million could be awarded annually to 

newly eligible concerns as a result of 

this rule.

Federal Government agencies with 

SBIR Programs also benefit from this 

rule because it enables them to tap the 

resources of more small innovative 

70184 Federal Register / Vol. 69, No. 232 / Friday, December 3, 2004 / Rules and Regulations 

firms, facilitating the conversion of 

federally funded research results into 

commercially viable products and 

services. In keeping with Congress’

intent, the rule further helps Federal 

agencies to meet their mandate to assist 

SBCs. 

The Federal Government will incur 

no additional costs as a result of this 

final rule. By slightly expanding the 

pool of eligible concerns, the rule makes 

an already competitive program even 

more competitive, which can increase 

the quality of the projects funded. The 

rule will have no impact on the number 

of awards given or on the amount of 

funds available for the program. 

The SBA estimated in the proposed 

rule that there would be relatively few 

distributional effects if it adopted the 

rule. In the past, agencies have not 

awarded approximately 50 to 100 SBIR 

proposals as a result of the former 

ownership restrictions. The agencies did 

not issue an award to either small 

businesses or other than small 

businesses. Again, as stated above, the 

SBA could not accurately determine 

how many concerns might become 

eligible for these awards because there 

are no data to support an estimate of the 

distributional effects, but the SBA 

believed it could be no more than 100 

awards made to newly eligible concerns. 

Commenters did not dispute this 

estimate, and one stated its assumption 

that the SBA’s estimate of newly eligible 

concerns was correct. 

Final Regulatory Flexibility Analysis 

Under the Regulatory Flexibility Act, 

the SBA has determined that this rule 

may have a significant economic effect 

on a substantial number of small 

entities. The SBA estimates that an 

additional 50 to 100 small concerns 

could become eligible for the SBIR 

Program and obtain approximately $30 

million in funding agreements. 

Immediately below, the SBA sets forth 

a Final Regulatory Flexibility Analysis 

of this rule providing the following: (1) 

The need for and objective of the rule; 

(2) a description and estimate of the 

number of small concerns to which the 

rule will apply; (3) projected reporting, 

recordkeeping, and other compliance 

requirements of the rule; (4) relevant 

Federal rules that may duplicate, 

overlap or conflict with the rule; and (5) 

alternatives to allow the Agency to 

accomplish its regulatory objectives 

while minimizing the impact on small 

entities. 

(1) Need and Objective of the Rule 

The SBA believes that several SBCs 

were precluded from participating in 

the SBIR Program under the prior rule, 

solely because of their ownership 

structure. Participating SBIR agencies 

have not awarded 50 to 100 SBIR 

proposals annually because there were 

no meritorious and feasible proposals 

from qualified concerns. In those cases, 

the SBA believes the SBCs were 

qualified except for the fact that they 

did not meet the ownership criteria. 

One purpose of the SBIR Program is 

to increase the share of the Federal R&D 

budget awarded to SBCs. In addition, 

according to SBIDA’s legislative history, 

SBCs have difficulty competing with 

not-for-profit entities. Allowing 

concerns that are at least 51% owned 

and controlled by a single for-profit 

business concern that is itself at least 

51% owned and controlled by one or 

more individuals who are citizens of, or 

permanent resident aliens in, the United 

States is consistent with the objectives 

of the SBIR Program. 

(2) Description and Estimate of the 

Number of Small Entities to Which the 

Rule Applies 

The SBA could not precisely 

determine how many concerns would 

become eligible as a result of the 

proposed rule, if adopted, because it 

had no data on how many wholly 

owned subsidiaries there are in the 

United States. In fiscal year 2002, there 

were about 5,000 annual SBIR awards 

for approximately $1.5 billion, less than 

2% of which are multiple awards. The 

SBA believes that between 50 to 100 

concerns will become eligible under this 

rule, as discussed above. 

The SBA believes that the additional 

eligible concerns will not have a 

significant impact on existing small 

concerns. While there are approximately 

5,000 annual SBIR awards, over 98% are 

awarded to concerns that receive no 

other awards during the year. That is, 

there are approximately 4,900 awards in 

any given year to approximately 4,900 

different concerns. The SBA estimates 

that, on average, three concerns compete 

for any given award. Therefore, there are 

about 15,000 concerns seeking SBIR 

awards. The SBA does not believe that 

an additional 100 competitors, about 

0.7%, adds significant competition for 

SBIR awards. 

The SBA recognizes that newly 

eligible firms might be viewed as 

competition for other small businesses 

competing for SBIR awards. However, 

newly eligible firms under this rule 

must, like other participants, meet the 

500-employee size standard. This rule 

does not increase the population of 

eligible firms by allowing other than 

small business to participate; it only 

adds SBCs with different ownership 

structures. Therefore, newly eligible 

concerns competing for SBIR awards do 

not have the benefits that generally 

accrue to larger concerns. While there 

will be a small increase in the number 

of concerns competing, the newly 

eligible firms will not be more 

competitive due to their size.

Participating agencies have no limit to 

the number and amount of awards they 

may make in a given fiscal year. The 

agencies have goals and objectives, but 

they are not limited to those levels. This 

rule opens up opportunities for more 

small R&D concerns to participate in the 

SBIR Program. 

(3) Projected Reporting or 

Recordkeeping, or Other Compliance 

Requirements of This Rule 

This rule does not impose any 

additional reporting, recordkeeping or 

other compliance requirements on small 

entities for the SBA’s programs. It also 

does not create additional costs on a 

business to determine whether or not it 

qualifies as a small business. A business 

need only examine existing business 

information to determine its eligibility, 

such as its Federal tax returns. In 

addition, this rule does not impose any 

new information collection 

requirements from the SBA, which 

would require approval by OMB under 

the Paperwork Reduction Act of 1980, 

44 U.S.C. 3501–3520. 

(4) Relevant Federal Rules That May 

Duplicate, Overlap or Conflict With the 

Rule 

The SBA’s Small Business Size 

Regulations may in some instances 

overlap other Federal rules that use the 

SBA’s small business size standards to 

define a small business. However, this 

rule is limited to a single program and 

does not conflict with other regulatory 

requirements, or any small business 

program, other than the SBIR Program’s 

Policy Directive, which the SBA will 

amend to comply with this rule. 

(5) Alternatives To Allow the Agency To 

Accomplish Its Regulatory Objectives 

While Minimizing the Impact on Small 

Entities 

In its proposed rule, the SBA 

proposed only to extend eligibility to 

concerns that were owned 100% by 

another concern. The SBA also 

indicated that it had considered an 

alternative that would permit concerns 

less than wholly owned or controlled by 

other concerns, or owned or controlled 

by more than one other concern, to be 

eligible for SBIR awards. Based on 

comments received to the proposed 

rule, the SBA adopted the alternative 

that would allow an SBIR participant to 

be less than 100% owned and 

Federal Register / Vol. 69, No. 232 / Friday, December 3, 2004 / Rules and Regulations 70185

controlled by another concern. 

However, the rule states that the 

business concern with at least 51% 

ownership and control of the SBIR 

awardee must be at least 51% owned 

and controlled by citizens or permanent 

resident aliens in the United States. The 

SBA believes that this regulation 

provides flexibility with respect to 

investments while ensuring that small 

R&D concerns obtain SBIR awards.

List of Subjects in 13 CFR Part 121

Administrative practice and 

procedure, Government procurement, 

Government property, Grant programs—

business, Loan programs—business, 

Reporting and recordkeeping 

requirements, Small businesses.

■ For the reasons set forth in the 

Preamble, the SBA is amending 13 CFR 

part 121 as follows:

PART 121—SMALL BUSINESS SIZE 

REGULATIONS

■ 1. The authority citation for Part 121 

continues to read as follows:

Authority: 15 U.S.C. 632(a), 634(b)(6), 

636(b), 637(a), 644(c), and 662(5); and Sec. 

304, Pub. L. 103–403, 108 Stat. 4175, 4188, 

Pub. L. 106–24, 113 Stat. 39.

■ 2. Revise § 121.702 to read as follows:

§ 121.702 What size standards are 

applicable to the SBIR program? 

To be eligible for award of funding 

agreements in the SBA’s Small Business 

Innovation Research (SBIR) program, a 

business concern must meet the 

requirements of paragraphs (a) and (b) 

below: 

(a) Ownership and control.

(1) An SBIR awardee must (i) be a 

concern which is at least 51% owned 

and controlled by one or more 

individuals who are citizens of the 

United States, or permanent resident 

aliens in the United States; or 

(ii) Be a concern which is at least 51% 

owned and controlled by another 

business concern that is itself at least 

51% owned and controlled by 

individuals who are citizens of, or 

permanent resident aliens in the United 

States; or 

(iii) Be a joint venture in which each 

entity to the venture must meet the 

requirements set forth in either 

paragraphs (a)(1)(i) or (a)(1)(ii) of this 

section. 

(2) If an Employee Stock Option Plan 

owns all or part of the concern, SBA 

considers each stock trustee and plan 

member to be an owner. 

(3) If a trust owns all or part of the 

concern, SBA considers each trustee 

and trust beneficiary to be an owner. 

(b) Size. An SBIR awardee, together 

with its affiliates, not have more than 

500 employees.

Dated: November 29, 2004. 

Hector V. Barreto, 

Administrator.

[FR Doc. 04–26608 Filed 12–2–04; 8:45 am] 

BILLING CODE 8025–01–U

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration 

14 CFR Part 71

[Docket No. FAA–2004–19325; Airspace 

Docket No. 04–ACE–54] 

Modification of Class E Airspace; 

Dodge City, KS

AGENCY: Federal Aviation 

Administration (FAA), DOT.

ACTION: Direct final rule; confirmation of 

effective date. 

SUMMARY: This document confirms the 

effective date of the direct final rule 

which revises Class E airspace at Dodge 

City, KS.

EFFECTIVE DATE: 0901 UTC, January 20, 

2005.

FOR FURTHER INFORMATION CONTACT:

Kathy Randolph, Air Traffic Division, 

Airspace Branch, ACE–520C, DOT 

Regional Headquarters Building, Federal 

Aviation Administration, 901 Locust, 

Kansas City, MO 64106; telephone: 

(816) 329–2525.

SUPPLEMENTARY INFORMATION: The FAA 

published this direct final rule with a 

request for comments in the Federal 

Register on October 19, 2004 (69 FR 

61439) and subsequently published 

corrections to the direct final rule on 

October 29, 2004 (69 FR 63032) and 

November 22, 2004 (69 FR 67811). The 

FAA uses the direct final rulemaking 

procedure for a non-controversial rule 

where the FAA believes that there will 

be no adverse public comment. This 

direct final rule advised the public that 

no adverse comments were anticipated, 

and that unless a written adverse 

comment, or a written notice of intent 

to submit such an adverse comment, 

were received within the comment 

period, the regulation would become 

effective on January 20, 2005. No 

adverse comments were received, and 

thus this notice confirms that this direct 

final rule will become effective on that 

date.

Issued in Kansas City, MO on November 

23, 2004. 

Elizabeth S. Wallis, 

Acting Area Director, Western Flight Services 

Operations.

[FR Doc. 04–26670 Filed 12–2–04; 8:45 am] 

BILLING CODE 4910–13–M

DEPARTMENT OF HOMELAND 

SECURITY 

Federal Emergency Management 

Agency 

44 CFR Part 65

[Docket No. FEMA–P–7638] 

Changes in Flood Elevation 

Determinations

AGENCY: Federal Emergency 

Management Agency, Emergency 

Preparedness and Response Directorate, 

Department of Homeland Security.

ACTION: Interim rule.

SUMMARY: This interim rule lists 

communities where modification of the 

Base (1% annual-chance) Flood 

Elevations (BFEs) is appropriate because 

of new scientific or technical data. New 

flood insurance premium rates will be 

calculated from the modified BFEs for 

new buildings and their contents.

DATES: These modified BFEs are 

currently in effect on the dates listed in 

the table below and revise the Flood 

Insurance Rate Map(s) in effect prior to 

this determination for the listed 

communities. 

From the date of the second 

publication of these changes in a 

newspaper of local circulation, any 

person has ninety (90) days in which to 

request through the community that the 

Mitigation Division Director of the 

Emergency Preparedness and Response 

Directorate reconsider the changes. The 

modified BFEs may be changed during 

the 90-day period.

ADDRESSES: The modified BFEs for each 

community are available for inspection 

at the office of the Chief Executive 

Officer of each community. The 

respective addresses are listed in the 

table below.

FOR FURTHER INFORMATION CONTACT:

Doug Bellomo, P.E., Hazard 

Identification Section, Emergency 

Preparedness and Response Directorate, 

Federal Emergency Management 

Agency, 500 C Street, SW., Washington, 

DC 20472, (202) 646–2903.

SUPPLEMENTARY INFORMATION: The 

modified BFEs are not listed for each 

community in this interim rule. 

However, the address of the Chief