[Federal Register Volume 62, Number 157 (Thursday, August 14, 1997)]
[Proposed Rules]
[Pages 43584-43628]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-21514]


      

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Part II





Small Business Administration





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13 CFR Parts 121, 124, and 134



Small Business Size Regulations; 8(a) Business Development/Small 
Disadvantaged Business Status Determinations; Rules of Procedure 
Governing Cases Before the Office of Hearings and Appeals; Proposed 
Rule

Federal Register / Vol. 62, No. 157 / Thursday, August 14, 1997 / 
Proposed Rules

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SMALL BUSINESS ADMINISTRATION

13 CFR Parts 121, 124, and 134


Small Business Size Regulations; 8(a) Business Development/Small 
Disadvantaged Business Status Determinations; Rules of Procedure 
Governing Cases Before the Office of Hearings and Appeals

AGENCY: Small Business Administration.

ACTION: Proposed rule.

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SUMMARY: In response to President Clinton's government-wide regulatory 
reform initiative and the Department of Justice's review of Federal 
procurement affirmative action programs, the Small Business 
Administration (SBA) proposes to amend both the eligibility 
requirements for, and contractual assistance provisions within, the 
SBA's 8(a) Business Development (8(a) BD) program. The proposed rule 
would change the name of the program from the Minority Small Business 
and Capital Ownership Development program to the 8(a) BD program to 
better reflect the purpose of the program. This rule is designed to 
streamline the operation of the 8(a) BD program, to ease certain 
restrictions perceived to be burdensome on Program Participants, to 
clarify certain eligibility requirements, and to delete obsolete 
regulations.

DATES: Comments must be submitted on or before October 14, 1997.

ADDRESSES: Written comments should be addressed to William Fisher, 
Acting Associate Administrator for Minority Enterprise Development, 
U.S. Small Business Administration, 409 3rd Street, SW., Suite 13, 
Washington, DC 20416.

FOR FURTHER INFORMATION CONTACT: Arthur E. Collins, Jr., Assistant 
Administrator for Program Development, Office of Minority Enterprise 
Development, at (202) 205-6410.

SUPPLEMENTARY INFORMATION: On March 4, 1995, President Clinton issued a 
Memorandum to federal agencies, directing them to simplify their 
regulations. In response to this directive, SBA completed a page-by-
page, line-by-line review of all of its then existing regulations to 
determine which might be revised or eliminated. Revisions to 13 CFR 
Part 124 awaited a review of all Federal procurement affirmative action 
programs by the Department of Justice (DOJ). On May 23, 1996, DOJ 
published in the Federal Register a comprehensive proposal for 
tailoring affirmative action programs in the Federal procurement arena 
(see 61 FR 26042), and on May 9, 1997 the Department of Defense, the 
General Services Administration, and the National Aeronautics and Space 
Administration proposed amendments to the federal Acquisition 
Regulation (FAR) concerning programs for small disadvantaged business 
(SDB) concerns. In response to and in conjunction with the DOJ and FAR 
reform proposals, SBA proposes specific amendments to 13 CFR Part 124, 
its regulations governing the 8(a) Business Development (8(a) BD) 
program which is authorized by sections 7(j)(10) and 8(a) of the Small 
Business Act, 15 U.S.C. 636(j)(10), 637(a) (contained in subpart A of 
part 124), and those relating to the certification and protest of small 
disadvantaged businesses (subpart B of part 124). For the most part, 
SBA's proposed changes in response to the DOJ and FAR proposals are 
contained in subpart B of part 124. At the same time, SBA also proposes 
to streamline the entire Part 124, and to make several substantive 
changes in part A of the 8(a) BD regulations where needed. SBA also 
proposes to make changes to SBA's size regulations (part 121) to permit 
size protests and appeals of Standard Industrial Classification (SIC) 
code designations in connection with 8(a) competitive procurements, and 
to exclude certain joint venture arrangements from SBA's affiliation 
rules. These latter changes should increase the potential pool of small 
businesses available to compete for particular procurements. SBA 
believes that this change should encourage contracting officers to 
consider small business contractors more closely before determining a 
procurement strategy. Finally, this proposed rule would transfer the 
procedures relating to certain statutorily authorized appeals in the 
8(a) program from part 124 to part 134 of 13 CFR.
    In response to the DOJ review of Federal affirmative action 
procurement programs, this rule would develop standards and procedures 
by which a firm can apply to be recognized as a small disadvantaged 
business (SDB). Under the proposal, private sector organizations or 
business concerns (called Private Certifiers when approved by SBA) 
would determine whether a firm is owned and controlled by specified 
individuals claiming to be disadvantaged. Use of the term ``Private 
Certifier'' is not meant to exclude state agencies from applying for 
and receiving Private Certifier status. Once a firm receives a 
determination that it is owned and controlled by the individual(s) 
claiming to be disadvantaged from a Private Certifier (or from SBA if a 
Private Certifier is not reasonably available), it would be required to 
submit evidence of that determination to the appropriate procuring 
agency, or to SBA if the agency has an agreement with SBA, for a 
disadvantaged status determination and SDB certification. Individuals 
that are members of designated groups would be presumed to be socially 
and economically disadvantaged. Other individuals would be required to 
submit a narrative statement identifying personally how their entry 
into or advancement in the business world has been impaired because of 
their individual social disadvantage, and how their ability to compete 
in the free enterprise system has been impaired due to diminished 
capital and credit opportunities. These standards and procedures would 
be completely separate from the 8(a) BD requirements and contained in 
an entirely rewritten subpart B to part 124. The rule would develop 
procedures for placing firms on and removing them from an SBA-
maintained on-line register of certified SDBs. It would also provide 
regulatory authority for SBA, in its discretion, to limit 8(a) BD 
program entry, accelerate program graduation, and limit the numbers of 
8(a) contracts available as a means of responding to benchmark 
achievements in particular industries.
    The proposed rule is also designed to streamline the operation of 
the 8(a) BD program, to ease certain restrictions perceived to be 
burdensome on Participants, to amend certain eligibility procedures, 
and to delete obsolete regulations. SBA considered the need for each 
section of its current regulations in developing this proposal. Any 
regulatory provisions that SBA deemed duplicative are proposed to be 
removed, while those that appeared wordy or unclearly written have been 
rewritten in this proposed rule. The proposed rule also reorganizes the 
regulations into identifiable substantive areas for ease of use and 
clarity. The proposed unnumbered substantive category headings within 
subpart A of part 124 would be: Provisions of General Applicability; 
Eligibility Requirements for Participation in the Minority Enterprise 
Development Program; Applying to the 8(a) BD Program; Exiting the 8(a) 
BD Program; Business Development; Contractual Assistance; Miscellaneous 
Reporting Requirements; and Management and Technical Assistance 
Program. The proposed rule would also change all references to SBA's 
Office of Minority Small Business and Capital Ownership Development 
(MSB&COD) to the Office of 8(a) Business Development to

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emphasize that individuals participating in the program need not be 
members of minority groups and the stress the importance of assisting 
participating firms in their overall business development.
    SBA has attempted to rewrite the regulations in plain English 
wherever possible. To this end, SBA has written proposed section 
headings in question format for ease of use, and has tried to eliminate 
all unnecessary verbiage from the regulations.
    This proposed rule would amend eligibility procedures for admission 
to the 8(a) BD program and also amend contractual assistance provisions 
within the 8(a) BD program. Of particular note, this rule would 
liberalize the standard of review for non-group members seeking 
disadvantaged status from a clear and convincing evidence test to a 
preponderance of the evidence standard, eliminate the requirement that 
a Participant must have specified SIC codes approved by SBA in its 
business plan in order to be eligible for 8(a) contracts, establish 
consistent remedial measures for firms that do not meet their 
competitive business mix targets, ease certain joint venture 
restrictions, and establish a mentor/protege program for developing 
8(a) Participants.
    This rule would clarify that 8(a) BD eligibility decisions are 
based on the facts before the Associate Administrator for 8(a) Business 
Development (AA/8(a)BD) at the time of his/her eligibility decision. 
The rule would specify that actual control of the applicant concern 
must be in the hands of one or more socially and economically 
disadvantaged individuals at the time the appropriate field office of 
the Division of Program Certification and Eligibility (DPCE) determines 
that an application for the 8(a) BD program is complete. Potential 
control or the power of disadvantaged individuals to change the 
applicant concern's Board of Directors or other aspects of control so 
that the applicant concern could be controlled by disadvantaged 
individuals, no matter how easily exercised, would not satisfy the 
requirement that the applicant be actually controlled by disadvantaged 
individuals at the time the DPCE field office determines an application 
to be complete. SBA believes that potential abuses would be greatly 
lessened by the clarifications made in this rule.
    This proposed rule would also make changes, as needed, in various 
other eligibility and 8(a) contracting requirements. These changes are 
identified below in the section by section analysis of this proposed 
rule. Further, several typographical errors or inadvertent omissions 
would be corrected by this proposed rule. Finally, several obsolete 
references would be eliminated.
    SBA invites comments on the proposed rule, and on any additional 
ways to improve the 8(a) BD program.

Section By Section Analysis

    The following is a section by section analysis of each provision of 
SBA's regulations that would be affected by this proposed rule:
    Section 121.103 would be amended so that certain joint venture 
arrangements would be excluded from the normal affiliation rules. The 
purpose of the proposal is to encourage contracting officers to use 
small business contractors to a greater extent. With the consolidation 
of procurements becoming an increasing reality, some contracting 
officers may feel that requirements are too big for small business to 
perform successfully. The proposed rule would permit two or more small 
business concerns to joint venture for a particular procurement and be 
considered a small business concern so long as each concern 
individually was small. In other words, the joint venture would receive 
an exclusion from the normal affiliation rules. SBA would not apply the 
exclusion to all procurements, but, rather, only to higher dollar value 
procurements where the likelihood that individual small business 
concerns can successfully offer on and perform the requirement is 
reduced. A large business could not, however, split into two smaller 
business entities under the same control in order to joint venture for 
a particular procurement reserved for small business.
    Specifically, under the proposal, a joint venture of two or more 
business concerns could submit an offer as a small business for a non-
8(a) federal procurement without regard to affiliation based on the 
joint venture arrangement so long as each concern is small under the 
size standard corresponding to the SIC code assigned to the contract 
where the procurement exceeded a specified dollar amount. For a 
procurement having a revenue-based size standard, the affiliation 
exclusion would apply if the procurement exceeds half the size standard 
corresponding to the SIC code assigned to the contract. For a 
procurement having an employee-based size standard, the affiliation 
exclusion would apply if the procurement exceeds $10 million. This same 
rule would apply to competitive 8(a) procurements, with two additional 
requirements. Pursuant to proposed Sec. 124.512(b), in order to receive 
the exclusion from affiliation, there must be at least one 8(a) concern 
to the joint venture which is smaller than one half the size standard 
corresponding to the SIC code assigned to the procurement, and at least 
51% of the work under the joint venture must be done by one or more of 
these smaller 8(a) firms.
    The proposed rule also would amend the size regulations to permit 
firms approved by SBA under Sec. 124.519 to be a mentor and protege to 
submit an offer as a joint venture and be considered a small business, 
provided the protege qualifies as small for the size standard 
corresponding to the procurement.
    Sections 121.1001(a) and 121.1103(a) would be amended to permit 
size protests and appeals of Standard Industrial Classification code 
designations, respectively, in connection with competitive 8(a) 
procurements. SBA believes that competitive 8(a) procurements should as 
closely parallel normal Government contracting procedures as possible. 
Size protests and SIC appeals would still not be available for sole 
source 8(a) contracts.
    Section 124.1 would be amended to delete unnecessary and 
duplicative language.
    Section 124.1(b) would be deleted as a separate subsection. The 
substance of paragraph (b)(1) would be transferred to Sec. 124.501.
    Present Sec. 124.2 would be deleted as unnecessary, administrative 
material.
    Present Sec. 124.3 would be deleted as unnecessary, administrative 
material.
    Present Sec. 124.4 would be deleted as obsolete since the 
Commission on Minority Business Development completed its task and no 
longer exists.
    Section 124.5 would be deleted as unnecessary since proposed 
Sec. 124.108(a) would provide for a review of an individual's 
character.
    Section 124.6 would be deleted and the substance of paragraph (b) 
transferred to part 121 of this title for misrepresentations relating 
to size status, and Sec. 124.501(i) for those relating to disadvantaged 
status.
    Section 124.7 would be eliminated as duplicative of Part 103 of 
this title and Subpart 3.4 of the Federal Acquisition Regulation (FAR), 
Title 48 of the Code of Federal Regulations.
    Section 124.100 would be redesignated as Sec. 124.3. Those 
definitions that SBA deemed to be unnecessary or obsolete due to other 
changes in the proposed rule would be eliminated from this section. 
Also, the definition of ``Unconditional ownership'' in present 
Sec. 124.100 would be amended. The revised definition would explain 
that a disadvantaged

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owner may use his or her ownership interest (e.g., stock) in an 
applicant or Participant concern as collateral for financing during the 
normal course of business without affecting his or her 
``unconditional'' ownership in such concern, provided that complete 
control of the ownership interest remains with the disadvantaged owner 
absent any default in fulfilling the terms of the financing. However, 
events of default must be defined in commercially reasonable ways. 
Events of default beyond those that are deemed commercially reasonable 
could lead to a conclusion that unconditional ownership is not in the 
hands of the disadvantaged owner. This clarification is not intended to 
require a concern to obtain financing through a financial institution 
or to preclude, for example, seller-financed transactions. It is 
intended only to permit financing terms that are reasonable within the 
marketplace. This change is essential to ensure that applicants and 
Participant concerns have the flexibility they need to raise necessary 
capital. The requirement that disadvantaged owners ``unconditionally'' 
own and control an applicant or Participant concern would thus be 
clarified so as to not restrict a firm's ability to raise capital under 
normal commercial terms and conditions to assist it in becoming viable.
    Present Sec. 124.100 would be amended further to correct a 
typographical error in the definition of ``Primary industry 
classification.''
    Section 124.101 would be amended by rewording it for clarity, by 
transferring the requirement for written eligibility decisions to new 
Sec. 124.204(d), and by deleting paragraph (c), which is generally 
contained in redesignated Sec. 124.112(c). The provisions relating to 
reconsiderations would be written more plainly. An applicant denied 
8(a) BD admission based solely on reasons of social disadvantage, 
economic disadvantage, ownership or control would still have the right 
to appeal to SBA's Office of Hearings and Appeals (OHA), and all 
applicants would continue to have the right to reapply in 12 months 
from the Agency's final decision denying program admission.
    The portion of Sec. 124.101(a) concerning reconsideration and that 
concerning appeal rights is duplicative of language currently contained 
in Secs. 124.206(c) (1) and (2), respectively. SBA believes that it is 
not needed in both places. In this rule, reconsiderations would appear 
only in proposed Sec. 124.205, while appeal rights would appear only in 
proposed Sec. 124.206. The first sentence of current Sec. 124.101(b) 
would be transferred to proposed Sec. 124.112, and the remainder of 
this paragraph would be deleted as obsolete.
    Sections 124.102 (a) and (b) would be amended by eliminating 
obsolete references. The proposed rule would further amend Sec. 124.102 
by transferring the substance of paragraph (c) to proposed Sec. 124.112 
and by transferring the substance of paragraph (d) to proposed 
Sec. 124.501(h).
    Section 124.103 would be amended by redesignating it as 
Sec. 124.105 and by adding a new paragraph (a) that would require 
direct ownership of 8(a) BD applicants or Participants by disadvantaged 
individuals. This statutory requirement is currently set forth in 
Sec. 124.109, but SBA believes that it should be added to this section 
for clarification purposes. SBA, however, recognizes the existence of 
current trust and estate planning techniques, such as living trusts, 
and invites comments on whether and, if so, how its ownership rules can 
be liberalized to permit trust-owned concerns in the 8(a) BD program in 
limited instances without violating the statutory requirement that 8(a) 
BD concerns be owned by individuals, and also without permitting abuses 
in the program.
    Present Secs. 124.103 (a) and (b) would be redesignated to become 
Secs. 124.105 (b) and (d). A new paragraph (c) would be added for 
limited liability companies. Present Secs. 124.103 (c) and (d) would be 
consolidated into proposed Sec. 124.105(e).
    Pursuant to proposed Secs. 124.105 (g) and (h), SBA would aggregate 
the ownership interests of a business concern and its principal(s) in 
determining whether a non-disadvantaged individual or business concern 
exceeds the 10 percent equity ownership limitations (or, in the case of 
a former Participant, the 20 percent equity ownership limitations) 
established by present Secs. 124.103 and 124.104.
    Proposed Sec. 124.105(i) would make clear that a 8(a) BD concern 
may substitute one disadvantaged individual for another without 
invoking the termination for convenience/waiver provision of present 
Sec. 124.317 (redesignated as Sec. 124.514 in the proposed rule) with 
respect to any 8(a) contracts that it has been awarded. Provided 
program eligibility is maintained and SBA approves a substitution of 
one disadvantaged individual for another, performance of 8(a) contracts 
already received could continue without seeking a waiver under present 
Sec. 124.317. SBA believes that the statutory termination for 
convenience/waiver provision did not intend to prohibit the performance 
of an 8(a) contract by the Participant concern that initially received 
it simply where there has been one or more approved changes of 
particular individuals upon whom eligibility of the concern was based. 
This change is necessary to apprise procuring agencies and Participant 
concerns that termination of 8(a) contracts is not required in such 
instances.
    This proposed rule would also add a new Sec. 124.105(k), requiring 
that SBA consider applicable state community property laws on the 
respective ownership interests in an applicant concern or a 
Participant. This revision would not be a change in current SBA policy.
    Section 124.104 would become proposed Sec. 124.106 and its 
introductory text would be amended to clarify that the applicant 
concern must be actually controlled and managed by a disadvantaged 
individual. The unexercised right of the disadvantaged individual to 
bring about a change in the control or management of the applicant 
concern is not adequate to satisfy this requirement.
    Proposed Sec. 124.106(a) would be reorganized for greater clarity 
and easier use. Of particular note, Sec. 124.106(a) would be amended to 
specify that one or more disadvantaged individuals who are determined 
to manage the applicant or Participant concern must devote full-time to 
the business during normal business hours. This means that a 
disadvantaged individual must be physically located at the offices of 
the applicant or Participant concern during most normal business hours, 
or devoting his or her full time efforts to the business away from its 
offices through marketing and outreach. The term ``normal business 
hours'' is intended to mean that the applicant or Participant concern 
be open during the normal 40 hour work week of most business concerns. 
Thus, an applicant would not meet this requirement if its disadvantaged 
owner was present at the applicant's offices only at night or on the 
weekends and worked outside the applicant during its normal business 
hours. This rule does not imply that business activities of the 
applicant or Participant concern could not be conducted by such 
individual(s) outside the offices of the applicant or Participant 
concern, nor does it prohibit a disadvantaged individual from 
establishing a Participant concern at his/her home. Although this 
proposed revision does not mean that the disadvantaged individual who 
manages the applicant or Participant concern

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cannot leave the concern's premises to conduct business, it does mean 
that one or more disadvantaged owners must devote full-time to the 
business of the applicant or Participant concern. Under this proposed 
amendment, SBA would not permit an individual to be physically located 
at a job which is separate and distinct from the applicant or 
Participant concern during normal business hours and claim that he or 
she is managing the applicant or Participant concern from that 
location.
    In addition, proposed Sec. 124.106 would eliminate the requirement 
that the disadvantaged owner(s) have, in every instance, the technical 
expertise in the primary business classification of the applicant or 
Participant. The rule would simply require that disadvantaged managers 
must demonstrate that they have managerial experience to an extent and 
complexity necessary to run the applicant or Participant. SBA believes 
that sufficient management experience may be enough to overcome certain 
technical deficiencies in a manager.
    The proposed rule would add a new paragraph (b) clarifying the 
control requirements for a partnership. The rule would require that one 
or more disadvantaged individuals must serve as general partners, with 
control over all partnership decisions. A partnership in which no 
disadvantaged individual is a general partner would be ineligible for 
8(a) BD participation. The proposed rule would add a new paragraph (c) 
for limited liability companies.
    Redesignated Sec. 124.106(d) would be amended along the lines set 
forth above for proposed Sec. 124.101. This amended paragraph would 
specify that the Board of Directors must actually be controlled by 
disadvantaged individuals. The ability of a disadvantaged individual to 
control the Board of Directors indirectly through his or her right to 
vote his or her stock (i.e., the power to remove and replace directors) 
would not be sufficient to establish control of the Board of Directors 
if non-disadvantaged individuals on the Board of Directors could 
control, or assert negative control on, the Board as currently 
structured at the time of the application for admission to the 8(a) BD 
program. Further, a quorum would require the presence of disadvantaged 
individual(s) upon whom eligibility is based, and could not be 
established to permit non-disadvantaged Directors to control the Board 
of Directors. This paragraph would also provide that non-voting, 
advisory or honorary Directors as well as Executive Committees may be 
appointed so long as they do not possess negative control over the 
Board or have the power to independently exercise the authority of the 
Board between Board meetings. Similarly, a separate board of advisors, 
particularly in the context of tribally-owned applicants and 
Participant concerns, could be established provided such board of 
advisors could not actually run the day-to-day operations of, or 
possess negative control over, the applicant or Participant business 
concern.
    The proposed rule would revise redesignated Sec. 124.106(e) 
(present Sec. 124.104(c)) to clarify that principals of corporations or 
partners in a partnership are encompassed within the term ``former 
employer.'' Although a corporation or a partnership may technically be 
the former employer of a disadvantaged individual, a principal or 
partner (general or limited) with greater than a 20% interest would be 
treated as though he or she were the actual employer given their 
potential to exert considerable influence over the individual upon whom 
8(a) BD eligibility is based.
    The requirements pertaining to social disadvantage would be moved 
from present Sec. 124.105 to proposed Sec. 124.103. Paragraph (b) would 
be amended to clarify that the presumption of social disadvantage for 
members of designated groups is a rebuttable presumption. In addition, 
redesignated Sec. 124.103(c) (present Sec. 124.105(c)) would be amended 
to require an individual who is not a member of a designated socially 
disadvantaged group to establish his or her social disadvantage by a 
preponderance of evidence presented in the 8(a) BD application. This is 
a change from the current regulation which requires that an individual 
who is not a member of a designated group establish his or her social 
disadvantage on the basis of clear and convincing evidence.
    SBA asks for comments on how better to define specific designated 
groups other than by requiring ``origins from'' specific countries. The 
rule makes clear that ancestral country of birth alone is not 
sufficient to make that country an individual's country of origin for 
membership in a designated group, but SBA believes a heritage or 
cultural requirement may be preferable to the ``origins'' requirement. 
SBA also specifically seeks comments regarding how an individual who is 
a member of a designated group can overcome his or her social 
disadvantage. The proposed rule states that the presumption of social 
disadvantage may be overcome with significant, credible evidence to the 
contrary, and SBA seeks comments on its application.
    Proposed Sec. 124.103(c)(2)(ii) would require that the social 
disadvantage experienced by a non-group member be ``longstanding.'' 
This clarification would not change the substance of SBA's practice in 
this area.
    Proposed Sec. 124.103(c)(2)(iii) (present Sec. 124.105(c)(1)(v)) 
would be amended to clarify that, in evaluating whether an individual's 
social disadvantage has had a negative impact on his or her entry into 
and/or advancement in the business world, SBA will entertain any 
relevant evidence, but would always consider the experiences of the 
individual, where applicable, in education, employment and business 
history. The failure to establish such disadvantage in any one or even 
two areas (i.e., education, employment, or business history) would not 
prevent an individual from meeting this requirement of negative impact 
as long as the totality of the circumstances experienced by the 
individual demonstrate such disadvantage.
    The proposed rule would move the economic disadvantage requirements 
from Sec. 124.106 to proposed Sec. 124.104. Under the proposed rule, in 
evaluating whether an individual is economically disadvantaged, SBA 
would focus solely on the personal financial condition of the 
individual. Factors in the current regulation pertaining to the 
financial condition of the applicant concern and the applicant 
concern's access to credit and capital would be eliminated as separate 
requirements. The financial condition of the applicant concern would be 
considered, but only in evaluating the individual's access to credit 
and capital. The authorizing legislation for the 8(a) BD program 
specifies that Participants must be owned and controlled by socially 
and economically disadvantaged individuals. It requires SBA to consider 
how the ability of socially disadvantaged individuals to compete in the 
free enterprise system has been impaired due to diminished capital and 
credit opportunities, but directs SBA to consider factors such as total 
assets and net worth in assessing the degree of diminished capital and 
credit opportunities. See 15 U.S.C. 637(a)(6)(A). The proposed rule 
would clarify that these factors would continue to be the focus of 
SBA's analysis of economic disadvantage.
    The proposed rule would retain the current net worth limitations of 
$250,000 for initial 8(a) BD eligibility, $750,000 for continued 8(a) 
BD eligibility, and $750,000 for SDB eligibility. The proposed 
regulation would further clarify that a contingent

[[Page 43588]]

liability does not reduce an individual's net worth.
    The proposed rule would provide that assets transferred by an 
individual claiming disadvantaged status to any immediate family member 
within two years prior to the date of application to the 8(a) BD 
program would be presumed to be the property of the individual claiming 
disadvantaged status. Currently, property or assets transferred by an 
individual claiming disadvantaged status to a spouse within two years 
of the date of 8(a) BD application is presumed to be the property of 
the transferor, but current regulations are silent as to property or 
assets transferred to children or other close family members. Several 
applicants may have circumvented eligibility requirements by such 
transfers. SBA believes that it should restrict this practice, lest it 
allow firms into the 8(a) BD program that should be considered 
ineligible.
    The proposed rule would require an individual claiming 
disadvantaged status to disclose to SBA all transfers of funds or other 
assets to any immediate family member and to a trust the beneficiary of 
which is one or more immediate family members for purposes of continued 
program eligibility. At the time of the Participant's annual review, 
each individual claiming disadvantage status would have to certify that 
he or she made no transfers of assets to immediate family members 
within two years, or that he or she made no transfers to immediate 
family members within two years except as described on an attached 
sheet. Any transfers within two years would be attributed to the 
transferor in determining his or her continued economic disadvantage. 
SBA is considering extending this requirement beyond immediate family 
members so that any transfers for less than fair market value (e.g., 
gifts to charities) would be attributable to the transferor.
    Proposed Sec. 124.107 would clarify the potential for success 
requirements, without changing them substantively. Discussion of an 
applicant concern's access to credit and capital, currently handled 
under economic disadvantage in Sec. 124.106(a)(2)(iii), would be moved 
to proposed Sec. 124.107(c), and several other paragraphs would be 
revised for clarity and ease of use.
    Section 124.108 would be amended for clarity. Proposed 
Sec. 124.108(a)(4) would make an applicant to the 8(a) BD program 
ineligible for program participation if the proprietor, a partner, a 
director, officer or a holder of at least 10 percent of the stock, or a 
key employee, is currently incarcerated, on parole or on probation 
pursuant to a pre-trial diversion or following conviction for a felony 
or any crime involving business integrity. This provision parallels a 
similar provision in Part 120 of SBA's regulations, dealing with 
ineligibility for SBA financial assistance. It would also now include a 
new paragraph (c) that states that any wholesaler that applies for 8(a) 
BD participation need not demonstrate that it can supply the product of 
a small business manufacturer. Although SBA's nonmanufacturer rule 
generally requires a regular dealer or wholesaler to supply the product 
of a small business in order to be considered small for a specific 8(a) 
or small business set aside procurement), the 8(a) BD program should 
not be viewed solely as a contracting program. There is other business 
development assistance available to Participants which should not be 
foreclosed because of the nonmanufacturer rule. Moreover, the 
availability of small business manufactured products can change 
significantly over a Participant's program term. Wholesaler applicants 
to the 8(a) BD program should be aware, however, that they must meet 
the requirements of the nonmanufacturer rule in order to be awarded 
specific 8(a) contracts.
    In addition, a new Sec. 124.108(d) would be added that would 
authorize SBA, in its discretion, to reject an application if the 
applicant's primary industry classification falls within an industry 
where actual participation by disadvantaged businesses in Government 
contracting in a particular industry exceeds the benchmark limitations 
established under the DOJ proposal by the Department of Commerce for 
that industry. SBA would consider the developmental needs of the firm, 
as well as contracting opportunities outside its primary SIC code. A 
firm whose application was rejected on this basis could resubmit its 
application earlier than the normal 12 month waiting period whenever 
the benchmark was adjusted or a determination made that the benchmark 
was no longer exceeded. Similar language regarding the achievement of 
benchmarks in a particular industry would also be added to new 
Secs. 124.302(c) and 124.403(c) to permit SBA to accelerate graduation, 
and would be added to Sec. 124.504(d) to permit SBA not to accept an 
8(a) offering in an industry in which the benchmark is achieved.
    The proposed rule would delete current Sec. 124.109. Some of these 
provisions are duplicative of other sections of part 124, or part 121, 
or the Federal Acquisition Regulation. A few have been incorporated 
elsewhere in this proposed rule. The rule also proposes to delete 
franchisees as businesses that are ineligible (i.e., making them 
eligible) for 8(a) BD participation.
    Current section 124.110 would be clarified, streamlined, and 
redesignated as proposed Sec. 124.2.
    Proposed Sec. 124.112(c) repeats the current provision (current 
Sec. 124.111(d)) that SBA will review a Participant's eligibility upon 
receipt of information that the Participant no longer meets continued 
8(a) eligibility requirements. The proposed rule requires that the 
information received be ``specific'' and ``credible.'' Under the 
proposed rule, sufficient reasons for SBA to conclude that a 
Participant is no longer economically disadvantaged include, but are 
not limited to, demonstrated access to a significant new source of 
capital or loans, an unusually large amount of funds or other assets 
withdrawn from the concern by its owners, or substantial personal 
assets, income or net worth of any disadvantaged owner. The term 
``excessive withdrawals'' is defined elsewhere in the proposed 
regulation at Sec. 124.303(a)(13). SBA asks for comments on how better 
to clarify a ``demonstrated access to a significant new source of 
capital or loans.''
    Proposed Sec. 124.112 would also add needed enforcement mechanisms 
to the existing regulation discouraging excessive withdrawals from 
Participants by their owners or managers. Certain Participants have 
suggested that, if net worth continues to increase, large withdrawals 
should be allowed as not detrimental to attainment of their business 
objectives. SBA disagrees, and believes this restriction is necessary 
to safeguard the development of Participant concerns toward economic 
viability. Participants will increase their net worth more and will 
achieve greater success if they avoid excessive withdrawals by their 
owners and managers.
    Section 124.112, redesignated as proposed Sec. 124.109, eliminates 
the present paragraph (c)(2)(iv) which previously allowed a Participant 
owned by an Indian tribe to joint venture with a large concern to 
perform an 8(a) contract. The statutory authority for this provision 
has expired. Proposed Sec. 124.109 also would delete other obsolete and 
duplicative provisions. Additionally, it would eliminate the 
requirement that a tribally-owned or ANC-owned concern demonstrate that 
the primary economic benefits of the concern accrue to the tribe or ANC 
by

[[Page 43589]]

being located on tribally-owned or ANC-owned land or otherwise. SBA has 
previously interpreted the requirement as not applying to ANC-owned 
concerns, but believes that it should also not apply to tribally-owned 
concerns. In other ways the proposed rule would treat tribes and ANCs 
and their 8(a) entities more similar. Tribes and ANCs would be 
restricted from qualifying a new 8(a) concern possessing the same 
primary SIC as another 8(a) concern only if the other concern has been 
operating in the 8(a) program within the previous two years. Finally, 
it would more narrowly focus management restrictions on tribally-owned 
concerns to enhance development opportunities.
    Section 124.113, redesignated as Sec. 124.110, would add an 
exclusion from affiliation for concerns owned by a Native Hawaiian 
Organization, prohibit a Native Hawaiian Organization from owning more 
than one current or former Participant having the same primary industry 
classification, and exclude from the one-time individual eligibility 
requirement any individual who merely manages a concern owned by a 
Native Hawaiian Organization. These changes would achieve consistency 
with restrictions on other non-individual owners.
    The proposed rule would redesignate Sec. 124.114 as Sec. 124.111. 
Equating CDCs with Indian tribes, the proposed rule would permit 
concerns that are at least 51% owned by a wholly owned business entity 
of a CDC to be eligible for 8(a) BD participation.
    It would amend Sec. 124.201 by deleting the last sentence of this 
section which became obsolete when waivers to the two year in business 
rule were statutorily required, and amend section 124.202 to revise 
obsolete language and clarify its meaning. It would transfer 
Sec. 124.203 to the sections pertaining to business development, 
redesignating it as proposed Sec. 124.401.
    It would delete Sec. 124.204 as duplicative of language in other 
sections of part 124, and redesignate Sec. 124.205 as Sec. 124.203.
    Section 124.206, redesignated as proposed Sec. 124.204, would 
delete duplicative language from paragraph (a), which is contained in 
proposed Sec. 124.206, and add new proposed Secs. 124.204 (b) and (c). 
For further clarity, this section would delete obsolete and duplicative 
language in current Secs. 124.206 (b) and (c), and redesignate current 
Sec. 124.206(c)(4) as a separate proposed Sec. 124.207.
    Proposed Sec. 124.204(b) would further clarify that the AA/8(a)BD's 
decision to approve or decline an application for 8(a) BD program 
participation would be based on whether the applicant concern complied 
with each of SBA's eligibility criteria at the time the concern's 
application for admission to the 8(a) BD program is deemed to be 
complete by the DPCE field office. A change in circumstances submitted 
by an applicant concern subsequent to the date that an application is 
deemed to be complete by the DPCE field office would not be considered, 
unless it causes a loss of eligibility. The structure of the concern, 
including all necessary corporate or other organizational formalities, 
would have to be in place prior to the DPCE field office's processing 
of an application. A disadvantaged individual's ability to immediately 
change the applicant's structure or cause a change in its control so 
that actual control of the concern is in the hands of disadvantaged 
individuals and/or other eligibility criteria are met would not satisfy 
the requirement that they be met at the time of the completed 
application. The rule would specify, however, that SBA, in its sole 
discretion, could request clarification of information contained in the 
application at any stage in the application process. SBA would 
obviously consider any information submitted in response to a request 
by SBA.
    The decision of the AA/8(a)BD to approve or decline an application 
for 8(a) BD program admission would then be based on whether the 
application, as clarified by any information submitted in response to a 
request by SBA, demonstrates that the applicant concern complies with 
each of SBA's eligibility criteria. While SBA would be able to request 
and consider additional information in processing an 8(a) BD 
application, SBA would not consider information volunteered by an 
applicant concern after it submits its application. This clarification 
is needed to streamline the application process and ensure that SBA 
meets its statutorily imposed time limitation for processing 
applications.
    The proposed rule would redesignate Sec. 124.207 as Sec. 124.301, 
amend redesignated Sec. 124.302 by revising obsolete references, and 
specifically authorize a Participant to voluntarily ``graduate'' prior 
to the expiration of its program term.
    The examples of what constitutes ``good cause'' for terminating a 
Participant from the 8(a) BD program would be amended from current 
Sec. 124.209(a) in proposed Sec. 124.303. Several examples of good 
cause previously listed for terminating a Participant would be dropped 
in the proposed rule and a few new examples would be added. As before, 
the examples of ``good cause'' are illustrative only. SBA's decision to 
drop several examples of good cause should in no way be read to infer 
that SBA no longer considers those situations as valid reasons for 
termination. That is not SBA's intent. The proposed rule would also 
define what constitutes an ``excessive'' withdrawal for purposes of 
determining whether termination is warranted.
    The procedures for graduation and termination currently contained 
in Secs. 124.208 and 124.209 would be combined into proposed 
Sec. 124.304 to eliminate unnecessary duplication and clarify confusing 
language. The term graduation previously used in the regulations would 
be changed to ``early graduation.'' Through the years, many people have 
used the terms ``graduation,'' ``graduation date,'' and ``graduated 
8(a) firm'' to describe the situation where a Participant has exited 
the 8(a) BD program through nothing more than the expiration of its 
program term. This proposed rule would recognize the use of the term 
graduation in this context, and would refer to graduation prior to the 
expiration of a firm's program term under proposed Secs. 124.302 and 
124.304 as ``early graduation.''
    Where an SBA district office initiates early graduation or 
termination by sending a Notification of Early Graduation or 
Termination to the concern, the allowable response time would be 
reduced from 45 days to 30 days after service of the Notification (the 
date that it is mailed, FAXed or hand delivered to the concern). SBA 
would then review any information submitted by the concern. If the 
Assistant Administrator of the DPCE decides that early graduation or 
termination is not appropriate, he or she will notify the concern. If 
it appears appropriate, the Assistant Administrator will forward that 
recommendation to the AA/8(a)BD for a final decision. SBA will not take 
early graduation lightly, but will initiate it in appropriate 
circumstances. As part of the early graduation process, SBA will also 
attempt to reduce any adverse impact on the Participant's business 
development.
    Current section 124.210 would be eliminated as a separate section 
setting forth all appeal rights to SBA's Office of Hearings and Appeals 
for the 8(a) BD program. Appeal rights for denials of 8(a) BD 
eligibility would be contained in proposed Sec. 124.206, while the 
appeal rights for early graduation, termination, suspension, or denial 
of a request for waiver under current Sec. 124.317 would

[[Page 43590]]

be contained in the proposed sections dealing with those substantive 
areas. A minor revision would be made to the first sentence of 
paragraph (b), and a new second sentence added to clarify that an OHA 
decision is the final Agency decision. The remainder of paragraph (b) 
and paragraphs (c), (d), (e), (f), (g), (h), (i), and (j) would be 
moved from part 124 to a new subpart C of part 134 of this chapter.
    Current section 124.211 would be redesignated as proposed 
Sec. 124.305. Redesignated Sec. 124.305 would be amended to revise 
obsolete references, and reorganized to transfer procedural rights for 
OHA appeals to part 134 of this title. The period to file an appeal 
would be extended from 30 to 45 days to be consistent with part 134. 
SBA is also considering ``suspension'' as a tool where ownership or 
control changes and a Participant seeks approval of its changed 
ownership or control. Where ownership or control of a Participant 
changed prior to SBA's approval, and the Participant seeks SBA's 
approval after the fact, SBA would suspend the Participant pending 
SBA's resolution of the request to change its ownership or control.
    The proposed rule would separate general business development 
provisions and those dealing with contractual assistance into two 
distinct substantive categories. Thus, the provisions currently 
contained in Secs. 124.300-124.321 would be separated into Business 
Development (proposed Secs. 124.401-124.405) and Contractual Assistance 
(proposed Secs. 124.501-124.519). Most of these provisions would be 
reorganized and/or clarified under the proposed rule.
    Section 124.300 would be deleted from the final rule as 
unnecessary.
    Section 124.301 (proposed Sec. 124.402) would be divided into more 
subheadings for ease of use. It would eliminate the requirement that a 
Participant must have specified SIC codes in its approved business plan 
(other than the entry requirement that an applicant must identify its 
primary SIC code for initial size eligibility), and no longer treat a 
concern as ineligible for any 8(a) contracting opportunity for which a 
contracting officer has assigned a SIC code not in its approved 
business plan. SBA believes that a Participant should not be denied the 
opportunity to receive and perform an 8(a) contract where a procuring 
agency determines the firm to be capable to perform the requirement, 
simply because the firm does not have a particular SIC code in its 
approved 8(a) business plan. This also eliminates the need for a 
Participant to go through a sometimes lengthy and burdensome process 
seeking to add additional SIC codes to its business plan after being 
admitted to the 8(a) BD program. While an applicant would still be 
required to give a detailed description of the products it produces and 
services it performs, SBA would not prohibit the award of an 8(a) 
contract solely because a product or service is not so identified. In 
such a case, the Participant would still have to demonstrate its 
capability and other aspects of responsibility to perform the contract 
in question. As long as that burden is met, the Participant could be 
awarded the subcontract. Identifying SIC codes, however, may be 
beneficial to a concern because it will help SBA in providing business 
development assistance.
    An applicant must still identify its primary industry 
classification. This identification is needed in order to permit SBA to 
determine initial size eligibility. The requirement to submit an annual 
capability statement would be moved from the miscellaneous reporting 
requirements provision of current Sec. 124.501 to be included within 
the requirement defining how a business plan is updated (proposed 
Sec. 124.403). That part of current Sec. 124.501(a) addressing what SBA 
does with capability statements would be moved to proposed 
Sec. 124.501(e) of this proposed rule.
    Section 124.303 (proposed section 124.404) would be revised by 
eliminating obsolete references to the dates certain Participants were 
admitted to the program or received their first 8(a) contract. Those 
provisions were relevant to the length of 8(a) BD participation at the 
time Public Law 100-656 was enacted, but are not relevant today. The 
section would also be rewritten for clarity.
    The reserved sections 124.304 and 124.305 would be eliminated in 
this proposed rule.
    Section 124.306, financial assistance for skills training, would be 
eliminated from the regulations in the proposed rule because SBA has 
not received funding from Congress for this program.
    The proposed rule would add a new section 124.405, detailing how a 
Participant may obtain Federal Government surplus property. The 
authority for Participants to receive Federal surplus property was 
created in Public Law 100-656. Section 301(b) of the Business 
Opportunity Development Act of 1988, Pub. L. 100-656, 102 Stat. 3853, 
amended the Small Business Act by adding a new section 7(j)(13)(F), 15 
U.S.C. 636(j)(13)(F), which authorizes the transfer of surplus property 
owned by the Federal Government to Participants under certain 
conditions. This proposed rule would implement that authority in 
regulation form for the first time.
    The proposed rule would detail the procedures for, and conditions 
upon which, the transfer of Federal Government surplus property could 
be made to Participants. Such transfers would be made from the U.S. 
General Services Administration (GSA) through State Agencies for 
Surplus Property (SASPs) to eligible Participants. Transfers to SASPs 
from GSA would be made in accordance with the procedures set forth in 
41 CFR Part 101-44. Although the statutory language of section 
7(j)(13)(F) of the Small Business Act, 15 U.S.C. 636(j)(13)(F), 
authorizes that ``such property * * * be transferred to program 
participants on a priority basis,'' the proposed rule would permit 
Participants to participate in the surplus property distribution 
program administered by the SASPs to the same extent as, but with no 
special priority over, other authorized donees. See 41 CFR Subpart 101-
44.2. The Participant would have to certify in writing that it is 
eligible to receive the property and that it will use the property only 
for normal business activities. The Participant would have to agree to 
a fair market value assigned to the acquired property, and if the firm 
were to sell the property before one year after exiting the program, it 
would have to repay to the Federal Government the agreed upon fair 
market value of the property, or the sales price, whichever was 
greater.
    The proposed rule would detail the eligibility requirements a 
Participant must meet to obtain Federal surplus property. Generally, a 
Participant would be able to receive surplus property if it is in good 
standing with the 8(a) BD Program as of the date it is to receive the 
property. The firm would have to be in compliance with all reporting 
requirements imposed by program management, and must not have been 
debarred or suspended from receiving contracts. The firm also could not 
be the subject of any termination or early graduation proceedings. 
Finally, the firm would have to qualify as a small business for at 
least one product or service identified in its business plan that it 
produces or performs.
    Proposed Secs. 124.501-124.517 would contain most of the substance 
currently in Secs. 124.307-124.321, but in a revised organizational 
structure for easier use. Proposed Secs. 124.518 and 124.519 would be 
new provisions.
    Section 124.307 (proposed section 124.501) would be redrafted for 
clarity and revised by adding a provision

[[Page 43591]]

encouraging Participants to self-market their capabilities to increase 
their chances of receiving 8(a) sole source contracts. SBA believes 
that it is vital that Participants realize the importance of self-
marketing to their development in the 8(a) BD program. This revised 
section would also recognize that SBA may delegate its 8(a) contract 
execution function to procuring agency contracting officers where 
appropriate. It is SBA's intent to enter into a Memorandum of 
Understanding (MOU) with each procuring agency or activity that wishes 
to receive a delegation of SBA's 8(a) contract execution and review 
functions. SBA has a model MOU that would be modified according to the 
particular circumstances of each agency or activity. It would only be 
the rare case where SBA would not approve an MOU signed by an agency or 
activity. SBA would, however, have the authority to rescind the 
delegation where it saw fit. This would include cases where an agency 
or activity failed to report all 8(a) contract awards, modifications, 
and options to SBA in a timely manner.
    The proposed rule would clarify the requirements relating to offers 
and acceptances of procurements for the 8(a) BD program. Currently, 
both the offer and acceptance processes are contained in Sec. 124.308. 
The proposed rule would separate the offering provisions from the 
procedures relating to SBA's acceptance of a procurement into proposed 
Secs. 124.502 and 124.503, respectively.
    Section 124.308(c) (proposed Sec. 124.502(b)) would specify the SBA 
locations to which contracting officers must offer requirements to the 
8(a) BD program. This clarification is needed in light of other recent 
changes made by SBA in eliminating local and national buy requirements. 
Under the proposed rule, all requirements that are offered to the 8(a) 
BD program as competitive procurements and those sole source 
requirements that are offered to the program without nominating a 
specific Participant (i.e., open requirements) would be offered to the 
SBA district office serving the geographical area in which the offering 
procuring agency is located. The only exception to this provision would 
be in the case of a construction requirement where the work to be 
performed is in a different location than that of the procuring agency. 
In such a case, an offering must be made to the SBA district office 
serving the geographical area in which the work is to be performed. 
Sole source requirements that are offered to the 8(a) BD program on 
behalf of a specific Participant would be offered to the SBA district 
office serving the geographical area in which the principal place of 
business of the Participant is located.
    SBA's verification of the SIC code assigned to a particular 8(a) 
contract would be moved from Sec. 124.308(b)(1)-(2) (where it was part 
of the ``requirement identification'' process) to proposed 
Sec. 124.503(b) (where it is clearly identified as a step in SBA's 
acceptance of a procurement for the 8(a) BD program).
    The proposed rule would amend the provision dealing with formal 
technical evaluations (proposed Sec. 124.503(e)). Specifically, SBA 
would exclude Brooks Act procedures applying to architect-engineer 
services (as set forth in FAR subpart 36.6) from the general 
requirement that SBA will not authorize formal technical evaluations 
for sole source 8(a) requirements. In practice SBA has recognized the 
Brooks Act procedures, but believes that a specific provision in the 
regulations would clarify its policy in this regard.
    The proposed rule would add a new provision pertaining to Basic 
Ordering Agreements (BOAs) as a method of contracting under the 8(a) 
program (proposed Sec. 124.503(g)). Under SBA's current regulations, 
SBA believes that BOAs could be used to circumvent the statutory 
requirement that 8(a) procurements with an anticipated award value in 
excess of $3 million or $5 million be competed among eligible 
Participants. Each order issued under a BOA, and not the BOA itself, is 
a contracting action. A procuring agency could issue a series of $2-3 
million task orders under a BOA without ever competing the basic 
procurement requirement. SBA believes that this is contrary to 
Congressional intent. As such, under the proposed rule, SBA would not 
accept any task order for award as an 8(a) contract if that task order 
added to the total task orders issued to date would exceed the 
applicable competitive threshold amount, unless the BOA itself was 
awarded on the basis of competition among eligible Participants. SBA 
would also determine eligibility for an order under a BOA at the time 
of the issuance of the order. This would require a concern to remain a 
small business at the time the order is to be issued and would prohibit 
orders from being issued to concerns whose program terms have expired 
or who have otherwise exited the 8(a) BD program.
    Proposed Sec. 124.504 would clarify the circumstances limiting 
SBA's ability to accept a procurement for award as an 8(a) contract. 
Existing Secs. 124.309 (a) and (b) would be combined into one paragraph 
(proposed Sec. 124.504(a)). The proposed rule would add a new provision 
(proposed Sec. 124.504(b)) that would prohibit a procuring agency from 
initiating the competitive process for an 8(a) requirement prior to 
obtaining SBA's acceptance of the requirement for the 8(a) BD program. 
Any competition so held would not be considered an 8(a) competition. If 
a procuring agency still wanted to fulfill its requirement through the 
8(a) BD program, the requirement would have to be offered to and 
accepted by SBA for the 8(a) BD program, and the procuring agency would 
have to use applicable 8(a) competitive procedures after the 
acceptance. A new solicitation would have to be issued, and new offers 
submitted and evaluated.
    The proposed rule would broaden the concept of adverse impact 
(current Sec. 124.309(c); proposed Sec. 124.504(c)), finding that 
``adverse impact'' could be found to exist where several requirements 
currently being performed by different small business concerns are 
consolidated into one larger requirement which could be considered 
``new'' under SBA's regulations due to the magnitude of the 
consolidated requirement. This rule would permit SBA to find adverse 
impact whenever at least one of the small business concerns losing work 
that is to be consolidated meets the presumption of adverse impact. The 
proposed rule would also add objective criteria for determining whether 
a requirement is new. Under the proposal, the expansion or modification 
of an existing requirement would be considered a ``new'' requirement 
where the price (adjusted for inflation) increases by more than 25% or 
where significant additional capabilities are added to the requirement.
    Proposed Sec. 124.504(e) would clarify the limited instances where 
SBA may reject the offer of a repetitive 8(a) acquisition to give a 
Participant that is leaving or has left the 8(a) BD program the 
opportunity to compete for the requirement outside the 8(a) BD program. 
The proposal would require the applicable (former) Participant to 
qualify as a small business concern for the requirement now offered to 
the 8(a) BD program before SBA considers releasing the requirement from 
the 8(a) BD program.
    The proposed rule would eliminate section 124.310 as unnecessary or 
duplicative. Debarment and suspension is adequately covered in the FAR. 
Current Sec. 124.314 (proposed Sec. 124.509), deals with the required 
percentages of work that a Participant must perform on any 8(a) 
contract and need not be duplicated in this section.

[[Page 43592]]

    Current section 124.311 would be separated into two sections: 
proposed Sec. 124.506, regarding the dollar thresholds above which 
procurements accepted for 8(a) award must be competed among eligible 
Participants, and proposed Sec. 124.507, describing the procedures that 
apply to competitive 8(a) procurements. Proposed Sec. 124.506 would 
eliminate unnecessary language, but leave most of the substance of 
current Secs. 124.311 (a)-(e) unchanged. It would clarify that there is 
no order of precedence between accepting requirements for competition 
and accepting requirements for sole source award above the applicable 
threshold amounts for a tribally-owned or ANC-owned concern. Current 
Sec. 124.311(d) permits SBA to accept a contract opportunity above the 
applicable competitive threshold amount for a sole source 8(a) award 
where SBA determines that only one eligible Participant in the 8(a) BD 
portfolio is capable of performing the requirement at a fair price. The 
proposed rule would eliminate this authority. SBA believes that such a 
requirement should either be awarded under the sole source authority of 
the FAR, if applicable, or competed as a small business set aside 
requirement or as an SDB set-aside contract, where appropriate.
    Proposed Sec. 124.507 would set forth the procedures applicable to 
competitive 8(a) procurements. This proposed section would clarify how 
SBA determines whether an apparent successful offeror in an 8(a) 
competition is eligible to receive the award. SBA believes that the 
eligibility process will be much easier to follow and understand under 
this proposal. The proposal would also clarify which Participants 
engaged in construction may submit offers in response to competitive 
8(a) construction requirements. The proposed rule would limit 
eligibility to those Participants located within the geographical 
boundaries of one or more SBA district offices (looking first to the 
district office serving the area in which the work is to be performed). 
Any concern with a bona fide place of business in the applicable 
geographic area would be eligible for the procurement. In order to be 
considered a bona fide place of business, the Participant would have to 
regularly maintain an office which employs at least one full-time 
individual within that geographical boundary. Construction trailers or 
other temporary construction sites would not qualify as bona fide 
places of business under the regulation, nor would merely occupying a 
government-furnished office to oversee the performance of a specific 
contract qualify as having a bona fide place of business within that 
geographic location. The term is meant to extend beyond one or more 
individual contracts. SBA specifically requests comments on how best to 
define ``bona fide place of business,'' and how eligibility for 8(a) 
construction procurements should be limited.
    Proposed Sec. 124.507(b)(5) would add the Certificate of Competency 
(COC) procedures to competitive 8(a) procurements. Where a procuring 
agency contracting officer finds the apparent successful offeror for a 
competitive 8(a) procurement not to be responsible to perform the 
contract, he or she would be required to refer the Participant to SBA 
for a possible COC under the procedures set forth in Sec. 125.5 of this 
chapter. SBA seeks to make competitive 8(a) procurements as similar as 
possible to non-8(a) Government contracting procedures. COC procedures 
would not, however, be available for sole source 8(a) procurements. In 
most cases, the procuring agency would have selected the Participant 
for the sole source contract by assessing the firm's capabilities prior 
to offering the procurement to SBA. It is unlikely that the procuring 
agency would select a Participant, go through negotiations with the 
firm, and then find the firm not to be responsible. If that does 
happen, or if the procuring agency determines that a firm nominated by 
SBA for an open requirement cannot perform the contract, SBA would 
review the situation to determine whether it agrees with the procuring 
agency. If SBA agrees, it can nominate another Participant to perform 
the contract, if one exists that is found to be eligible and 
responsible for the requirement, or it can permit the agency to 
withdraw the requirement from the 8(a) program if an eligible and 
responsible Participant is not found. If SBA does not agree, it can 
appeal the procuring agency's decision to the head of the procuring 
agency pursuant to Sec. 124.505.
    Proposed Sec. 124.507(d) (current Sec. 124.311(i)) would clarify 
SBA's implementation of Sec. 8(a)(1)(C) of the Small Business Act, 15 
U.S.C. Sec. 637(a)(1)(C), which authorizes competitive 8(a) awards in 
limited circumstances to firms which have completed their terms of 
participation in the 8(a) BD program. Of particular note, eligibility 
would be determined as of the initial date specified for the receipt of 
offers set forth in the solicitation without regard to extensions of 
time through amendments to the solicitation. The only legislative 
history to the statutory provision authorizing competitive 8(a) awards 
to firms which have completed their terms of participation in the 8(a) 
BD program indicates that Congress did not want Participants to go 
through the expense of submitting offers for competitive 8(a) 
procurement requirements only to be told that they were ineligible for 
such requirements months later at the time of award. See 136 Cong. Rec. 
S17645, S17648 (daily ed. October 27, 1990) (statement of Sen. 
Bumpers). In addition, Congress was concerned that competition among 
firms in the later stages of program participation would be discouraged 
if firms felt that they could be deemed ineligible after going through 
the expense of preparing an offer for a competitive 8(a) procurement 
requirement. Id.
    The proposed amendment would be consistent with these Congressional 
purposes. The date for determining eligibility is firmly established 
and cannot change during the procurement process. With such a date 
certain, firms know up front if their program term will expire prior to 
that specified date. Offers cannot be prepared amid uncertainty that 
the date for determining eligibility could be changed. As such, firms 
are not dissuaded from participating in 8(a) competitive procurements 
during the later stages of their participation terms.
    Proposed Sec. 124.508 would contain the requirements relating to 
competitive business mix targets. The proposed rule would eliminate 
obsolete language contained in current Sec. 124.312 regarding modified 
business activity targets. It would also tighten the language 
throughout the section, eliminating unnecessary wording where 
appropriate.
    Proposed Sec. 124.508(d) would revise SBA's policy on imposing 
remedial measures on Participants that fail to meet their applicable 
competitive business mix targets. Recent audits and reports have 
revealed that SBA needs to do a better job of encouraging firms to 
develop in ways that will ensure their success in the competitive 
marketplace after program completion. Too many firms are not meeting 
competitive business mix targets during the transitional stage of 
program participation.
    If a Participant fails to meet its competitive business mix target 
during any year in the transitional stage, it would be ineligible for 
sole source 8(a) contracts during the succeeding program year unless 
the Participant corrects the situation. A Participant that fails to 
meet its applicable competitive business mix target during the 
transitional stage of program

[[Page 43593]]

participation may attempt to meet the competitive business mix target 
as part of the normal annual review process, or it may elect to submit 
quarterly information regarding its non-8(a) revenue and contract 
awards in an attempt to comply with the competitive business mix 
requirements prior to its annual review. Where the Participant elects 
to submit information to SBA, SBA would monitor the Participant's 
revenues quarterly to determine whether the Participant has come into 
compliance. At its 3-month or 6-month review, a Participant would be 
required to demonstrate that it has received non-8(a) revenue and/or 
new non-8(a) contract awards that are equal to or greater than the 
dollar amount by which it failed to meet its competitive business mix 
target for the just completed program year in order to again be 
eligible to receive 8(a) sole source contracts for the remainder of the 
program year. Compliance with the competitive business mix target for 
that program year would again be determined at the end of the program 
year. If the firm did not meet that target, it would again be 
ineligible for 8(a) sole source contracts in the succeeding program 
year unless and until it came into compliance during the succeeding 
program year. In order for a Participant to come into compliance with 
the competitive business mix target during the last six months of the 
current program year (i.e., at either the nine-month or one year 
review), it would be required to demonstrate that it has achieved its 
competitive business mix target as of that point in the current program 
year. At the 9-month or one-year review, SBA would look at all revenues 
received during that program year (including options and modifications) 
to determine whether the firm has achieved the competitive business mix 
target for that year. If it has, it would again be eligible for 8(a) 
sole source contracts; if it has not, it would remain ineligible for 
8(a) sole source contracts. Additional remedial measures would continue 
to be authorized where appropriate, including program termination where 
the Participant makes no good faith efforts to obtain non-8(a) 
revenues.
    Current section 124.313 would be eliminated as unnecessary.
    Proposed Sec. 124.509 would incorporate the substantive provisions 
currently contained in Sec. 124.314, but would cross reference the 
performance of work requirements contained in Sec. 125.6 of this 
chapter. Proposed Sec. 124.510 would do the same for those requirements 
currently contained in Sec. 124.315. Again, clarification would be made 
wherever appropriate.
    Proposed Sec. 124.511 would authorize SBA to delegate all 
responsibilities for administering an 8(a) contract to the appropriate 
procuring agency contracting officer except for the approval of 
novation agreements. It would eliminate the reference to advance 
payments contained in current Sec. 124.316. It clarifies that a 
procuring agency may execute an in-scope 8(a) modification without 
SBA's signature.
    Proposed Sec. 124.512 would set forth the requirements for entering 
into a joint venture agreement to perform an 8(a) contract. SBA 
proposes several changes to this section from the provisions currently 
contained in Sec. 124.321. Proposed Sec. 124.512(a)(2) would require 
that a Participant seeking to joint venture with another firm bring 
something of value to the joint venture arrangement other than its 
status as an 8(a) concern. While the regulation would continue to state 
that a joint venture agreement is permissible only where an 8(a) 
concern lacks the necessary capacity to perform the contract on its 
own, it would specify for the first time that where SBA concludes that 
the 8(a) concern brings very little to the joint venture relationship 
except its 8(a) status, SBA will not approve the joint venture 
relationship. An 8(a) concern may lack the necessary management, 
technical and financial capacity to perform a contract the size of the 
joint venture contract on its own, but it cannot be totally reliant on 
its proposed joint venture partner. The purpose of permitting joint 
ventures is to enable an 8(a) firm to gain experience and know-how so 
that it can become self-reliant in the future. If the 8(a) concern will 
not be developing its own capabilities in any meaningful way, the joint 
venture will not be approved. It is also SBA's intent to delegate the 
approval of joint venture relationships from the AA/8(a) to the local 
SBA district offices.
    As described above for amendments to the size regulations, the 
proposed rule would permit joint ventures for competitive 8(a) 
procurements between two or more small businesses (at least one of 
which is an 8(a) Participant whose size is smaller than one half the 
size standard corresponding to the SIC code assigned to the 
procurement--an eligible 8(a) Participant) so long as each small 
business is individually small. One of the eligible 8(a) Participants 
must be the lead entity in the joint venture, and the eligible 8(a) 
Participants combined must perform the applicable percentage of work 
required by proposed Sec. 124.509.
    Joint ventures for sole source 8(a) procurements and competitive 
8(a) procurements that do not exceed one half the size standard 
corresponding to the SIC code assigned to the procurement would 
continue to be authorized under current requirements, unless a mentor/
protege relationship exists, as discussed below. The joint venture 
partners would be considered affiliates, and their revenues or 
employees aggregated in determining whether the joint venture qualifies 
as small.
    The rule would also move certain requirements contained in ``Other 
requirements'' of current Sec. 124.321(d) to provisions that must be 
contained in the joint venture agreement itself.
    The proposed rule would transfer current Sec. 124.321(i) concerning 
joint ventures for Small Disadvantaged Business (SDB) set-asides and 
evaluation preferences to proposed Sec. 124.1002(f) of subpart B of 
these regulations. SBA believes that moving SDB joint ventures into the 
subpart dealing with SDB protests and appeals makes more sense 
organizationally.
    Proposed Sec. 124.513 would contain the provisions currently 
contained in Sec. 124.318, but eliminate duplicative language.
    The provisions of Sec. 124.317 requiring an 8(a) contract to be 
performed by the Participant that was initially awarded it, and 
requiring the contract to be terminated for convenience if there is a 
change in the ownership or control of the concern, would be 
incorporated into proposed Sec. 124.514, with minor clarifications. The 
proposed rule would specify that only physical or mental incapacity 
(and not factors like criminal incarceration or bankruptcy) could 
justify a waiver of the termination for convenience requirement imposed 
by this section. In addition, this section would make clear that the 
concern requesting a waiver must demonstrate that it has met the 
grounds upon which the waiver is being sought. The Agency need not 
consider and dismiss every possible basis for waiver. Finally, with 
respect to determining whether a Participant seeking to acquire 
ownership or control in another Participant is ``otherwise eligible'' 
to receive the award directly, the proposed rule would require SBA to 
consider whether prior to the transaction the acquiring Participant is 
eligible for and responsible with respect to each contract to be 
transferred. For example, were a concern with ten employees seeking to 
acquire a concern with 150 employees, responsibility would be 
considered prior to the transaction (i.e., could the ten-employee 
concern

[[Page 43594]]

perform the transferring contracts without the resources of the 150-
employee concern).
    The proposed rule would add a new paragraph 124.517(c), clarifying 
that SBA may substitute one Participant for another (with the consent 
of the procuring agency) where the first concern cannot complete 
performance of an 8(a) contract, without seeking the approval of the 
Administrator under Sec. 124.317. The original 8(a) concern would be 
liable for any reprocurement costs, as is now the case.
    The proposed rule would separate current Sec. 124.320 into two 
sections: One dealing with SBA appeals of the terms and conditions of a 
particular 8(a) contract or of a procuring agency decision not to 
reserve a requirement for the 8(a) BD program (proposed Sec. 124.505); 
and one concerning contract disputes arising between a Participant and 
a procuring agency after the award of an 8(a) contract (proposed 
Sec. 124.515). Both are clarified for easier use.
    Proposed Sec. 124.505 would specify that SBA may appeal to the head 
of the procuring agency a contracting officer's decision to reject a 
specific Participant for award of an 8(a) contract after SBA's 
acceptance of the requirement for the 8(a) BD program. This basis for 
appeal has been used many times in practice. SBA believes that it 
should be added to the regulation to apprise all contracting officers 
of its existence.
    Proposed Sec. 124.515 would improve the language of current 
Sec. 124.320(a), eliminating unnecessary references to advance 
payments, business development expense, and surety bond waivers (all 
three of which the proposed rule would also eliminate).
    The proposed rule would add a third appeal-related section, 
pertaining to the ability of another party to question the eligibility 
of a Participant for award of an 8(a) contract (proposed Sec. 124.516). 
No party may challenge the eligibility of a Participant for a specific 
sole source or competitive 8(a) requirement at SBA or any other 
administrative forum. The authority to determine eligibility for an 
8(a) contract is exclusively SBA's. Much of this provision is currently 
contained in Sec. 124.311(g) for competitive 8(a) requirements, but no 
such specific language was set forth for sole source 8(a) requirements. 
Prior to the enactment of Public Law 100-656, there were no 8(a) 
competitive requirements, and it was clear that a determination 
concerning a Participant's eligibility for specific 8(a) contract 
awards was exclusively within the jurisdiction of SBA's Office of 
8(a)BD. After the enactment of Public Law 100-656, SBA's regulations 
were amended to specify that eligibility protests would not be 
authorized for competitive 8(a) procurements. This notified interested 
parties that SBA intended to make eligibility for competitive 8(a) 
procurements consistent with SBA's longstanding practice with regard to 
sole source 8(a) procurements (that is, that the Office of 8(a)BD 
(Minority Small Business and Capital Ownership Development (MSB&COD) at 
that time) would retain exclusive authority for determining eligibility 
for any 8(a) contract). The current regulations contain specific 
language regarding protest restrictions for competitive 8(a) 
procurements, but not for sole source procurements. This proposed rule 
would clarify that these restrictions were always meant to apply to 
both sole source and competitive 8(a) procurements. The regulatory 
language appearing in Sec. 124.311(g) would be moved into this new 
provision and would be expanded to apply to sole source 8(a) 
procurements as well. Paragraph 124.311(g) would be deleted as 
unnecessary.
    SBA has historically included a Participant's size as part of a 
concern's eligibility that cannot be protested. This proposed rule 
would amend that policy with respect to competitive 8(a) contracts. 
Another offeror for a competitive 8(a) contract would be able to 
protest the size status of the apparent successful offeror in accord 
with part 121 of this chapter. In addition, the proposed rule would 
authorize appeals of SIC code designations in connection with 8(a) 
competitive requirements. The policy for size protests and SIC appeals 
would, however, remain unchanged for sole source 8(a) contracts (i.e., 
size protests would not be authorized for sole source 8(a) contracts; 
SIC appeals would not be permitted for sole source contracts, except by 
the AA/8(a)BD). In connection with a sole source 8(a) contract, any 
party may submit evidence to SBA to explain why it believes another SIC 
code should be assigned to the procurement. SBA will consider such 
information and will seek a SIC code change if it believes that the SIC 
code assigned by the procuring agency is unreasonable.
    SBA is currently examining ways to further address the perceived 
problem of concentration of 8(a) contracts. Concerns about contract 
concentration have been cited by several SBA oversight entities, 
including the General Accounting Office, SBA's Office of Inspector 
General, and the U.S. Senate and House of Representatives Committees on 
Small Business. SBA believes that it has addressed this issue, in part, 
by removing the indefinite delivery, indefinite quantity exception to 
competition (see 60 FR 29969, 29971-72 and 29976), and by limiting sole 
source 8(a) awards as described below in proposed Sec. 124.518. 
Although not part of this rulemaking, SBA wishes to solicit comments on 
how best to achieve a broader distribution of 8(a) contracts beyond 
these proposals.
    Proposed section 124.518 would authorize most Participants (other 
than firms owned by an Indian tribe or an ANC) to receive any 
combination of 8(a) sole source and 8(a) competitive contracts up to a 
specified dollar amount. Once that dollar amount of 8(a) contracts is 
reached, the firm would not be eligible to receive any more 8(a) sole 
source contracts, but could remain eligible for competitive 8(a) 
awards. For a firm having a revenue-based primary SIC code at time of 
program entry, the limit above which it could no longer receive sole 
source 8(a) contracts would be set at five times the size standard 
corresponding to that SIC code or $100,000,000, whichever is less. For 
a firm having an employee-based primary SIC code at time of program 
entry, the limit above which it could no longer receive sole source 
8(a) contracts would be set at $100,000,000. Under the proposed rule, 
SBA would not consider 8(a) contracts awarded under $100,000 in 
determining whether a Participant has reached its limit.
    This change is designed to promote the equitable distribution of 
8(a) contracts to an increased number of 8(a) Participants and to 
foster 8(a) business development on a wider scale. Smaller developing 
8(a) Participants should have an increased opportunity of receiving 
sole source 8(a) contracts. SBA does not view this change as a penalty 
for those firms reaching the dollar limit. They will still be eligible 
for competitive 8(a) awards. SBA's mission is to advance the 
development of Participants so that they can be viable businesses after 
graduation from the 8(a) BD program. After a certain amount of contract 
support within the 8(a) sheltered market, sole source 8(a) awards may 
be counterproductive to a firm's development because they do not 
prepare a firm for the competitive marketplace after graduation. A firm 
that has received five times its applicable size standard or 
$100,000,000 in 8(a) contracts, whichever is applicable, should not 
need the business development tool of additional sole source contracts, 
and should spend more resources refining its competitive skills. SBA 
asks for comments on whether the restriction should apply to 
competitive as well as sole source 8(a) contracts once the

[[Page 43595]]

specified level of 8(a) contract dollars has been reached.
    Proposed section 124.519 would establish a mentor/protege program. 
As proposed, firms that have graduated from the 8(a) BD program and 
those that are in the transitional stage of program participation may 
be approved as mentors for particular developing 8(a) Participants. 
This could include businesses that have grown to be other than small. 
The idea is to link firms that have gone through the 8(a) program with 
developing 8(a) firms so that the more mature firms can impart their 
knowledge and practical experience from their own program participation 
to the developing firms. Although the proposed rule limits mentors to 
current or former 8(a) Participants, SBA seeks comments on whether 
other firms should be mentors. If mentors are limited to current and 
former 8(a) Participants, SBA desires comments as to whether former 
Participants should be permitted where their ownership or control has 
changed since they were in the 8(a) program. SBA also seeks comments 
regarding whether a mentor should be able to be a large business, or 
whether mentors should be limited to firms that are small in their 
primary industry category (whether or not they would qualify as small 
under the protege's primary SIC code, or under a particular contract 
for which the mentor and protege seek to perform as a joint venture). 
Finally, SBA requests comments on appropriate safeguards SBA should 
impose on mentors to ensure that mentors do not unjustly benefit from 
the 8(a) BD program. SBA recognizes that some commenters may oppose any 
mentor/protege program as a method of extending 8(a) participation for 
firms that have graduated from the program, or of providing program 
benefits to non-disadvantaged firms (if SBA were to allow mentors to be 
other than current and former 8(a) Participants). SBA believes, 
however, that such a program will provide substantial benefits for 
developing 8(a) Participants, and that the assistance received through 
the program will enhance their ability to be viable businesses after 
they leave the 8(a) BD program.
    The advantages to a protege firm in terms of management and 
technical assistance, knowledge of the procurement process, and 
personal relationships can be substantial. In order to encourage 
mentors to participate, the proposed rule would permit a mentor and 
protege to joint venture as a small business for various government 
procurement opportunities, including procurements less than half the 
size standard corresponding to the assigned SIC code and 8(a) sole 
source contracts, provided the protege qualifies as small for the 
procurement (and has not reached the limit described above in proposed 
Sec. 124.518). The mentor/protege relationship would extend beyond the 
8(a) BD program, and would encourage mentors and proteges to submit 
offers as joint ventures for non-8(a) competitive contracts as well. 
Because SBA would waive the affiliation requirements for a mentor/
protege joint venture, more contracts may become available for small 
businesses that are 8(a) Participants. The regulation would also permit 
a mentor firm to own up to 33% in the protege firm to assist the 
protege firm raise needed capital. A protege firm could also qualify 
for other assistance as a small business, including SBA financial 
assistance, notwithstanding the mentor/protege relationship.
    A mentor would have to possess good character and be operating 
profitably. A mentor could have no more than one protege at a time. SBA 
does not believe that proteges would be adequately served were one firm 
able to mentor more than one Participant at a time. In addition, were a 
mentor able to have more than one protege at a time, the perception 
could exist that the mentor is ``chasing'' many different 8(a) 
contracts through its various proteges. For a mentor that has left the 
8(a) program or has grown large, there would be a concern that such a 
mentor was unjustly benefitting from the 8(a) program. In order to be 
recognized as mentors/proteges, the AA/8(a)BD would have to approve a 
written agreement between the mentor and protege firms under which the 
mentor commits to provide management and/or technical assistance to the 
protege firm for at least one year.
    The proposed rule would eliminate current Sec. 124.401 dealing with 
advance payments. Funding for advance payments does not exist.
    The proposed rule would also eliminate current Sec. 124.402, 
concerning business development expense (BDE). References to it are 
obsolete.
    Proposed Secs. 124.601-124.603 would set forth reporting 
requirements not contained elsewhere in the regulations. These 
requirements are largely unchanged from the current regulations. 
However, in keeping with President Clinton's request that Federal 
agencies reduce reporting requirements wherever feasible, proposed 
Sec. 124.601 would reduce from twice a year to once a year the number 
of times a Participant must submit a report to SBA regarding its agents 
and other representatives.
    Sections 124.701-124.704 of the proposed rule would reduce and 
clarify the provisions for its 7(j) management and technical assistance 
program (currently contained in Secs. 124.403 and 124.404).
    Subpart B, Eligibility, Certification, and Protests relating to 
Federal Small Disadvantaged Business Programs, is an entirely new 
subpart and is proposed in response to the DOJ's review on Federal 
affirmative action procurement programs. Current subpart B, dealing 
with SDB protests would be incorporated into the revised subpart. The 
subpart would be expanded to include procedures by which Private 
Certifiers will determine whether a firm is owned and controlled by one 
or more individuals claiming disadvantaged status, procedures by which 
a procuring agency or SBA (if the procuring agency has an agreement 
with SBA) will certify businesses as SDBs for purposes of all Federal 
procurement programs, and provisions defining how firms will be added 
to and deleted from an SBA-maintained on line register of SDBs.
    The proposed rule would add a clarifying provision that potential 
for success would not be considered in determining the disadvantaged 
status of a concern for purposes other than the 8(a) BD program. 
Potential for success goes to the developmental purposes of the 8(a) BD 
program, and should not be a criterion in determining disadvantaged 
status for other programs. The proposed rule would add a provision to 
the section regarding who can protest the disadvantaged status in an 
SDB set-aside or evaluation procurement. It would not permit a firm 
that had previously been found not to be disadvantaged for a specific 
SDB set-aside to then protest the disadvantaged status of an apparent 
successful offeror.
    Proposed Sec. 124.1008(c)(2) would provide that the burden is on 
the firm seeking an SDB certification to demonstrate that those 
individuals claiming disadvantaged status own and control the concern. 
Similarly, proposed Sec. 124.1020(c) would provide that the burden is 
on the protested concern to demonstrate its disadvantaged status. The 
protested concern must submit all information it deems relevant to such 
a determination. A protested concern cannot challenge a disadvantaged 
status determination by claiming that it did not submit a specific 
piece of information because SBA did not request it.
    Proposed new subpart D of part 134 would contain the rules of 
procedure applying to appeals of denials of 8(a) BD program admission 
based solely on a negative finding(s) of social

[[Page 43596]]

disadvantage, economic disadvantage, ownership or control pursuant to 
Sec. 124.206; early graduation pursuant to Secs. 124.302 and 124.304; 
termination pursuant to Secs. 124.303 and 124.304; and denials of 
requests to issue a waiver of the performance of work/termination for 
convenience requirements pursuant to Sec. 124.514. The substance of 
these provisions was previously contained in Sec. 124.210. This 
proposed rule transfers them to part 134 so that all procedures 
relating to appeals before OHA are contained in one part of SBA's 
regulations. Proposed Sec. 134.406(d) clarifies that where SBA files 
its answer to the appeal petition after the date specified in 
Sec. 134.206, the Administrative Law Judge may ignore the answer and 
base his or her decision solely on a review of the administrative 
record. All the Administrative Law Judge has the authority to do is to 
determine whether the Agency's decision is arbitrary or capricious. In 
order to do so, he or she must review the administrative record.

Compliance With Executive Orders 12612, 12778, and 12866, the 
Regulatory Flexibility Act (5 U.S.C. 601, et seq.), and the Paperwork 
Reduction Act (44 U.S.C. Ch. 35)

    SBA certifies that this proposed rule would not be considered a 
significant rule within the meaning of Executive Order 12866, but may 
have a significant economic impact on a substantial number of small 
entities within the meaning of the Regulatory Flexibility Act, 5 U.S.C. 
601, et seq.

Regulatory Flexibility Analysis

    We do not know the extent to which this proposed rule would have a 
significant economic impact on a substantial number of small businesses 
but are interested in receiving comments from the public on what they 
believe the impact of this regulation will be.

Summary of the Proposed Rule

    The SBA's proposed rule would improve and strengthen the 8(a) 
program. The rule changes would also respond to the challenges posed by 
the findings in the Adarand v. Pena court case and improve the success 
rates for firms after participation in the 8(a) program. We believe 
this to be the appropriate regulatory alternative to meet the judicial 
requirements applicable to the agency.
    The proposed 8(a) rule changes fall under four major categories. 
They are: (1) Equitable distribution of 8(a) contracts; (2) small 
business affiliation rule revisions; (3) a new 8(a) mentor-protege 
program; and (4) SBA's responsibilities for implementing the Small 
Disadvantaged Business (SDB) contracting program authorized by the 
Federal Acquisition Streamlining Act and developed during the U.S. 
Department of Justice's post-Adarand affirmative action review and 
recommendations.
    The proposed 8(a) regulations would make changes to the existing 
regulations designed to distribute 8(a) contracts more equitably and 
encourage participating 8(a) firms to compete more effectively for 
contracts. The regulation would enhance the ability of 8(a) firms and 
other small businesses to obtain larger prime contracts that would be 
normally out of the reach of individual small businesses. Also, by 
establishing an 8(a) mentor-protege program, SBA would allow 
participants in the 8(a) program to tap into the expertise and capital 
of 8(a) graduates or more advanced participating firms. Lastly, the 
proposed 8(a) regulations would provide the guidelines needed to 
conform SBA's rules and procedures to the Department of Justice's post-
Adarand guidelines, including SBA's responsibility to certify 
participating SDB firms and maintain and provide oversight for a 
national network of private sector SDB certifiers.
    This proposal applies to all current and eligible participants in 
the SBA 8(a) program and all eligible small disadvantaged businesses 
(SDBs) that seek to do business with the federal government as 
contractors.

Current Program Participants

    At present, there are approximately 5,800 SBA certified 8(a) firms. 
Based on information from the SBA PASS system, there are approximately 
34,000 minority or SDB firms seeking contracts with the federal 
government. All 8(a) firms meet the eligibility requirements of an SDB 
firm and are included in the 34,000 number. Pursuant to PASS, there are 
an additional 37,000 non-minority women-owned firms and 3,000 non-
minority disabled veteran-owned firms seeking contracts with the 
federal government. Any or all of these additional 40,000 firms could 
also seek SDB certification through SBA under SBA's new subpart B of 
part 124.
    In FY '96, 8(a) firms received $6.3 billion in federal contracts 
and SDBs about $10.3 billion. The $10.3 billion in contracts to SDBs 
represents about 5 percent of all federal contract dollars spent in FY 
'96. In addition, the federal contract dollars that went to SDBs is 
about 25 percent of all federal receipts that went to small businesses 
for the same period.
    It is believed that this rule will benefit eligible 8(a) and SDB 
firms because it simplifies and clearly defines eligibility 
requirements, especially for SDBs; streamlines the operation of the 
8(a) program; increases partnering opportunities by easing affiliation 
rules; and, improves business assistance provided by the SBA. It is 
estimated that, under this proposal, the number of certified 8(a) 
programs will increase by 10 percent and the number of SDBs seeking 
federal contracts will increase by 20 to 30 percent.

Universe of Potential Program Applicants

    The last official U.S. Census Statistics on women and minority-
owned firms are for 1992; these data were released in 1996. In 1992, 
there were 2.0 million total minority-owned firms. Of these, 312 
thousand (15.6 percent) had employees. If the growth in minority firms 
between 1992 and 1997 is the same as it was between 1987 and 1992 --a 
conservative assumption--then an estimate of total minority firms would 
be 3.3 million in 1997 and perhaps half a million with employees. For 
the most part, only firms with employees would be affected by this 
proposal. The latter, of course, are only educated assumptions based 
upon extrapolations.
    An estimate of the racial composition of minority owned firms with 
employees would be: Black (32 percent), Hispanic (38 percent), and the 
cluster of Asian-American/Pacific Islanders/Native Americans, and 
Alaska Natives (30 percent).
    By gender, 63 percent of minority owned firms in 1992 were likely 
to be owned by men; 37 percent were owned by women. For minority firms 
with employees, about 71 percent of the minority owned firms were 
likely to be owned by men; 29 percent were likely to be owned by women.
    Including regular C corporations, women owned 6,407 million firms 
in 1992. Of these 1,25 million firms (19.4 percent) had employees. 
Based on estimates by the National Association of Women Business 
Owners, there are nearly 8.0 million women-owned firms in 1996, we can 
extrapolate that there were about 1.55 million women-owned firms with 
employees in 1996.
    With this large pool of businesses which may at some point apply to 
the SBA's programs, we can anticipate that the number of 8(a) 
participants and SDBs will increase, but cannot estimate the magnitude 
of the increase or its effect on firms that have or may obtain 
contracts in the future. We believe that the impact of these regulatory 
changes will be beneficial to small business and,

[[Page 43597]]

again, would be interested in receiving any information that would shed 
additional light on the specific impact of these proposed regulations.
    The rule is not, however, likely to have an annual economic effect 
of $100 million or more, result in a major increase in costs or prices, 
or have a significant adverse effect on competition or the United 
States economy.
    For purposes of the Paperwork Reduction Act of 1995 (Pub. L. 104-
13), SBA certifies that this proposed rule, if adopted in final form, 
would contain no new reporting or recordkeeping requirements. Although 
the proposed rule would require small disadvantaged business concerns 
to submit evidence that they are owned and controlled by one or more 
disadvantaged individuals to private certifiers, and representations of 
group membership or evidence of disadvantaged status to SBA, in order 
to become certified as an SDB, the information sought is the same as 
that currently required for participation in SBA's 8(a) program. In 
addition, once certified, this rule would not require SDB concerns to 
report any other information to SBA or to maintain additional records.
    For purposes of Executive Order 12612, SBA certifies that this rule 
would not have any federalism implications warranting the preparation 
of a Federalism Assessment.
    For purposes of Executive Order 12778, SBA certifies that this rule 
is drafted, to the extent practicable, in accordance with the standards 
set forth in Section 2 of that Order.

List of Subjects in 13 CFR

Part 121

    Government procurement, Government property, Grant programs-
business, Individuals with disabilities, Loan programs-business, Small 
businesses.

Part 124

    Government procurement; Minority businesses; Tribally-owned 
concerns; Hawaiian natives; Reporting and record keeping requirements; 
Technical Assistance.

Part 134

    Administrative practice and procedure, Organization and functions 
(Government agencies).

    Accordingly, for the reasons set forth above, SBA hereby proposes 
to amend Title 13, Code of Federal Regulations (CFR), as follows:

PART 121--[AMENDED]

    1. The authority citation for 13 CFR part 121 would continue to 
read as follows:

    Authority: 15 U.S.C. 632(a), 634(b)(6), 637(a) and 644(c); and 
Pub. L. 102-486, 106 Stat. 2776, 3133.

    2. Section 121.103 is amended by redesignating paragraphs (f)(3) 
and (f)(4) as paragraphs (f)(4) and (f)(5), respectively, by revising 
paragraph (f)(2) and by adding a new paragraph (f)(3) to read as 
follows:


Sec. 121.103  What is affiliation?

* * * * *
    (f) Affiliation based on joint venture arrangements. * * *
    (2) Except as provided in paragraph (f)(3) of this section, 
concerns submitting offers on a particular procurement or property sale 
as joint venturers are affiliated with each other with regard to the 
performance of that contract.
    (3) Joint venture exclusion from affiliation. (i) A joint venture 
of two or more business concerns may submit an offer as a small 
business for a non-8(a) federal procurement without regard to 
affiliation based on the joint venture arrangement so long as each 
concern is small under the size standard corresponding to the SIC code 
assigned to the contract, provided:
    (A) For a procurement having a revenue-based size standard, the 
procurement exceeds half the size standard corresponding to the SIC 
code assigned to the contract; or
    (B) For a procurement having an employee-based size standard, the 
procurement exceeds $10 million.
    (ii) A joint venture of at least one 8(a) Participant and one or 
more other business concerns may submit an offer for a competitive 8(a) 
procurement without regard to affiliation based on the joint venture 
arrangement so long as the requirements of Sec. 124.512(b)(1) of this 
chapter are met.
    (iii) Two firms approved by SBA to be a mentor and protege under 
Sec. 124.519 of this chapter may joint venture as a small business for 
any government procurement, provided the protege qualifies as small for 
the size standard corresponding to the SIC code assigned to the 
procurement and, for purposes of 8(a) sole source requirements, has not 
reached the dollar limit set forth in Sec. 124.518 of this chapter.
* * * * *
    2a. Section 121.1001 is amended by redesignating paragraphs (a)(2) 
through (a)(5) as paragraphs (a)(3) through (a)(6), by adding the 
following new paragraph (a)(2), and by revising paragraph (b)(2) to 
read as follows:


Sec. 121.1001  Who may initiate a size protest or request a formal size 
determination?

    (a) Size Status Protests. * * *
    (2) For competitive 8(a) contracts, the following entities may 
protest:
    (i) Any offeror;
    (ii) The contracting officer; or
    (iii) The SBA District Director, or designee, in either the 
district office serving the geographical area in which the procuring 
agency is located or the district office that services the apparent 
successful offeror, or the Associate Administrator for Minority 
Enterprise Development.
* * * * *
    (b) Request for Size Determinations. * * *
    (2) For SBA's 8(a) BD program:
    (i) Concerning initial or continued 8(a) BD eligibility, the 
following entities may request a formal size determination:
    (A) The 8(a) BD applicant concern or Participant; or
    (B) The Assistant Administrator of the Division of Program 
Certification and Eligibility or the Associate Administrator for 
8(a)BD.
    (ii) Concerning individual sole source 8(a) contract awards, the 
following entities may request a formal size determination:
    (A) The Participant nominated for award of the particular sole 
source contract;
    (B) The SBA program official with authority to execute the 8(a) 
contract; or
    (C) The SBA District Director in the district office that services 
the Participant, or the Associate Administrator for 8(a)BD.
* * * * *
    3. Section 121.1103 is amended by revising paragraph (a) to read as 
follows:


Sec. 121.1103  What are the procedures for appealing a SIC code 
designation?

    (a) Generally, any interested party who has been adversely affected 
by a SIC code designation may appeal the designation to OHA. However, 
with respect to a particular sole source 8(a) contract, only the 
Associate Administrator for 8(a)BD may appeal.
* * * * *

PART 124--[AMENDED]

    4. Part 124 is revised to read as follows:

[[Page 43598]]

PART 124--8(A) BUSINESS DEVELOPMENT/SMALL DISADVANTAGED BUSINESS 
STATUS DETERMINATIONS

Subpart A--8(a) Business Development

Provisions of General Applicability

Sec.
124.1  What is the purpose of the 8(a) Business Development program?
124.2 What length of time may a business participate in the 8(a) BD 
program?
124.3 What definitions are important in the 8(a) BD program?

Eligibility Requirements for Participation in the 8(a) Business 
Development Program

124.101 What are the basic requirements a concern must meet for the 
8(a) BD program?
124.102 What size business is eligible to participate in the 8(a) BD 
program?
124.103 Who is socially disadvantaged?
124.104 Who is economically disadvantaged?
124.105  What does it mean to be unconditionally owned by one or 
more disadvantaged individuals?
124.106  When do disadvantaged individuals control an applicant or 
Participant?
124.107  What is potential for success?
124.108  What other eligibility requirements apply for individuals 
or businesses?
124.109  Do Indian tribes and Alaska Native Corporations have any 
special rules for applying to the 8(a) BD program?
124.110  Do Native Hawaiian Organizations have any special rules for 
applying to the 8(a) BD program?
124.111  Do Community Development Corporations (CDCs) have any 
special rules for applying to the 8(a) program?
124.112  What criteria must a business meet to remain eligible to 
participate in the 8(a) BD program?

Applying to the 8(a) BD Program

124.201  May any business submit an application?
124.202   Where must an application be filed?
124.203   What must a concern submit to apply to the 8(a) BD 
program?
124.204   How does SBA process applications for 8(a) BD program 
admission?
124.205   Can an applicant ask SBA to reconsider SBA's initial 
decision to decline its application?
124.206   What appeal rights are available to an applicant that has 
been denied admission?
124.207   Can an applicant reapply for admission to the 8(a) BD 
program?

Exiting the 8(a) BD Program

124.301  What are the ways a business may leave the 8(a) BD program?
124.302  What is early graduation?
124.303  What is termination?
124.304  What are the procedures for early graduation and 
termination?
124.305  What is suspension and how is a Participant suspended from 
the 8(a) BD program?

Business Development

124.401  Which SBA field office services a Participant?
124.402  How does a Participant develop a business plan?
124.403  How is a business plan updated and modified?
124.404  What business development assistance is available to 
Participants during the two stages of participation in the 8(a) BD 
program?
124.405  How does a Participant obtain Federal Government surplus 
property?

Contractual Assistance

124.501  What general provisions apply to the award of 8(a) 
contracts?
124.502  How does an agency offer a procurement to SBA for award 
through the 8(a) BD program?
124.503  How does SBA accept a procurement for award through the 
8(a) BD program?
124.504  What circumstances limit SBA's ability to accept a 
procurement for award as an 8(a) contract?
124.505  When will SBA appeal the terms and conditions of a 
particular 8(a) contract or a procuring agency decision not to 
reserve a procurement for the 8(a) BD program?
124.506  At what dollar threshold must an 8(a) procurement be 
competed among eligible Participants?
124.507  What procedures apply to competitive 8(a) procurements?
124.508  What are competitive business mix targets?
124.509  What percentage of work must a Participant perform on an 
8(a) contract?
124.510  How is fair market price determined for an 8(a) contract?
124.511  Delegation of contract administration to procuring 
agencies.
124.512  Under what circumstances can a joint venture be awarded an 
8(a) contract?
124.513  Exercise of 8(a) options and modifications.
124.514  Can a Participant change its ownership or control and 
continue to perform an 8(a) contract, and can it transfer 
performance to another firm?
124.515  Who decides contract disputes arising between a Participant 
and a procuring agency after the award of an 8(a) contract?
124.516  Can the eligibility or size of a Participant for award of 
an 8(a) contract be questioned?
124.517  How can an 8(a) contract be terminated before performance 
is completed?
124.518  Are there any dollar limits on the amount of 8(a) contracts 
that a Participant may receive?
124.519  Mentor/Protege program.

Miscellaneous Reporting Requirements

124.601  What reports does SBA require on parties assisting 
Participants in obtaining federal contracts?
124.602  What kind of annual financial statement must a Participant 
submit to SBA?
124.603  What reports regarding the continued business operations of 
former Participants does SBA require?

Management and Technical Assistance Program

124.701  What is the purpose of the 7(j) management and technical 
assistance program?
124.702  What types of assistance are available through the 7(j) 
program?
124.703  Who is eligible to receive 7(j) assistance?
124.704  What additional management and technical assistance is 
reserved exclusively for concerns eligible to receive 8(a) 
contracts?
Subpart B--Eligibility, Certification, and Protests Relating to Federal 
Small Disadvantaged Business Programs
124.1001  General applicability.
124.1002  What is a Small Disadvantaged Business (SDB)?
124.1003  What is a Private Certifier?
124.1004  How does an organization or business concern become a 
Private Certifier?
124.1005  Can a Private Certifier charge a fee?
124.1006  Is there a list of Private Certifiers?
124.1007  How long may an organization or business concern be 
Private Certifier?
124.1008  How does a firm become certified as a SDB?
124.1009  How does a firm appeal a decision of a Private Certifier?
124.1010  Can a firm represent itself to be an SDB if it is not on 
the list of qualified SDBs?
124.1011  What is a misrepresentation of disadvantaged status?
124.1012  Can a firm reapply for SDB certification?
124.1013  Is there a list of certified SDBs?
124.1014  What is the effect of receiving an SDB certification?
124.1015  Who may protest the disadvantaged status of a concern?
124.1016  When will SBA not decide an SDB protest?
124.1017  Who decides disadvantaged status protests?
124.1018  What submission procedures apply to disadvantaged status 
protests?
124.1019  What format or degree of specificity does SBA require to 
consider an SDB protest?
124.1020  What will SBA do when it receives an SDB protest?
124.1021  How does SBA make disadvantaged status determinations?
124.1022  Appeals of disadvantaged status determinations.

    Authority: 15 U.S.C. 634(b)(6), 636(j), 637(a), 637(d) and Pub. 
L. 99-661, Pub. L. 100-656, sec. 1207, Pub. L. 101-37, Pub. L. 101-
574, and 42 U.S.C. 9815.

[[Page 43599]]

Subpart A--8(a) Business Development

Provisions of General Applicability


Sec. 124.1  What is the purpose of the 8(a) Business Development 
program?

    Sections 8(a) and 7(j) of the Small Business Act authorize a 
Minority Small Business and Capital Ownership Development program 
(designated the 8(a) Business Development or ``8(a) BD'' program for 
purposes of the regulations in this part). The purpose of the 8(a) BD 
program is to assist eligible small disadvantaged business concerns 
compete in the American economy through business development.


Sec. 124.2  What length of time may a business participate in the 8(a) 
BD program?

    A Participant receives a program term of nine years from the date 
of SBA's approval letter certifying the concern's admission to the 
program. A firm that completes its nine year term of participation in 
the 8(a) BD program is deemed to graduate from the program. The nine 
year program term may be shortened only by termination, early 
graduation or voluntary withdrawal as provided for in this part.


Sec. 124.3  What definitions are important in the 8(a) BD Program?

    Alaska Native means a citizen of the United States who is a person 
of one-fourth degree or more Alaskan Indian (including Tsimshian 
Indians not enrolled in the Metlaktla Indian Community), Eskimo, or 
Aleut blood, or a combination of those bloodlines. The term includes, 
in the absence of proof of a minimum blood quantum, any citizen who a 
Native village or Native group regards as an Alaska Native if their 
father or mother is regarded as an Alaska Native.
    Alaska Native Corporation or ANC means any Regional Corporation, 
Village Corporation, Urban Corporation, or Group Corporation organized 
under the laws of the State of Alaska in accordance with the Alaska 
Native Claims Settlement Act, as amended (43 U.S.C. 1601, et seq.)
    Bona fide place of business, for purposes of 8(a) construction 
procurements, means that a Participant regularly maintains an office 
which employs at least one full-time individual within the appropriate 
geographical boundary. The term does not include construction trailers 
or other temporary construction sites.
    Community Development Corporation or CDC means a nonprofit 
organization responsible to residents of the area it serves which has 
received financial assistance under 42 U.S.C. 9805 et seq.
    Concern is defined in part 121 of this title.
    Days means calendar days unless otherwise specified.
    Immediate family member means father, mother, husband, wife, son, 
daughter, brother, sister, father-in-law, mother-in-law, son-in-law, 
daughter-in-law, brother-in-law, sister-in-law, step-father, step-
mother, step-son, step-daughter, step-brother, step-sister, half-
brother, and half-sister.
    Indian tribe means any Indian tribe, band, nation, or other 
organized group or community of Indians, including any ANC, which is 
recognized as eligible for the special programs and services provided 
by the United States to Indians because of their status as Indians, or 
is recognized as such by the State in which the tribe, band, nation, 
group, or community resides. See definition of ``tribally-owned 
concern.''
    Native Hawaiian means any individual whose ancestors were natives 
prior to 1778, of the area which now comprises the State of Hawaii.
    Native Hawaiian Organization means any community service 
organization serving Native Hawaiians in the State of Hawaii which is a 
not-for-profit organization chartered by the State of Hawaii, is 
controlled by Native Hawaiians, and whose business activities will 
principally benefit such Native Hawaiians.
    Negative control is defined in part 121 of this title.
    Nondisadvantaged individual means any individual who does not claim 
disadvantaged status, does not qualify as disadvantaged, or upon whose 
disadvantaged status an applicant or Participant does not rely in 
qualifying for 8(a) BD program participation.
    Participant means a small business concern admitted to participate 
in the 8(a) BD program.
    Primary industry classification means the four digit Standard 
Industrial Classification (SIC) code designation which best describes 
the primary business activity of the 8(a) BD applicant or Participant. 
The SIC code designations are described in the Standard Industrial 
Classification Manual published by the U.S. Office of Management and 
Budget.
    Principal place of business means the business location at which 
the individuals who manage the concern's day-to-day operations spend 
most working hours and where top management's business records are 
kept. If different, SBA may determine the principal place of business 
for program purposes.
    Program year means a 12-month period of an 8(a) BD Participant's 
program participation. The first program year begins on the date that 
the concern is certified to participate in the 8(a) BD program and ends 
one year later. Each subsequent program year begins on the 
Participant's anniversary of program certification and runs for one 12-
month period.
    Same or similar line of business means business activities within 
the same two-digit ``Major Group'' of the SIC Manual as the primary 
industry classification of the applicant or Participant. The phrase 
``same business area'' is synonymous with this definition.
    Self-marketing of a requirement occurs when a Participant 
identifies a requirement that has not been committed to the 8(a) BD 
program and, through its marketing efforts, causes the procuring agency 
to offer that specific requirement to the 8(a) BD program on the 
Participant's behalf. A firm which identifies and markets a requirement 
which is subsequently offered to the 8(a) BD program as an open 
requirement or on behalf of another Participant has not ``self-
marketed'' the requirement within the meaning of this part.
    Tribally-owned concern means any concern at least 51 percent owned 
by an Indian tribe as defined in this section.
    Unconditional ownership means ownership that is not subject to 
conditions precedent, conditions subsequent, executory agreements, 
voting trusts, restrictions on or assignments of voting rights, or 
other arrangements causing or potentially causing ownership benefits to 
go to another (other than after death or incapacity). The encumbrance 
of stock or other ownership interest as collateral, including seller-
financed transactions, does not affect the unconditional nature of 
ownership if the terms follow normal commercial practices and the owner 
retains control absent violations of the terms.

Eligibility Requirements for Participation in the 8(a) Business 
Development Program


Sec. 124.101  What are the basic requirements a concern must meet for 
the 8(a) BD program?

    Generally, a concern meets the basic requirements for admission to 
the 8(a) BD program if it is a small business which is unconditionally 
owned and controlled by one or more socially and economically 
disadvantaged individuals who are of good character and citizens of the 
United States, and which demonstrates potential for success.

[[Page 43600]]

Sec. 124.102  What size business is eligible to participate in the 8(a) 
BD program?

    (a) An applicant concern must qualify as a small business concern 
as defined in part 121 of this title. The applicable size standard is 
the one for its primary industry classification. The rules for 
calculating the size of a tribally-owned concern, a concern owned by an 
Alaska Native Corporation, a concern owned by a Native Hawaiian 
Organization, or a concern owned by a Community Development Corporation 
are additionally affected by Secs. 124.109, 124.110, and 124.111, 
respectively.
    (b) If 8(a) BD program officials determine that a concern may not 
qualify as small, they may deny an application for 8(a) BD program 
admission or may request a formal size determination under part 121 of 
this title.
    (c) A concern whose application is denied due to size by 8(a) BD 
program officials may request a formal size determination under part 
121 of this title. A favorable determination will enable the firm to 
submit a new 8(a) BD application without waiting one year.


Sec. 124.103  Who is socially disadvantaged?

    (a) General. Socially disadvantaged individuals are those who have 
been subjected to racial or ethnic prejudice or cultural bias within 
American society because of their identities as members of groups and 
without regard to their individual qualities. The social disadvantage 
must stem from circumstances beyond their control.
    (b) Members of designated groups. (1) There is a rebuttable 
presumption that the following individuals are socially disadvantaged: 
Black Americans; Hispanic Americans; Native Americans (American 
Indians, Eskimos, Aleuts, or Native Hawaiians); Asian Pacific Americans 
(persons with origins from Burma, Thailand, Malaysia, Indonesia, 
Singapore, Brunei, Japan, China (including Hong Kong), Taiwan, Laos, 
Cambodia (Kampuchea), Vietnam, Korea, The Philippines, U.S. Trust 
Territory of the Pacific Islands (Republic of Palau), Republic of the 
Marshall Islands, Federated States of Micronesia, the Commonwealth of 
the Northern Mariana Islands, Guam, Samoa, Macao, Fiji, Tonga, 
Kiribati, Tuvalu, or Nauru); Subcontinent Asian Americans (persons with 
origins from India, Pakistan, Bangladesh, Sri Lanka, Bhutan, the 
Maldives Islands or Nepal); and members of other groups designated from 
time to time by SBA according to procedures set forth at paragraph (d) 
of this section. Being born in a country does not, by itself, suffice 
to make the birth country an individual's country of origin for 
purposes of being included within a designated group.
    (2) An individual must demonstrate identification by others as a 
member of a designated group if SBA requires it.
    (3) The presumption of social disadvantage may be overcome with 
significant, credible evidence to the contrary. Individuals possessing 
or knowing of such evidence should submit the information in writing to 
the Associate Administrator for 8(a) BD (AA/8(a)BD) for consideration.
    (c) Individuals not members of designated groups. (1) An individual 
who is not a member of one of the groups presumed to be socially 
disadvantaged in paragraph (b)(1) of this section must establish 
individual social disadvantage by a preponderance of the evidence.
    (2) Evidence of individual social disadvantage must include the 
following elements:
    (i) At least one objective distinguishing feature that has 
contributed to social disadvantage, such as race, ethnic origin, 
gender, physical handicap, long-term residence in an environment 
isolated from the mainstream of American society, or other similar 
causes not common to individuals who are not socially disadvantaged;
    (ii) Personal experiences of social disadvantage, not merely 
membership in a non-designated group which might be socially 
disadvantaged, but has not been so designated by SBA. The experiences 
must have been in American society, not in other countries, and must 
have been substantial, chronic, and longstanding; and
    (iii) Negative impact on entry into or advancement in the business 
world because of the disadvantage. SBA will consider any relevant 
evidence in assessing this element. In every case, however, SBA will 
consider education, employment and business history to see if the 
totality of circumstances shows disadvantage in entering into or 
advancing in the business world.
    (A) Education. SBA considers such factors as denial of equal access 
to institutions of higher education, exclusion from social and 
professional association with students or teachers, denial of 
educational honors rightfully earned, and social patterns or pressures 
which discouraged the individual from pursuing a professional or 
business education.
    (B) Employment. SBA considers such factors as unequal treatment in 
hiring, promotions and other aspects of professional advancement, pay 
and fringe benefits, and other terms and conditions of employment; 
retaliatory or discriminatory behavior by an employer; and social 
patterns or pressures which have channelled the individual into 
nonprofessional or non-business fields.
    (C) Business history. SBA considers such factors as unequal access 
to credit or capital, acquisition of credit or capital under 
commercially unfavorable circumstances, unequal treatment in 
opportunities for government contracts or other work, unequal treatment 
by potential customers and business associates, and exclusion from 
business or professional organizations.
    (d) Socially disadvantaged group inclusion. (1) General. 
Representatives of an identifiable group whose members believe that the 
group has suffered chronic racial or ethnic prejudice or cultural bias 
may petition SBA to be included as a presumptively socially 
disadvantaged group under paragraph (b)(1) of this section. Upon an 
adequate preliminary showing that the group has suffered such prejudice 
or bias, SBA will publish a notice in the Federal Register that it has 
received and is considering such a request, and that it will consider 
public comments.
    (2) Standards to be applied. In determining whether a group has 
made an adequate preliminary showing that it has suffered chronic 
racial or ethnic prejudice or cultural bias for the purposes of this 
regulation, SBA must determine:
    (i) Whether the group has suffered prejudice, bias, or 
discriminatory practices;
    (ii) Whether those conditions have resulted in economic deprivation 
for the group of the type which Congress has found exists for the 
groups named in the Small Business Act; and
    (iii) Whether those conditions have produced impediments in the 
business world for members of the group over which they have no control 
and which are not common to small business owners generally.
    (3) Procedure. The notice published under paragraph (d)(1) of this 
section will authorize a specified period for the receipt of public 
comments supporting or opposing the petition for socially disadvantaged 
group status. If appropriate, SBA may hold hearings. SBA may also 
conduct its own research relative to the group's petition.
    (4) Decision. SBA will advise the petitioners of its final decision 
in writing, and publish its conclusion as a notice in the Federal 
Register. If appropriate, SBA will amend paragraph (b)(1) of this 
section to include a new group.

[[Page 43601]]

Sec. 124.104  Who is economically disadvantaged?

    (a) General. Economically disadvantaged individuals are socially 
disadvantaged individuals whose ability to compete in the free 
enterprise system has been impaired due to diminished capital and 
credit opportunities as compared to others in the same or similar line 
of business who are not socially disadvantaged.
    (b) Submission of narrative and financial information. (1) Each 
individual claiming economic disadvantage must describe it in a 
narrative statement, and must submit personal financial information.
    (2) When married, an individual claiming economic disadvantage also 
must submit separate financial information for his or her spouse, 
unless the individual and the spouse are legally separated.
    (c) Factors to be considered. In considering diminished capital and 
credit opportunities, SBA will examine factors relating to the personal 
financial condition of any individual claiming disadvantaged status, 
including personal income for the past two years (including bonuses and 
the value of company stock given in lieu of cash), personal net worth, 
and the fair market value of all assets, whether encumbered or not. SBA 
will also consider the financial condition of the applicant compared to 
the financial profiles of small businesses in the same primary industry 
classification, or, if not available, in similar lines of business, 
which are not owned and controlled by socially and economically 
disadvantaged individuals in evaluating the individual's access to 
credit and capital. The financial profiles that SBA compares include 
total assets, net sales, pre tax profit, sales/working capital ratio, 
and net worth.
    (1) Assets. Assets which an individual claiming disadvantaged 
status has transferred within two years of the application to an 
immediate family member, or to a trust the beneficiary of which is an 
immediate family member, for less than fair market value will be 
attributed to the individual claiming disadvantaged status.
    (2) Net worth. For initial 8(a) BD eligibility, the net worth of an 
individual claiming disadvantage must be less than $250,000. For 
continued 8(a) BD eligibility after admission to the program, net worth 
must be less than $750,000. In determining such net worth, SBA will 
exclude the ownership interest in the applicant or Participant and the 
equity in the primary personal residence (except any portion of such 
equity which is attributable to excessive withdrawals from the 
applicant or Participant). Exclusions for net worth purposes are not 
exclusions for asset valuation or access to capital and credit 
purposes.
    (i) A contingent liability does not reduce an individual's net 
worth.
    (ii) The personal net worth of an individual claiming to be an 
Alaska Native will include assets and income from sources other than an 
Alaska Native Corporation and exclude any of the following which the 
individual receives from any Alaska Native Corporation: cash (including 
cash dividends on stock received from a Native Corporation) to the 
extent that it does not, in the aggregate, exceed $2,000 per individual 
per annum; stock (including stock issued or distributed by a Native 
Corporation as a dividend or distribution on stock); a partnership 
interest; land or an interest in land (including land or an interest in 
land received from a Native Corporation as a dividend or distribution 
on stock); and an interest in a settlement trust.


Sec. 124.105  What does it mean to be unconditionally owned by one or 
more disadvantaged individuals?

    An applicant or Participant must be at least 51 percent 
unconditionally and directly owned by one or more socially and 
economically disadvantaged individuals who are citizens of the United 
States, except for concerns owned by Indian tribes, Alaska Native 
Corporations, Native Hawaiian Organizations, or Community Development 
Corporations (CDCs). See Sec. 124.3 for definition of unconditional 
ownership; and Secs. 124.109, 124.110, and 124.111, respectively, for 
special ownership requirements for concerns owned by Indian tribes, 
ANCs, Native Hawaiian Organizations, and CDCs.
    (a) Ownership must be direct. Ownership by one or more 
disadvantaged individuals must be direct ownership. An applicant or 
Participant owned principally by another business entity or by a trust 
(including employee stock ownership trusts) that is in turn owned and 
controlled by one or more disadvantaged individuals does not meet this 
requirement.
    (b) Ownership of a partnership. In the case of a concern which is a 
partnership, at least 51 percent of every class of partnership interest 
must be unconditionally owned by one or more individuals determined by 
SBA to be socially and economically disadvantaged. The ownership must 
be reflected in the concern's partnership agreement.
    (c) Ownership of a limited liability company. In the case of a 
concern which is a limited liability company, at least 51 percent of 
each class of member interest must be unconditionally owned by one or 
more individuals determined by SBA to be socially and economically 
disadvantaged.
    (d) Ownership of a corporation. In the case of a concern which is a 
corporation, at least 51 percent of each class of voting stock 
outstanding and 51 percent of the aggregate of all stock outstanding 
must be unconditionally owned by one or more individuals determined by 
SBA to be socially and economically disadvantaged.
    (e) Stock options' effect on ownership. In determining 
unconditional ownership, SBA will disregard any unexercised stock 
options or similar agreements held by disadvantaged individuals. 
However, any unexercised stock options or similar agreements (including 
rights to convert non-voting stock or debentures into voting stock) 
held by non-disadvantaged individuals will be treated as exercised, 
except for any ownership interests which are held by investment 
companies licensed under the Small Business Investment Act of 1958.
    (f) Dividends and distributions. One or more disadvantaged 
individuals must be entitled to receive:
    (1) At least 51 percent of the annual distribution of dividends 
paid on the stock of a corporate applicant concern;
    (2) 100 percent of the unencumbered value of each share of stock 
owned in the event that the stock is sold; and
    (3) At least 51 percent of the retained earnings of the concern and 
100 percent of the unencumbered value of each share of stock owned in 
the event of dissolution of the corporation.
    (g) Ownership of another Participant. The individuals determined to 
be disadvantaged for purposes of one Participant, their immediate 
family members, and the Participant itself, may not hold, in the 
aggregate, more than a 10 percent equity ownership interest in any 
other single Participant.
    (h) Ownership restrictions for non-disadvantaged individuals and 
concerns. (1) A non-disadvantaged individual (in the aggregate with all 
immediate family members) or a non-Participant concern that is a 
general partner or stockholder of at least 10 percent in one 
Participant may not own more than 10 percent in another Participant. 
This restriction does not apply to financial institutions licensed or 
chartered by Federal, state or local government, including investment 
companies which are licensed under the Small Business Investment Act of 
1958.

[[Page 43602]]

    (2) A non-Participant concern in the same or similar line of 
business may not own more than 10 percent in a Participant, except that 
a former Participant or a principal of a former Participant (except 
those that have been terminated from 8(a) BD program participation 
pursuant to Secs. 124.303 and 124.304) may have an equity ownership 
interest of up to 20 percent in a current Participant in the same or 
similar line of business.
    (i) Change of ownership. A Participant may change its ownership so 
long as one or more disadvantaged individuals would own and control it 
after the change and it obtains the prior written approval of SBA.
    (1) The 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. 124.514, as long as it receives SBA's 
approval prior to the change.
    (2) Where the previous owner held less than a 10 percent interest 
in the concern, or the transfer results from the death or incapacity 
due to a serious, long-term illness or injury of a disadvantaged 
principal, prior approval is not required, but the concern must notify 
SBA within 60 days.
    (3) Continued participation of the Participant with new ownership 
and the award of any new 8(a) contracts requires SBA's determination 
that all eligibility requirements are met by the concern and the new 
owners.
    (4) The Participant's program term is in no way extended by the 
change in ownership.
    (j) Public offering. A Participant's request for SBA's approval for 
the issuance of a public offering will be treated as a request for a 
change of ownership. Such request will cause SBA to examine the 
concern's continued need for access to the business development 
resources of the 8(a) BD program.
    (k) Community property laws given effect. In determining ownership 
interests when an owner resides in any of the community property states 
or territories of the United States (Arizona, California, Idaho, 
Louisiana, Nevada, New Mexico, Puerto Rico, Texas, Washington and 
Wisconsin), SBA considers applicable state community property laws. If 
only one spouse claims disadvantaged status, that spouse's ownership 
interest will be considered unconditionally held only to the extent it 
is vested by the community property laws. A transfer or relinquishment 
of interest by the non-disadvantaged spouse may be necessary in some 
cases to establish eligibility.


Sec. 124.106  When do disadvantaged individuals control an applicant or 
Participant?

    SBA regards control as including both the strategic policy setting 
exercised by boards of directors and the day-to-day management and 
administration of business operations. An applicant or Participant's 
management and daily business operations must be conducted by one or 
more disadvantaged individuals, except for concerns owned by Indian 
tribes, ANCs, Native Hawaiian Organizations, or Community Development 
Corporations (CDCs). (See Secs. 124.109, 124.110, and 124.111, 
respectively, for the requirements for concerns owned by Indian tribes 
or ANCs, for concerns owned by Native Hawaiian Organizations, and for 
CDC-owned concerns). Disadvantaged individuals managing the concern 
must have managerial experience of the extent and complexity needed to 
run the concern. Control is not the same as ownership, although both 
may reside in the same person. A disadvantaged owner's unexercised 
right to cause a change in the control or management of the applicant 
concern does not constitute disadvantaged control and management, 
regardless of how quickly or easily the right could be exercised.
    (a)(1) An applicant or Participant must be managed on a full-time 
basis by one or more disadvantaged individuals who possess requisite 
management capabilities.
    (2) A disadvantaged full-time manager must hold the highest officer 
position (usually President or Chief Executive Officer) in the 
applicant or Participant.
    (3) One or more disadvantaged individuals who manage the applicant 
or Participant must devote full-time to the business during normal 
working hours.
    (4) Any disadvantaged manager who wishes to engage in outside 
employment must notify SBA of the nature and anticipated duration of 
the outside employment and obtain the prior written approval of SBA. 
SBA will deny a request for outside employment which could conflict 
with the management of the firm or could hinder it in achieving the 
objectives of its business development plan.
    (b) In the case of a partnership, one or more disadvantaged 
individuals must serve as general partners, with control over all 
partnership decisions. A partnership in which no disadvantaged 
individual is a general partner will be ineligible for participation.
    (c) In the case of a limited liability company, one or more 
disadvantaged individuals must serve as management members, with 
control over all decisions of the limited liability company.
    (d) Disadvantaged individuals must control the Board of Directors 
of a corporate applicant or Participant, either through a majority of 
voting directors or through weighted voting.
    (1) The powers to appoint, remove and replace directors (e.g., 
through ownership of voting stock) is not sufficient to satisfy the 
requirement that one or more disadvantaged individuals actually control 
the Board of Directors.
    (2) Non-voting, advisory, or honorary Directors may be appointed.
    (3) Any Executive Committee of Directors must be controlled by 
disadvantaged directors unless the Executive Committee can only make 
recommendations to and cannot independently exercise the authority of 
the Board of Directors.
    (4) Arrangements regarding the structure and voting rights of the 
Board of Directors must comply with applicable state law.
    (5) Provisions for the establishment of a quorum cannot permit non-
disadvantaged Directors to control the Board of Directors.
    (e) Non-disadvantaged individuals may be involved in the management 
of an applicant or Participant, and may be stockholders, partners, 
limited liability members, officers, and/or directors of the applicant 
or Participant. No such non-disadvantaged individual or immediate 
family member may:
    (1) Exercise actual control or have the power to control the 
applicant or Participant;
    (2) Be a former employer or a principal of a former employer of any 
disadvantaged owner of the applicant or Participant, unless it is 
determined by the AA/8(a)BD that the relationship between the former 
employer or principal and the disadvantaged individual or applicant 
concern does not give the former employer actual control or the 
potential to control the applicant or Participant and such relationship 
is in the best interests of the 8(a) BD firm; or
    (3) Receive compensation from the applicant or Participant in any 
form as directors, officers or employees, including dividends, that 
exceeds the compensation to be received by the highest officer (usually 
CEO or President). The highest ranking officer may elect to take a 
lower salary than a non-disadvantaged individual only upon 
demonstrating that it helps the concern and upon obtaining the prior

[[Page 43603]]

written consent of the AA/8(a)BD or designee).
    (f) Non-disadvantaged individuals or entities may be found to 
control or have the power to control in any of the following 
circumstances, which are illustrative only and not all inclusive:
    (1) Non-disadvantaged individuals control the Board of Directors of 
the applicant or Participant, either directly through majority voting 
membership, or indirectly, where the by-laws allow non-disadvantaged 
individuals to effectively block actions proposed by the disadvantaged 
individuals.
    (2) A non-disadvantaged individual or entity provides critical 
financial or bonding support to the applicant or Participant which 
directly or indirectly allows the non-disadvantaged individual to 
significantly influence business decisions of the Participant.
    (3) A non-disadvantaged individual or entity controls the applicant 
or Participant or an individual disadvantaged owner through loan 
arrangements. Providing a loan guaranty on commercially reasonable 
terms does not, by itself, give a nondisadvantaged individual or entity 
the power to control a firm.
    (4) Business relationships exist with non-disadvantaged individuals 
or entities which cause such dependence that the applicant or 
Participant cannot exercise independent business judgment without great 
economic risk.


Sec. 124.107  What is potential for success?

    The applicant concern must possess reasonable prospects for success 
in competing in the private sector. To do so, it must be in business 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.
    (a) Income tax returns for each of the two previous tax years must 
show operating revenues in the primary industry in which the applicant 
is seeking 8(a) BD certification.
    (b)(1) SBA may waive the two years in business requirement if each 
of the following five conditions are met:
    (i) The individual or individuals upon whom eligibility is based 
have substantial business management experience;
    (ii) The applicant has demonstrated technical experience to carry 
out its business plan with a substantial likelihood for success.
    (iii) The applicant has adequate capital to sustain its operations 
and carry out its business plan;
    (iv) The applicant has a record of successful performance on 
contracts from governmental or nongovernmental sources in its primary 
industry category; and
    (v) The applicant has, or can demonstrate its ability to timely 
obtain, the personnel, facilities, equipment, and any other 
requirements needed to perform contracts.
    (2) The concern seeking a waiver under this paragraph (b) must 
provide information on governmental and nongovernmental contracts in 
progress and completed (including letters of reference) in order to 
establish successful contract performance, and must demonstrate how it 
otherwise meets the five conditions for waiver. SBA considers an 
applicant's performance on both government and private sector contracts 
in determining whether the firm has an overall successful performance 
record. If, however, the applicant has performed only government 
contracts or only private sector contracts, SBA will review its 
performance on those contracts alone to determine whether the applicant 
possesses a record of successful performance.
    (c) In assessing potential for success for all concerns, SBA 
considers the concern's access to credit and capital, including, but 
not limited to, access to long-term financing, access to working 
capital financing, equipment trade credit, access to raw materials and 
supplier trade credit, and bonding capability.
    (d) In assessing potential for success, SBA will also consider the 
technical and managerial experience of the applicant concern's 
managers, the operating history of the concern, the concern's record of 
performance on previous Federal and private sector contracts in the 
primary industry in which the concern is seeking 8(a) BD certification, 
and its financial capacity. The applicant concern as a whole must 
demonstrate both technical knowledge in its primary industry category 
and management experience sufficient to run its day-to-day operations.
    (e) The Participant or individuals employed by the Participant must 
hold all requisite licenses if the concern is engaged in an industry 
requiring professional licensing (e.g., public accountancy, law, 
professional engineering).
    (f) An applicant will not be denied admission into the 8(a) BD 
program due solely to a determination that potential 8(a) contract 
opportunities are unavailable to assist in the development of the 
concern unless:
    (1) The Government has not previously procured and is unlikely to 
procure the types of products or services offered by the concern; or
    (2) The purchase of such products or services by the Federal 
Government will not be in quantities sufficient to support the 
developmental needs of the applicant and other Participants providing 
the same or similar items or services.


Sec. 124.108  What other eligibility requirements apply for individuals 
or businesses?

    (a) Good character. The applicant or Participant and all its 
principals must have good character.
    (1) If, during the processing of an application, adverse 
information is obtained from the applicant or a credible source 
regarding possible criminal conduct by the applicant or any of its 
principals, no further action will be taken on the application until 
SBA's Inspector General has collected relevant information and has 
advised the AA/8(a)BD of his or her findings. The AA/8(a)BD will 
consider those findings when evaluating the application.
    (2) Violations of any of SBA's regulations may result in denial of 
participation in the 8(a) BD program. The AA/8(a)BD will consider the 
nature and severity of the violation in making an eligibility 
determination.
    (3) Debarred or suspended concerns or concerns owned by debarred or 
suspended persons are ineligible for admission to the 8(a) BD program.
    (4) An applicant is ineligible for admission to the 8(a) BD program 
if a proprietor, partner, limited liability member, director, officer, 
or holder of at least 10 percent of the stock, or another person 
(including a key manager) with significant authority over the concern 
is currently incarcerated, or on parole or probation pursuant to a pre-
trial diversion or following conviction for a felony or any crime 
involving business integrity.
    (5) If, during the processing of an application, SBA determines 
that an applicant has 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. If SBA 
determines that such false information has been submitted after a firm 
is admitted to the 8(a) BD program, SBA will initiate termination 
proceedings and suspend the firm under Secs. 124.304 and 124.305. 
Whenever SBA determines that the applicant submitted false information, 
the matter will be referred

[[Page 43604]]

to SBA's Office of Inspector General for review.
    (b) One-time eligibility. Once a concern or disadvantaged 
individual upon whom eligibility was based has participated in the 8(a) 
BD program, neither the concern nor that individual will be eligible 
again.
    (1) An individual who claims disadvantage and completes the 
appropriate SBA forms to qualify an applicant has participated in the 
8(a) BD program if SBA approves the application.
    (2) Use of eligibility will take effect on the date of the 
concern's approval into the program.
    (3) An individual who uses his/her one-time eligibility to qualify 
a concern for the 8(a) BD program will be considered a non-
disadvantaged individual for ownership or control purposes of another 
applicant or Participant. The criteria restricting participation by 
non-disadvantaged individuals will apply to such an individual. See 
Secs. 124.105 and 124.106.
    (4) When at least 50% of the assets or liabilities of a concern are 
the same as those of one or more former Participants, it will not be 
eligible for participation.
    (5) Participants which change their form of business organization 
and transfer their assets and liabilities to the new organization may 
do so without affecting the eligibility of the new organization 
provided the previous business is dissolved and all other eligibility 
criteria are met. In such a case, the new organization may complete the 
remaining program term of the previous organization. A request for a 
change in business form will be treated as a change of ownership under 
Sec. 124.105(i).
    (c) Wholesalers. An applicant concern seeking admission to the 8(a) 
BD program as a wholesaler need not demonstrate that it is capable of 
meeting the requirements of the nonmanufacturer rule for its primary 
industry classification.
    (d) Achievement of benchmarks. Where actual participation by 
disadvantaged businesses in a particular industry exceeds the benchmark 
limitations established by the Department of Commerce, in consultation 
with the General Services Administration and the SBA, for that 
industry, SBA, in its discretion, may decide not to accept an 
application for 8(a) BD participation from a concern whose primary 
industry classification falls within that industry.
    (e) Multiple concerns for immediate family members. Immediate 
family members may not each use their individual disadvantaged status 
to qualify more than one business concern for 8(a) BD program 
participation if the concerns are in the same or similar line of 
business. When the concerns are in separate lines of business, each 
concern must establish that it is separately owned, managed and 
controlled.
    (f) Brokers. Brokers are ineligible to participate in the 8(a) BD 
program. A broker is a concern that adds no value to an item being 
supplied to a procuring activity.


Sec. 124.109  Do Indian tribes and Alaska Native Corporations have any 
special rules for applying to the 8(a) BD program?

    (a) Special rules for ANCs. Small business concerns owned and 
controlled by ANCs are eligible for participation in the 8(a) program, 
subject to the same conditions that apply to tribally-owned concerns, 
as described in paragraphs (b) and (c) of this section, except that the 
following provisions and exceptions apply only to ANC-owned concerns:
    (1) Alaska Natives and descendants of Natives must own a majority 
of both the total equity of the ANC and the total voting powers to 
elect directors of the ANC through their holdings of settlement common 
stock. Settlement common stock means stock of an ANC issued pursuant to 
43 U.S.C. 1606(g)(1), which is subject to the rights and restrictions 
listed in 43 U.S.C. 1606(h)(1).
    (2) An ANC that meets the requirements set forth in paragraph 
(a)(1) of this section is deemed economically disadvantaged under 43 
U.S.C. 1626(e), and need not establish economic disadvantage as 
required by paragraph (b)(2) of this section.
    (3) Even though an ANC can be either for profit or non-profit, a 
small business concern owned and controlled by an ANC must be for 
profit to be eligible for the 8(a) program. The concern will be deemed 
owned and controlled by the ANC where both the majority of stock or 
other ownership interest and total voting power are held by the ANC and 
holders of its settlement common stock.
    (4) The Alaska Native Claims Settlement Act provides that a concern 
which is majority owned by an ANC shall be deemed to be both owned and 
controlled by Alaska Natives and an economically disadvantaged 
business. Therefore, an individual responsible for control and 
management of an ANC-owned applicant or Participant need not establish 
personal social and economic disadvantage.
    (5) Paragraphs (b)(3) (i), (ii) and (iv) of this section are not 
generally applicable to an ANC, provided its status as an ANC is 
clearly shown in its articles of incorporation.
    (6) Paragraph (c)(1) of this section is not applicable to an ANC-
owned concern to the extent it requires an express waiver of sovereign 
immunity or a ``sue and be sued'' clause.
    (b) Tribal eligibility. In order to qualify a concern which it owns 
and controls for participation in the 8(a) BD program, an Indian tribe 
must establish its own economic disadvantaged status under paragraph 
(b)(2) of this section. Thereafter, it need not reestablish such status 
in order to have other businesses that it owns certified for 8(a) BD 
program participation, unless specifically required to do so by the AA/
8(a)BD or designee. Each tribally-owned concern seeking to be certified 
for 8(a) BD participation must comply with the provisions of paragraph 
(c) of this section.
    (1) Social disadvantage. An Indian tribe as defined in Sec. 124.3 
is considered to be socially disadvantaged.
    (2) Economic disadvantage. In order to be eligible to participate 
in the 8(a) BD program, the Indian tribe must demonstrate to SBA that 
the tribe itself is economically disadvantaged. This must involve the 
consideration of available data showing the tribe's economic condition, 
including but not limited to, the following information:
    (i) The number of tribal members.
    (ii) The present tribal unemployment rate.
    (iii) The per capita income of tribal members, excluding judgment 
awards.
    (iv) The percentage of the local Indian population below the 
poverty level.
    (v) The tribe's access to capital.
    (vi) The tribal assets as disclosed in a current tribal financial 
statement. The statement must list all assets including those which are 
encumbered or held in trust, but the status of those encumbered or in 
trust must be clearly delineated.
    (vii) A list of all wholly or partially owned tribal enterprises or 
affiliates and the primary industry classification of each. The list 
must also specify the members of the tribe who manage or control such 
enterprises by serving as officers or directors.
    (3) Forms and documents required to be submitted. Except as 
otherwise provided in this section, the Indian tribe generally must 
submit the forms and documents required of 8(a) BD applicants as well 
as the following material:
    (i) A copy of all governing documents such as the tribe's 
constitution or business charter.
    (ii) Evidence of its recognition as a tribe eligible for the 
special programs

[[Page 43605]]

and services provided by the United States or by its state of 
residence.
    (iii) Copies of its articles of incorporation and bylaws as filed 
with the organizing or chartering authority, or similar documents 
needed to establish and govern a non-corporate legal entity.
    (iv) Documents or materials needed to show the tribe's economically 
disadvantaged status as described in paragraph (b)(2) of this section.
    (c) Business eligibility. In order to be eligible to participate in 
the 8(a) BD program, a concern which is owned by an eligible Indian 
tribe (or wholly owned business entities of such tribe) must meet the 
conditions set forth in paragraphs (c)(1) through (c)(7) of this 
section.
    (1) Legal business entity organized for profit and susceptible to 
suit. The applicant or participating concern must be a separate and 
distinct legal entity organized or chartered by the tribe, or Federal 
or state authorities. The concern's articles of incorporation, 
partnership agreement or limited liability company articles of 
organization 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. Also, the 
concern must be organized for profit, and the tribe must possess 
economic development powers in the tribe's governing documents.
    (2) Size. (i) A tribally-owned applicant concern must qualify as a 
small business concern as defined for purposes of Government 
procurement in part 121 of this title. The particular size standard to 
be applied shall be based on the primary industry classification of the 
applicant concern.
    (ii) A tribally-owned Participant must certify to SBA that it is a 
small business pursuant to the provisions of part 121 of this title for 
the purpose of performing each individual contract which it is awarded.
    (iii) In determining the size of a small business concern owned by 
a socially and economically disadvantaged Indian tribe (or a wholly 
owned business entity of such tribe) for either 8(a) BD program entry 
or contract award, the firm's size shall be determined independently 
without regard to its affiliation with the tribe, any entity of the 
tribal government, or any other business enterprise owned by the tribe, 
unless the Administrator determines that one or more such tribally-
owned business concerns have obtained, or are likely to obtain, a 
substantial unfair competitive advantage within an industry category.
    (3) Ownership. For corporate entities, a tribe must 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, a tribe must own at 
least a 51 percent interest. A tribe cannot own 51% or more of another 
firm which, either at the time of application or within the previous 
two years, has been operating in the 8(a) program under the same 
primary Standard Industry Classification code as the applicant. The 
restrictions of Sec. 124.105(h) do not apply to tribes; they do, 
however, apply to non-disadvantaged individuals or other business 
concerns that are partial owners of a tribally-owned concern.
    (4) Control and management. (i) The management and daily business 
operations of a tribally-owned concern must be controlled by the tribe, 
through one or more disadvantaged individual members who possess 
sufficient management experience of an extent and complexity needed to 
run the concern, or through management as follows:
    (A) Management may be provided by committees, teams, or Boards of 
Directors which are controlled by one or more members of an 
economically disadvantaged tribe, or
    (B) Management may be provided by non-tribal members if SBA 
determines that such management is required to assist the concern's 
development, that the tribe will retain control of all management 
decisions common to boards of directors, including strategic planning, 
budget approval, and the employment and compensation of officers, and 
that a written management development plan exists which shows how 
disadvantaged tribal members will develop managerial skills sufficient 
to manage the concern or similar tribally-owned concerns in the future.
    (ii) Members of the management team, business committee members, 
officers, and directors are precluded from engaging in any outside 
employment or other business interests which conflict with the 
management of the concern or prevent the concern from achieving the 
objectives set forth in its business development plan. This is not 
intended to preclude participation in tribal or other activities which 
do not interfere with such individual's responsibilities in the 
operation of the applicant concern.
    (5) Individual eligibility limitation. SBA does not deem an 
individual involved in the management or daily business operations of a 
tribally-owned concern to have used his or her individual eligibility 
within the meaning of Sec. 124.108(b).
    (6) Potential for success. (i) A tribally-owned applicant concern 
must be 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, or demonstrate potential for success as set forth in 
paragraph (c)(6)(ii) of this section.
    (ii) In determining whether a tribally-owned concern has the 
potential for success, SBA will look at a number of factors including, 
but not limited to:
    (A) The technical and managerial experience and competency of the 
individual(s) who will manage and control the daily operation of the 
concern;
    (B) The financial capacity of the concern; and
    (C) The concern's record of performance on any previous Federal or 
private sector contracts in the primary industry in which the concern 
is seeking 8(a) certification.
    (7) Other eligibility criteria. (i) As with other 8(a) applicants, 
a tribally-owned applicant concern shall not be denied admission into 
the 8(a) program due solely to a determination that specific contract 
opportunities are unavailable to assist the development of the concern 
unless:
    (A) The Government has not previously procured and is unlikely to 
procure the types of products or services offered by the concern; or
    (B) The purchase of such products or services by the Federal 
Government will not be in quantities sufficient to support the 
developmental needs of the applicant and other program participants 
providing the same or similar items or services.
    (ii) Except for the tribe itself, the concern's officers, 
directors, and 20% or more shareholders must demonstrate good 
character. See Sec. 124.108(a).


Sec. 124.110  Do Native Hawaiian Organizations have any special rules 
for applying to the 8(a) BD program?

    (a) Concerns owned by economically disadvantaged Native Hawaiian 
Organizations as defined in Sec. 124.3 are eligible for participation 
in the 8(a) program and other federal programs requiring SBA to 
determine social and economic disadvantage as a condition of 
eligibility. Such concerns must meet all eligibility criteria set forth 
in Secs. 124.101 through 124.108 and Sec. 124.112(a) to the extent that 
they are not inconsistent with this section.

[[Page 43606]]

    (b) A concern owned by a Native Hawaiian Organization must qualify 
as a small business concern as defined in part 121 of this title. The 
size standard corresponding to the primary industry classification of 
the applicant concern applies for determining size. Ownership by the 
Native Hawaiian Organization will not, by itself, cause affiliation 
with the Native Hawaiian Organization or with other entities owned by 
the Native Hawaiian Organization. However, affiliation with the Native 
Hawaiian Organization or with other entities owned by the Native 
Hawaiian Organization may be caused by circumstances other than common 
ownership.
    (c) A Native Hawaiian Organization cannot own more than one current 
or former Participant having the same primary industry classification.
    (d) SBA does not deem an individual involved in the management or 
daily business operations of a Participant owned by a Native Hawaiian 
Organization to have used his or her individual eligibility within the 
meaning of Sec. 124.108(b).
    (e)(1) An applicant concern owned by a Native Hawaiian Organization 
must be 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, or demonstrate potential for success as set forth in 
paragraph (e)(2) of this section.
    (2) In determining whether a concern owned by a Native Hawaiian 
Organization has the potential for success, SBA will look at a number 
of factors including, but not limited to:
    (i) The technical and managerial experience and competency of the 
individual(s) who will manage and control the daily operation of the 
concern;
    (ii) The financial capacity of the concern; and
    (iii) The concern's record of performance on any previous Federal 
or private sector contracts in the primary industry in which the 
concern is seeking 8(a) certification.


Sec. 124.111  Do Community Development Corporations (CDCs) have any 
special rules for applying to the 8(a) BD program?

    (a) Concerns owned at least 51 percent by CDCs (or a wholly owned 
business entity of a CDC) are eligible for participation in the 8(a) BD 
program and other federal programs requiring SBA to determine social 
and economic disadvantage as a condition of eligibility. These concerns 
must meet all eligibility criteria set forth in Sec. 124.101 through 
Sec. 124.108 and Sec. 124.112(a) to the extent that they are not 
inconsistent with this section.
    (b) A concern that is at least 51 percent owned by a CDC (or a 
wholly owned business entity of a CDC) is considered to be controlled 
by such CDC and eligible for participation in the 8(a) BD program, 
provided it meets all eligibility criteria set forth or referred to in 
this section and its management and daily business operations are 
conducted by one or more individuals determined to have managerial 
experience of an extent and complexity needed to run the concern.
    (c) A concern that is at least 51 percent owned by a CDC (or a 
wholly owned business entity of a CDC) must qualify as a small business 
concern as defined in part 121 of this title. The size standard 
corresponding to the primary industry classification of the applicant 
concern applies for determining size. Ownership by the CDC will not, by 
itself, cause affiliation with the CDC or with other CDC-owned 
entities. However, affiliation with the CDC or other CDC-owned entities 
may arise due to circumstances other than common CDC ownership.
    (d) A CDC cannot own more than one current or former Participant 
having the same primary industry classification.
    (e) SBA does not deem an individual involved in the management or 
daily business operations of a CDC-owned concern to have used his or 
her individual eligibility within the meaning of Sec. 124.108(b).
    (f)(1) A CDC-owned applicant concern must be 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, or demonstrate 
potential for success as set forth in paragraph (e)(2) of this section.
    (2) In determining whether a CDC-owned concern has the potential 
for success, SBA will look at a number of factors including, but not 
limited to:
    (i) The technical and managerial experience and competency of the 
individual(s) who will manage and control the daily operation of the 
concern;
    (ii) The financial capacity of the concern; and
    (iii) The concern's record of performance on any previous Federal 
or private sector contracts in the primary industry in which the 
concern is seeking 8(a) certification.
    (g) A CDC-owned applicant and all of its principals must have good 
character as set forth in Sec. 124.108(a).


Sec. 124.112  What criteria must a business meet to remain eligible to 
participate in the 8(a) BD program?

    (a) Standards. In order for a concern to remain eligible for 8(a) 
BD program participation, it must continue to meet all eligibility 
criteria contained in Sec. 124.101 through Sec. 124.108. For continued 
economic disadvantage, transfers of assets by an individual claiming 
disadvantaged status to an immediate family member, or to a trust the 
beneficiary of which is an immediate family member, for less than fair 
market value will be attributed to the individual claiming 
disadvantaged status for a period of two years after the transfer. Any 
concern that fails to meet the eligibility requirements after being 
admitted to the program will be subject to termination or early 
graduation under Secs. 124.302 through 124.304, as appropriate.
    (b) Submissions supporting continued eligibility. As part of an 
annual review, each Participant must annually submit to the servicing 
district office the following:
    (1) A certification that it meets the 8(a) BD program eligibility 
requirements as set forth in Sec. 124.101 through Sec. 124.108 and 
paragraph (a) of this section;
    (2) Personal financial information for each disadvantaged owner;
    (3) A certification from each individual claiming disadvantaged 
status regarding the transfer of assets to any immediate family member, 
or to a trust the beneficiary of which is an immediate family member, 
within two years of the date of the annual review. The individual must 
certify that he or she has not transferred assets or that he or she has 
not transferred assets except to the extent described in an attachment 
to the certification.
    (4) A record of all payments, compensation, and distributions 
(including loans, advances, salaries and dividends) made by the 
Participant to each of its owners, officers or directors, or to any 
person or entity affiliated with such individuals; and
    (5) Such other information as SBA may deem necessary. For other 
required annual submissions, see Sec. 124.601 through Sec. 124.603.
    (c) Eligibility reviews. (1) Upon receipt of specific and credible 
information alleging that a Participant no longer meets the eligibility 
requirements for continued program eligibility, SBA will review the 
concern's eligibility for continued participation in the program.
    (2) Sufficient reasons for SBA to conclude that a 8(a) BD 
Participant is no longer economically disadvantaged include, but are 
not limited to,

[[Page 43607]]

demonstrated access to a significant new source of capital or loans, an 
unusually large amount of funds or other assets withdrawn from the 
concern by its owners, or substantial personal assets, income or net 
worth of any disadvantaged owner.
    (3) If SBA determines that funds or other assets have been 
withdrawn to the detriment of the achievement of the targets, 
objectives and goals of the Participant's business plan, or to the 
detriment of its overall business development, SBA may initiate a 
termination proceeding under Secs. 124.303 and 124.304, or require an 
appropriate reinvestment of funds or other assets, as well as any other 
actions SBA deems necessary to counteract the detrimental effects of 
the withdrawals, as a condition of the Participant maintaining program 
eligibility. The fact that a concern's net worth has increased despite 
withdrawals that are deemed excessive will not preclude SBA from 
determining that such withdrawals were detrimental to the attainment of 
the concern's business objectives or to its overall business 
development.

Applying to the 8(a) BD Program


Sec. 124.201  May any business submit an application?

    Any concern or any individual on behalf of a business has the right 
to apply for 8(a) BD program participation whether or not there is an 
appearance of eligibility.


Sec. 124.202  Where must an application be filed?

    An application for 8(a) BD program admission must be filed in the 
SBA Division of Program Certification and Eligibility (DPCE) field 
office serving the territory in which the principal place of business 
is located. The SBA district office will provide an applicant concern 
with information regarding the 8(a) BD program and with all required 
application forms.


Sec. 124.203  What must a concern submit to apply to the 8(a) BD 
program?

    Each 8(a) BD applicant concern must submit those forms and 
attachments required by SBA when applying for admission to the 8(a) BD 
program. These forms and attachments will include, but not be limited 
to, financial statements, Federal personal and business tax returns, 
and personal history statements. The application package may be in the 
form of an electronic application.


Sec. 124.204  How does SBA process applications for 8(a) BD program 
admission?

    (a) The AA/8(a)BD is authorized to approve or decline applications 
for admission to the 8(a) BD program. The DPCE will receive, review and 
evaluate all 8(a) BD applications except those from ANC-owned 
applicants. The SBA's Anchorage District Office will receive those 
applications and review them for completeness before sending them to 
the AA/8(a)BD for further processing. The field DPCE office 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. SBA will process an application 
for 8(a) BD program participation within 90 days of receipt of a 
complete application package by the field DPCE office. Incomplete 
application packages will not be processed.
    (b) An applicant concern's eligibility will be based on 
circumstances existing on the date of application except as provided in 
paragraph (c) of this section. SBA, in its sole discretion, may request 
clarification of information contained in the application at any time 
in the application process.
    (c) Changed circumstances for an applicant concern occurring 
subsequent to its application and which adversely affect eligibility 
will be considered and may constitute grounds for decline. The 
applicant must inform SBA of any changed circumstances during its 
application review.
    (d) The decision of the AA/8(a)BD to approve or deny an application 
will be in writing. A decision to deny admission will state the 
specific reasons for denial, and will inform the applicant of any 
appeal rights.
    (e) If the AA/8(a)BD approves the application, the date of the 
approval letter is the date of program certification for purposes of 
determining the concern's program term. However, an applicant is not 
entitled to receive program benefits until SBA has approved the 
concern's business plan.


Sec. 124.205  Can an applicant ask SBA to reconsider SBA's initial 
decision to decline its application?

    (a) An applicant may request the AA/8(a)BD to reconsider his or her 
initial decline decision. To do so, the applicant must ask for 
reconsideration by sending a certified letter, return receipt 
requested, to the regional office of the DPCE that originally processed 
its application. The applicant must submit its request for 
reconsideration within 45 days of receiving notice that its application 
was declined. The applicant must provide any additional information and 
documentation pertinent to overcoming the reason(s) for the initial 
decline.
    (b) The AA/8(a)BD will issue a written decision within 45 days of 
the regional DPCE's receipt of the applicant's request. The AA/8(a)BD 
may either approve the application, deny it on the same grounds as the 
original decision, or deny it on other grounds. If denied, the AA/
8(a)BD will explain why the applicant is not eligible for admission to 
the 8(a) BD program and give specific reasons for the decline.
    (c) If the AA/8(a)BD declines the application solely on issues not 
raised in the initial decline, the applicant can ask for 
reconsideration as if it were an initial decline.


Sec. 124.206  What appeal rights are available to an applicant that has 
been denied admission?

    (a) An applicant may appeal a denial of program admission if it is 
based solely on a negative finding of social disadvantage, economic 
disadvantage, ownership, control, or any combination of these four 
criteria. A denial decision that is based at least in part on the 
failure to meet any other eligibility criterion is not appealable and 
is the final Agency decision.
    (b) The applicant may appeal an initial decision of the AA/8(a)BD 
without requesting reconsideration, or may appeal the decision of the 
AA/8(a)BD on reconsideration.
    (c) The applicant may initiate an appeal by filing a petition in 
accordance with part 134 of this title with SBA's Office of Hearings 
and Appeals (OHA) within 45 days of the date of service (as defined in 
Sec. 134.204) of the Agency decision.
    (d) If an appeal is filed with OHA, the written decision of the 
Administrative Law Judge is the final Agency decision. If an appealable 
decision is not appealed, the decision of the AA/8(a)BD is the final 
Agency decision.


Sec. 124.207  Can an applicant reapply for admission to the 8(a) BD 
program?

    A concern which has been declined for 8(a) BD program admission may 
submit a new application for admission to the program 12 months after 
the date of the final Agency decision to decline.

Exiting the 8(a) BD Program


Sec. 124.301  What are the ways a business may leave the 8(a) BD 
program?

    A concern participating in the 8(a) BD program may leave the 
program by any of the following means:

[[Page 43608]]

    (a) Voluntary early graduation or withdrawal;
    (b) Expiration of the program term established pursuant to 
Sec. 124.2;
    (c) Early graduation pursuant to the provisions of Secs. 124.302 
and 124.304; or
    (d) Termination pursuant to the provisions of Secs. 124.303 and 
124.304.


Sec. 124.302  What is early graduation?

    (a) General. The Small Business Act authorizes SBA to graduate a 
firm from the 8(a) BD program prior to the expiration of its Program 
Term for two reasons:
    (1) When a Participant is recognized as successfully completing the 
8(a) BD program by substantially achieving the targets, objectives and 
goals set forth in its business plan prior to the expiration of its 
program term, and has demonstrated the ability to compete in the 
marketplace without assistance under the 8(a) BD program; or
    (2) When SBA determines that one or more of the disadvantaged 
owners upon whom the Participant's eligibility is based are no longer 
economically disadvantaged.
    (b) Early graduation criteria. In determining whether a Participant 
has substantially achieved the targets, objectives and goals of its 
business plan and in assessing the overall competitive strength and 
viability of a Participant, SBA considers the totality of 
circumstances, including the following factors:
    (1) Degree of sustained profitability;
    (2) Sales trends, including improved ratio of non-8(a) sales to 
8(a) sales since program entry;
    (3) Business net worth, financial ratios, working capital, 
capitalization, and access to credit and capital;
    (4) Current ability to obtain bonding;
    (5) A comparison of the Participant's business and financial 
profiles with profiles of non-8(a) BD businesses having the same 
primary four-digit SIC code as the Participant;
    (6) Strength of management experience, capability, and expertise; 
and
    (7) Ability to operate successfully without 8(a) contracts.
    (c) Benchmark achievement. SBA may graduate a Participant prior to 
the expiration of its program term where the Participant has 
substantially achieved the targets, objectives and goals of its 
business plan as adjusted under Sec. 124.403(c) because of benchmark 
achievement.


Sec. 124.303  What is termination?

    (a) SBA may terminate the participation of a concern in the 8(a) BD 
program prior to the expiration of the concern's Program Term for good 
cause. Examples of good cause include, but are not limited to, the 
following:
    (1) Submission of false information in the concern's 8(a) BD 
application, regardless of whether correct information would have 
caused the concern to be denied admission to the program, and 
regardless of whether correct information was given to SBA in 
accompanying documents or by other means.
    (2) Failure by the concern to maintain its eligibility for program 
participation.
    (3) Failure by the concern for any reason, including the death of 
an individual upon whom eligibility was based, to maintain ownership, 
full-time day-to-day management, and control by disadvantaged 
individuals.
    (4) Failure by the concern to obtain written approval from SBA for 
any changes in ownership, management or control pursuant to 
Secs. 124.105 and 124.106.
    (5) Failure by the concern to disclose to SBA the extent to which 
non-disadvantaged persons or firms participate in the management of the 
Participant business concern.
    (6) Failure by one or more of the concern's principals to maintain 
good character.
    (7) A pattern of failure to make required submissions or responses 
to SBA in a timely manner, including a failure to provide required 
financial statements, requested tax returns, reports, updated business 
plans, information requested by SBA's Office of Inspector General, or 
other requested information or data within 30 days of the date of 
request.
    (8) Cessation of business operations by the concern.
    (9) Failure by the concern to pursue competitive and commercial 
business in accordance with its business plan, or failure in other ways 
to make reasonable efforts to develop and achieve competitive 
viability.
    (10) A pattern of inadequate performance by the concern of awarded 
section 8(a) contracts.
    (11) Failure by the concern to pay or repay significant financial 
obligations owed to the Federal Government.
    (12) Failure by the concern to obtain and keep current any and all 
required permits, licenses, and charters.
    (13) Excessive transfers of funds or other business assets 
hindering development of the concern, or excessive withdrawals from the 
concern for the personal benefit of any of its owners or any person or 
entity affiliated with the owners. Withdrawals are excessive if they 
exceed:
    (i) $150,000 for firms with sales up to $1,000,000;
    (ii) $200,000 for firms with sales between $1,000,000 and 
$2,000,000; and
    (iii) $300,000 for firms with sales over $2,000,000.
    (14) Unauthorized use of SBA direct or guaranty loan proceeds or 
violation of an SBA loan agreement.
    (15) Submission on behalf of a Participant of false information to 
SBA, including false certification of compliance with non-8(a) business 
activity targets under Sec. 124.508, where responsible officials of the 
8(a) BD concern knew or should have known the submission to be false.
    (16) Debarment, suspension, voluntary exclusion, or ineligibility 
of the concern or its principals pursuant to 13 CFR part 145 or FAR 
subpart 9.4 (48 CFR part 9, subpart 9.4).
    (17) Conduct by the concern, or any of its principals, indicating a 
lack of business integrity. Such conduct may be demonstrated by 
information in a criminal indictment, a criminal conviction, or a civil 
judgment.
    (18) Suspension or revocation of any professional license required 
to run the business.
    (19) Willful failure by the Participant business concern to comply 
with applicable labor standards and obligations.
    (20) Material breach of any terms and conditions of the 8(a) BD 
Program Participation Agreement.
    (21) Willful violation by a concern, or any of its principals, of 
any SBA regulation.
    (b) The examples of good cause listed in paragraph (a) of this 
section are intended to be illustrative only. Other grounds for 
terminating a Participant from the 8(a) BD program for cause may exist 
and may be used by SBA.


Sec. 124.304  What are the procedures for early graduation and 
termination?

    (a) General. The same procedures apply to both early graduation and 
termination of Participants from the 8(a) BD program.
    (b) Letter of Intent to Terminate or Early Graduate. 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 Early Graduate 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 of service of the 
letter to submit a written response to SBA. Service is defined in 
Sec. 134.204.
    (c) Recommendation and decision. Following the 30-day response 
period,

[[Page 43609]]

the Assistant Administrator, DPCE, will consider the proposed early 
graduation or termination and any information submitted in response by 
the concern. Upon determining that early graduation or termination is 
not warranted, the Assistant Administrator will notify the Participant 
in writing. If early graduation or termination appears warranted, the 
Assistant Administrator will make such a recommendation to the AA/
8(a)BD, who will then make a decision whether to early graduate or 
terminate the concern.
    (d) Notice requirements. Upon deciding that early graduation or 
termination is warranted, the AA/8(a)BD will issue a Notice of Early 
Graduation or Termination. The Notice will set forth the specific facts 
and reasons for the decision, and will advise the concern that it may 
appeal the decision in accordance with the provisions of part 134 of 
this title.
    (e) Appeal to Office of Hearings and Appeals. Procedures governing 
appeals of early graduation or termination to SBA's OHA are set forth 
in part 134. If a Participant does not appeal a Notification of Early 
Graduation or Termination within 45 days of the date of service (as 
defined in Sec. 134.204), the decision of the AA/8(a)BD is the final 
agency decision effective on the date the appeal right expired.
    (f) Effect of early graduation or termination. After the effective 
date of early graduation or termination, a Participant is no longer 
eligible to receive any 8(a) BD program assistance. However, such 
concern is obligated to complete previously awarded 8(a) contracts, 
including any priced options which may be exercised.


Sec. 124.305  What is suspension and how is a Participant suspended 
from the 8(a) BD program?

    (a) At any time after SBA issues a Letter of Intent to Terminate 
pursuant to Sec. 124.304, the AA/8(a)BD may suspend 8(a) contract 
support and all other forms of 8(a) BD program assistance to that 
concern until the issue of the concern's termination from the program 
is finally decided. The AA/8(a)BD may suspend a Participant when he or 
she determines that suspension is needed to protect the interests of 
the Government, such as where information showing a clear lack of 
program eligibility or conduct indicating a lack of business integrity 
exists, including where the concern or one of its principals submitted 
false statements to the Government. SBA will suspend a Participant 
where SBA determines that the Participant submitted false information 
in its 8(a) BD application.
    (b) SBA will issue a Notice of Suspension to the Participant's last 
known address by certified mail, return receipt requested. Suspension 
is effective as of the date of the issuance of the Notice. The Notice 
will provide the following information:
    (1) The basis for the suspension;
    (2) A statement that the suspension will continue pending the 
completion of further investigation, a final program termination 
determination, or some other specified period of time;
    (3) A statement that awards of competitive and non-competitive 8(a) 
contracts, including those which have been ``self-marketed'' by a 
Participant, will not be made during the pendency of the suspension 
unless it is determined by the head of the relevant procuring agency or 
an authorized representative to be in the best interest of the 
Government to do so, and SBA adopts that determination;
    (4) A statement that the concern is obligated to complete 
previously awarded section 8(a) contracts;
    (5) A statement that the suspension is effective nationally 
throughout the SBA;
    (6) A statement that a request for a hearing on the suspension will 
be considered by an Administrative Law Judge at OHA, and granted or 
denied as a matter of discretion.
    (7) A statement that the firm's participation in the program is 
suspended effective on the date the Notice is issued, and that the 
program term will resume only if the suspension is lifted or the firm 
is not terminated.
    (c) The applicant concern may appeal a Notice of Suspension by 
filing a petition in accordance with part 134 of this title with OHA 
within 45 days of the date of service (as defined in Sec. 134.204) of a 
Notice of Suspension pursuant to paragraph (b) of this section. It is 
contemplated that in most cases a hearing on the issue of the 
suspension will be afforded if the Participant requests one, but 
authority to grant a hearing is within the discretion of the 
Administrative Law Judge in OHA. A suspension remains in effect pending 
the result of its appeal.
    (d) SBA has the burden of showing that substantial evidence exists 
in support of at least one of the grounds for termination cited in the 
Letter of Intent to Terminate, and that protection of the Government's 
interest requires suspension before OHA makes a final determination 
regarding the termination.
    (e) If there is a timely appeal, the decision of the Administrative 
Law Judge is the final Agency decision. If there is not a timely 
appeal, the decision of the AA/8(a)BD is the final Agency decision.
    (f) Upon the request of SBA, OHA may consolidate suspension and 
termination proceedings when the issues presented are identical.
    (g) Any program suspension which occurs in accordance with this 
part will continue in effect until such time as the SBA lifts the 
suspension or the Participant's participation in the program is fully 
terminated. If the concern is ultimately not terminated from the 8(a) 
BD program, the suspension will be lifted and the length of the 
suspension will be added to the concern's program term.
    (h) SBA does not recognize the concept of de facto suspension. 
Adding time to the end of a Participant's program term equal to the 
length of a suspension will occur only where a concern's program 
participation has been formally suspended in accordance with the 
procedures set forth in this section.
    (i) A suspension from 8(a) BD participation under this section has 
no effect on a concern's eligibility for non-8(a) Government contracts. 
However, a debarment or suspension under the Federal Acquisition 
Regulation (48 CFR chapter 1) will disqualify a concern from receiving 
all Government contracts, including 8(a) contracts.

Business Development


Sec. 124.401  Which SBA field office services a Participant?

    The SBA district office which serves the geographical territory 
where a Participant's principal place of business is located normally 
will service the concern during its participation in the 8(a) BD 
program.


Sec. 124.402  How does a Participant develop a business plan?

    (a) General. In order to assist the SBA servicing office in 
determining the business development needs of its portfolio 
Participants, each Participant must develop a comprehensive business 
plan setting forth its business targets, objectives, and goals.
    (b) Submission of initial business plan. Each Participant must 
submit a business plan to its SBA servicing office as soon as possible 
after program admission. The Participant will not be eligible for 8(a) 
BD program benefits, including 8(a) contracts, until SBA approves its 
business plan.
    (c) Contents of business plan. The business plan must contain at 
least the following:
    (1) A detailed description of any products currently being produced 
and any services currently being performed

[[Page 43610]]

by the concern, as well as any future plans to enter into one or more 
new markets;
    (2) The applicant's designation of its primary industry 
classification, as defined in Sec. 124.3;
    (3) An analysis of market potential, competitive environment, and 
the concern's prospects for profitable operations during and after its 
participation in the 8(a) BD program;
    (4) An analysis of the concern's strengths and weaknesses, with 
particular attention on ways to correct any financial, managerial, 
technical, or work force conditions which could impede the concern from 
receiving and performing non-8(a) contracts;
    (5) Specific targets, objectives, and goals for the business 
development of the concern during the next two years;
    (6) Estimates of both 8(a) and non-8(a) contract awards that will 
be needed to meet its targets, objectives and goals; and
    (7) Such other information as SBA may require.


Sec. 124.403  How is a business plan updated and modified?

    (a) Annual review. Each Participant must annually review its 
business plan with its assigned Business Opportunity Specialist (BOS), 
and modify the plan as appropriate. The Participant must submit a 
modified plan and updated information to its BOS within thirty (30) 
days after the close of each program year. It also must submit a 
capability statement describing its current contract performance 
capabilities as part of its updated business plan.
    (b) Contract forecast. As part of the annual review of its business 
plan, each Participant must annually forecast in writing its needs for 
contract awards for the next program year. The forecast must include:
    (1) The aggregate dollar value of 8(a) contracts to be sought, 
broken down by sole source and competitive opportunities where 
possible;
    (2) The aggregate dollar value of non-8(a) contracts to be sought;
    (3) The types of contract opportunities to be sought, identified by 
product or service; and
    (4) Such other information as SBA may request to aid in providing 
effective business development assistance to the Participant.
    (c) Benchmark achievement. Where actual participation by 
disadvantaged businesses in a particular industry exceeds the benchmark 
limitations established by the Department of Commerce, in consultation 
with the General Services Administration and the SBA, for that 
industry, SBA may adjust the targets, objectives and goals contained in 
the business plans of Participants whose primary industry 
classification falls within that industry. Any adjustment will take 
into account projected decreases in 8(a) and SDB contracting 
opportunities.
    (d) Transition management strategy. Beginning in the first year of 
the transitional stage of program participation, each Participant must 
annually submit a transition management strategy to be incorporated 
into its business plan. The transition management strategy must 
describe:
    (1) How the Participant intends to meet the applicable non-8(a) 
business activity target imposed by Sec. 124.508 during the 
transitional stage of participation; and
    (2) The specific steps the Participant intends to take to continue 
its business growth and promote profitable business operations after 
the expiration of its program term.


Sec. 124.404  What business development assistance is available to 
Participants during the two stages of participation in the 8(a) BD 
program?

    (a) General. Participation in the 8(a) BD program is divided into 
two stages, a developmental stage and a transitional stage. The 
developmental stage will last four years, and the transitional stage 
will last five years, unless the concern has exited the program by one 
of the means set forth in Sec. 124.301 prior to the expiration of its 
program term.
    (b) Developmental stage of program participation. A Participant, if 
otherwise eligible, may receive the following assistance during the 
developmental stage of program participation:
    (1) Sole source and competitive 8(a) contract support;
    (2) Financial assistance pursuant to Sec. 120.385 of this title;
    (3) The transfer of technology or surplus property owned by the 
United States pursuant to Sec. 124.405; and
    (4) Training to aid in developing business principles and 
strategies to enhance their ability to compete successfully for both 
8(a) and non-8(a) contracts.
    (c) Transitional stage of program participation. A Participant, if 
otherwise eligible, may receive the following assistance during the 
transitional stage of program participation:
    (1) The same assistance as that provided to Participants in the 
developmental stage;
    (2) Assistance from procuring agencies (in cooperation with SBA) in 
forming joint ventures, leader-follower arrangements, and teaming 
agreements between the concern and other Participants or other business 
concerns with respect to contracting opportunities outside the 8(a) BD 
program for research, development, or full scale engineering or 
production of major systems (these arrangements must comply with all 
relevant statutes and regulations, including applicable size standard 
requirements); and
    (3) Training and technical assistance in transitional business 
planning.


Sec. 124.405  How does a Participant obtain Federal Government surplus 
property?

    (a) General. (1) Surplus Federal Government property may be 
transferred to eligible Participants from State Agencies for Surplus 
Property (SASPs) in accordance with the procedures set forth in 41 CFR 
Part 101-44 and this section.
    (2) The property which may be transferred to SASPs for further 
transfer to eligible Participants includes all personal property which 
has been determined to be ``donable'' as defined in 41 CFR 101-44.001-
3.
    (b) Eligibility to receive Federal surplus property. To be eligible 
to receive Federal surplus property, on the date of transfer a concern 
must:
    (1) Be in the 8(a) BD program;
    (2) Be in compliance with all program requirements, including any 
reporting requirements;
    (3) Not be debarred, suspended or declared ineligible under part 9, 
subpart 9.4 of the Federal Acquisition Regulations, Title 48 of the 
Code of Federal Regulations;
    (4) Not be under a pending 8(a) BD program suspension, termination 
or early graduation proceeding; and
    (5) Be engaged or expect to be engaged in business activities 
making the item useful to it.
    (c) Use of acquired surplus property. (1) Eligible Participants may 
acquire surplus Federal property from any SASP located in any State, 
provided the concern represents and agrees in writing:
    (i) As to what the intended use of the surplus property is to be 
and that this use is consistent with the objectives of the concern's 
8(a) business plan;
    (ii) That it will use the property to be acquired in the normal 
conduct of its business activities or be liable for the fair rental 
value from the date of its receipt;
    (iii) That it will not sell or transfer the property to be acquired 
to any party other than the Federal Government during its term of 
participation in the 8(a) program and for one year after it leaves the 
program;
    (iv) That, at its own expense, it will return the property to a 
SASP or transfer

[[Page 43611]]

it to another Participant if directed to do so by the SBA because it 
has not used the property as intended within one year of receipt;
    (v) That, should it breach its agreement not to sell or transfer 
the property, it will be liable to the Government for the established 
fair market value or the sale price, whichever is greater, of the 
property sold or transferred; and
    (vi) That it will give SBA access to inspect the property and all 
records pertaining to it.
    (2) A firm receiving surplus property pursuant to this section 
assumes all liability associated with or stemming from the use of the 
property.
    (3) If the property is not placed in use for the purposes for which 
it was intended within one year of its receipt, SBA may direct the 
concern to deliver the property to another Participant or to the SASP 
from which it was acquired.
    (4) Failure to comply with any of the commitments made under 
paragraph (c)(1) of this section constitutes a basis for termination 
from the 8(a) program.
    (d) Procedures for acquiring Federal Government surplus property. 
(1) Participants may participate in the surplus property distribution 
program administered by the SASPs to the same extent, but with no 
special priority over, other authorized transferees. See 41 CFR subpart 
101-44.2.
    (2) Each Participant seeking to acquire Federal Government surplus 
property from a SASP must:
    (i) Certify in writing to the SASP that it is eligible to receive 
the property pursuant to paragraph (b) of this section;
    (ii) Make the written representations and agreement required by 
paragraph (c)(1) of this section; and
    (iii) Identify to the SASP its servicing SBA field office.
    (3) Upon receipt of the required certification, representations, 
agreement, and information set forth in paragraph (d)(2) of this 
section, the SASP must contact the appropriate SBA field office and 
obtain the SBA's verification that the concern seeking to acquire the 
surplus property is eligible, and that the identified use of the 
property is consistent with the concern's business activities. SASPs 
may not release property to a Participant without this verification.
    (4) The SASP and the Participant must agree on and record the fair 
market value of the surplus property at the time of the transfer to the 
Participant. The SASP must provide to SBA a written record, including 
the agreed upon fair market value, of each transaction to a Participant 
when any property has been transferred.
    (e) Costs. Participants acquiring surplus property from a SASP must 
pay a service fee to the SASP which is equal to the SASP's direct costs 
of locating, inspecting, and transporting the surplus property. If a 
Participant elects to incur the responsibility and the expense for 
transporting the acquired property, the concern may do so and no 
transportation costs will be charged by the SASP. In addition, the SASP 
may charge a reasonable fee to cover its costs of administering the 
program. In no instance will any SASP charge a Participant more for any 
service than their established fees charged to other transferees.
    (f) Title. The title to surplus property acquired from a SASP will 
pass to the Participant when the Participant executes the applicable 
SASP distribution documents and takes possession of the property.
    (g) Compliance. (1) SBA will periodically review whether 
Participants that have received surplus property have used and 
maintained the property as agreed. This review may include site visits 
to visually inspect the property to ensure that it is being used in a 
manner consistent with the terms of its transfer.
    (2) Participants must provide SBA with access to all relevant 
records upon request.
    (3) Where SBA receives credible information that transferred 
surplus property may have been disposed of or otherwise used in a 
manner that is not consistent with the terms of the transfer, SBA may 
investigate such claim to determine its validity.
    (4) SBA may, either by itself or through a SASP, take any action to 
correct any noncompliance involving the use of transferred property 
still in possession of the Participant or to enforce any terms, 
conditions, reservations, or restrictions imposed on the property by 
the distribution document. Actions to enforce compliance, or which may 
be taken as a result of noncompliance, include the following:
    (i) Requiring that the property be placed in proper use within a 
specified time;
    (ii) Requiring that the property be transferred to another 
Participant having a need and use for the property, returned to the 
SASP serving the area where the property is located for distribution to 
another eligible transferee or to another SASP, or transferred through 
GSA to another Federal agency;
    (iii) Recovery of the fair rental value of the property from the 
date of its receipt by the Participant; and
    (iv) Initiation of proceedings to terminate the Participant from 
the 8(a) BD program.
    (5) Where SBA finds that a recipient has sold or otherwise disposed 
of the acquired surplus property in violation of the agreement covering 
sale and disposal, the Participant is liable for the agreed upon fair 
market value of the property at the time of the transfer, or the sale 
price, whichever is greater. However, a Participant need not repay any 
amount where it can demonstrate to the SBA's satisfaction that the 
property is no longer useful for the purpose for which it was 
transferred and receives the SBA's prior written consent to transfer 
the property. For example, if a piece of equipment breaks down beyond 
repair, it may be disposed of without being subject to the repayment 
provision, so long as the concern receives the SBA's prior consent.
    (6) Any funds received by the SBA in enforcement of this section 
will be remitted promptly to the Treasury of the United States as 
miscellaneous receipts.

Contractual Assistance


Sec. 124.501  What general provisions apply to the award of 8(a) 
contracts?

    (a) Pursuant to section 8(a) of the Small Business Act, SBA is 
authorized to enter into all types of contracts with other Federal 
Government agencies, including contracts to furnish equipment, 
supplies, services, leased real property, or materials to the 
Government or to perform construction work for the Government, and to 
contract the performance of these contracts to qualified Participants. 
Where appropriate, SBA may delegate the contract execution function to 
procuring activities. In order to receive and retain a delegation of 
SBA's contract execution and review functions, a procuring activity 
must report all 8(a) contract awards, modifications, and options to 
SBA.
    (b) 8(a) contracts may either be sole source awards or awards won 
through competition with other Participants.
    (c) Admission into the 8(a) BD program does not guarantee that a 
Participant will receive 8(a) contracts.
    (d) While a Participant's projected level of 8(a) contract support 
is required as part of its business plan as a planning and development 
tool, the proposed level contained in the business plan will not 
prevent contract awards above that level so long as:
    (1) The Participant is competent and responsible to perform a 
particular 8(a) contract; and
    (2) The Participant is in compliance with any applicable 
competitive

[[Page 43612]]

business mix target or remedial measure imposed by Sec. 124.508.
    (e) A requirement for possible award may be identified by SBA, a 
particular Participant or the procuring agency itself. SBA will submit 
the capability statements provided to SBA annually under Sec. 124.403 
to appropriate procuring agencies for the purpose of matching 
requirements with Participants.
    (f) Participants should market their capabilities to appropriate 
procuring agencies to increase their prospects of receiving sole source 
8(a) contracts.
    (g) A concern must be a current Participant in the 8(a) BD program 
at the time of award, except as provided in Sec. 124.507(d).
    (h) A Participant must certify that it is a small business under 
the size standard corresponding to the SIC code assigned to each 8(a) 
contract. 8(a) BD program personnel will verify size prior to award of 
an 8(a) contract. If the Participant is not verified as small, it may 
request a formal size determination from the appropriate General 
Contracting Area Office under part 121 of this title.
    (i) Any person or entity that misrepresents its status as a ``small 
business concern owned and controlled by socially and economically 
disadvantaged individuals'' in order to obtain any 8(a) contracting 
opportunity will be subject to possible criminal, civil and 
administrative penalties, including those imposed by section 16(d) of 
the Small Business Act, 15 U.S.C. 645(d).


Sec. 124.502  How does an agency offer a procurement to SBA for award 
through the 8(a) BD program?

    (a) A procuring agency contracting officer indicates his or her 
formal intent to award a procurement requirement as an 8(a) contract by 
submitting an offering letter to SBA.
    (b) Contracting officers must submit offering letters to the 
following locations:
    (1) For competitive 8(a) requirements and those sole source 
requirements for which no specific Participant is nominated (i.e., open 
requirements) other than construction requirements, to the SBA district 
office serving the geographical area in which the procuring agency is 
located;
    (2) For competitive and open construction requirements, to the SBA 
district office serving the geographical area in which the work is to 
be performed;
    (3) For sole source requirements offered on behalf of a specific 
Participant, to the SBA district office servicing that concern.
    (c) An offering letter must contain the following information:
    (1) A description of the work to be performed or items to be 
delivered and a copy of the statement of work, if available;
    (2) The estimated period of performance;
    (3) The SIC code that applies to the principal nature of the 
acquisition;
    (4) The anticipated dollar value of the requirement, including 
options, if any;
    (5) Any special restrictions or geographical limitations on the 
requirement;
    (6) The location of the work to be performed for construction 
procurements;
    (7) Any special capabilities or disciplines needed for contract 
performance;
    (8) The type of contract to be awarded, such as firm fixed price, 
cost reimbursement, or time and materials;
    (9) The acquisition history, if any, of the requirement;
    (10) The names and addresses of any small business contractors 
which have performed on this requirement during the previous 24 months;
    (11) A statement that prior to the offering no solicitation for the 
specific acquisition has been issued as a small business set-aside, as 
a small disadvantaged business set-aside, or as a competitive 8(a) 
procurement, and that no other public communication (such as a notice 
in the Commerce Business Daily) has been made showing the procuring 
agency's clear intent to use any of these means of procurement;
    (12) Identification of any specific Participant that the procuring 
agency contracting officer nominates for award of a sole source 8(a) 
contract, if appropriate, including a brief justification for the 
nomination, such as one of the following:
    (i) The Participant, through its own efforts, marketed the 
requirement and caused it to be reserved for the 8(a) BD program; or
    (ii) The acquisition is a follow-on or renewal contract and the 
nominated concern is the incumbent;
    (13) Bonding requirements, if applicable;
    (14) Identification of all Participants which have expressed an 
interest in being considered for the acquisition;
    (15) Identification of all SBA field offices which have requested 
that the requirement be awarded through the 8(a) BD program;
    (16) A request, if appropriate, that a requirement whose estimated 
contract value is under the applicable competitive threshold be awarded 
as an 8(a) competitive contract; and
    (17) Any other information that the procuring agency deems relevant 
or which SBA requests.


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 
agency'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 agency 
in writing within 10 working days of receipt of the written offering 
letter, unless SBA requests, and the procuring agency grants, an 
extension. SBA is not required to accept any particular procurement 
offered to the 8(a) BD program.
    (1) Where SBA decides to accept an offering of a sole source 8(a) 
procurement, SBA will accept the offer both on behalf of the 8(a) BD 
program and in support of a specific Participant.
    (2) Where SBA decides to accept an offering of a competitive 8(a) 
procurement, SBA will accept the offer on behalf of the 8(a) BD 
program.
    (b) Verification of SIC code. As part of the acceptance process, 
SBA will verify the appropriateness of the SIC code designation 
assigned to the requirement by the procuring agency contracting 
officer.
    (1) SBA will accept the SIC code assigned to the requirement by the 
procuring agency contracting officer as long as it is reasonable, even 
though other SIC codes may also be reasonable.
    (2) If SBA and the procuring agency are unable to agree as to the 
proper SIC code designation for the requirement, SBA may either refuse 
to accept the requirement for the 8(a) BD program, appeal the 
contracting officer's determination to the head of the agency pursuant 
to Sec. 124.505, or appeal the SIC code designation to OHA under part 
134 of this title.
    (c) Sole source award where procuring agency nominates a specific 
Participant. SBA will determine whether an appropriate match exists 
where the procuring agency identifies a particular Participant for a 
sole source award.
    (1) Once SBA determines that a procurement is suitable to be 
accepted as an 8(a) sole source contract, SBA will normally accept it 
on behalf of the Participant recommended by the procuring agency, 
provided that:
    (i) The procurement is consistent with the Participant's business 
plan;
    (ii) The Participant complies with its applicable competitive 
business mix target or any remedial measures imposed by 
Sec. 124.508(e);

[[Page 43613]]

    (iii) The Participant is small for the size standard corresponding 
to the SIC code assigned to the requirement by the procuring agency 
contracting officer; and
    (iv) The Participant has submitted required financial statements to 
SBA.
    (2) If an appropriate match exists, SBA will advise the procuring 
agency whether SBA will participate in contract negotiations and 
execution of award documents or whether SBA will authorize the 
procuring agency to negotiate and execute award directly with the 
identified Participant.
    (3) If an appropriate match does not exist, SBA will notify the 
Participant and the procuring agency, and may then nominate an 
alternate Participant.
    (d) Open requirements. When a procuring agency does not nominate a 
particular concern for performance of a sole source 8(a) contract (open 
requirement), the following additional procedures will apply:
    (1) If the procurement is a construction requirement, SBA will 
examine the portfolio of Participants that have a bona fide place of 
business within the geographical boundaries served by the SBA district 
office where the work is to be performed to select a qualified 
Participant. If none is found to be qualified or a match for a concern 
in that district is determined to be impossible or inappropriate, SBA 
may nominate a Participant with a bona fide place of business within 
the geographical boundaries served by another district office within 
the same state, or may nominate a Participant having a bona fide place 
of business out of state but within a reasonable proximity to the work 
site. SBA's decision will ensure that the nominated Participant is 
close enough to the work site to keep costs of performance reasonable.
    (2) If the procurement is not a construction requirement, SBA may 
select any eligible, responsible Participant nationally to perform the 
contract.
    (3) In cases in which SBA selects a Participant for possible award 
from among two or more eligible and qualified Participants, the 
selection will be based upon relevant factors, including business 
development needs, compliance with competitive business mix 
requirements (if applicable), financial condition, management ability, 
and technical capability.
    (4) To the maximum extent practicable, SBA will promote the 
equitable geographic distribution of 8(a) sole source contracts.
    (e) Formal technical evaluations. Except for the procedures set 
forth in subpart 36.6 of the Federal Acquisition Regulation (FAR) (48 
CFR part 36, subpart 36.6) for architect-engineer services, SBA will 
not authorize formal technical evaluations for sole source 8(a) 
requirements. A procuring agency:
    (1) Must request that a procurement be a competitive 8(a) award if 
it requires formal technical evaluations of more than one Participant 
for a requirement below the applicable competitive threshold amount; 
and
    (2) May conduct informal assessments of several Participants' 
capabilities to perform a specific requirement, so long as the 
statement of work for the requirement is not released to any of the 
Participants being assessed.
    (f) Repetitive acquisitions. A procuring agency contracting officer 
must submit a new offering letter to SBA where he or she intends to 
award a follow-on or repetitive contract as an 8(a) award. This enables 
the SBA to:
    (1) Evaluate whether the requirement should be a competitive 8(a) 
award;
    (2) Assess a nominated firm's eligibility, whether or not it is the 
same firm that performed the previous contract; and
    (3) Determine whether the requirement should continue under the 
8(a) BD program.
    (g) Basic Ordering Agreements (BOAs). A Basic Ordering Agreement 
(BOA) is not a contract under the FAR. See 48 CFR 16.703(a). Each order 
to be issued under the BOA is an individual contract. As such, the 
procuring agency must offer, and SBA must accept, each task order under 
a BOA in addition to offering and accepting the BOA itself.
    (1) SBA will not accept for award on a sole source basis any task 
order under a BOA that would cause the total dollar amount of task 
orders issued to exceed the applicable competitive threshold amount set 
forth in Sec. 124.506(a).
    (2) Where a procuring agency believes that task orders to be issued 
under a proposed BOA will exceed the applicable competitive threshold 
amount set forth in Sec. 124.506(a), the procuring agency must offer 
the requirement to the program to be competed among eligible 
Participants.
    (3) Once a concern's program term expires, the concern otherwise 
exits the 8(a) BD program, or becomes other than small for the SIC code 
assigned under the BOA, new orders will not be accepted for the 
concern.


Sec. 124.504  What circumstances limit SBA's ability to accept a 
procurement for award as an 8(a) contract?

    SBA will not accept a procurement for award as an 8(a) contract if 
the circumstances identified in paragraphs (a) through (e) of this 
section exist.
    (a) Reservation as small business or SDB set-aside. The procuring 
agency issued a solicitation for or otherwise expressed publicly a 
clear intent to reserve the procurement as a small business or small 
disadvantaged business (SDB) set-aside prior to offering the 
requirement to SBA for award as an 8(a) contract. The AA/8(a)BD may 
permit the acceptance of the requirement, however, under extraordinary 
circumstances. Example. SBA may accept a requirement where a procuring 
agency made a decision to offer the requirement to the 8(a) BD program 
before the solicitation was sent out and the procuring agency 
acknowledges and documents that the solicitation was in error.
    (b) Competition prior to offer and acceptance. The procuring agency 
competed a requirement among Participants prior to offering the 
requirement to SBA and receiving SBA's formal acceptance of the 
requirement.
    (1) Any competition conducted without first obtaining SBA's formal 
acceptance of the procurement for the 8(a) BD program will not be 
considered an 8(a) competitive requirement.
    (2) SBA may accept the requirement for the 8(a) BD program as a 
competitive 8(a) requirement, but only if the procuring agency agrees 
to resolicit the requirement using appropriate competitive 8(a) 
procedures.
    (c) Adverse impact. SBA has made a written determination that 
acceptance of the procurement for 8(a) award would have an adverse 
impact on an individual small business, a group of small businesses 
located in a specific geographical location, or other small business 
programs. The adverse impact concept is designed to protect small 
business concerns which are performing Government contracts awarded 
outside the 8(a) BD program, and does not apply to follow-on or renewal 
8(a) acquisitions.
    (1) In determining whether the acceptance of a requirement would 
have an adverse impact on an individual small business, SBA will 
consider all relevant factors.
    (i) In connection with a specific small business, SBA presumes 
adverse impact to exist where:
    (A) The small business concern has performed the specific 
requirement for at least 24 months;
    (B) The small business is performing the requirement at the time it 
is offered to the 8(a) BD program, or its performance of the 
requirement ended within 30 days of the procuring agency's offer of the 
requirement to the 8(a) BD program; and

[[Page 43614]]

    (C) The dollar value of the requirement that the small business is 
or was performing is 25 percent or more of its most recent annual gross 
sales (including those of its affiliates). For a multi-year 
requirement, the dollar value of the last 12 months of the requirement 
will be used to determine whether a small business would be adversely 
affected by SBA's acceptance.
    (ii) Except as provided in paragraph (c)(2) of this section, 
adverse impact does not apply to ``new'' requirements. A new 
requirement is one which has not been previously procured by the 
relevant procuring agency.
    (A) Where a requirement is new, no small business could have 
previously performed the requirement and, thus, SBA's acceptance of the 
requirement for the 8(a) BD program will not adversely impact any small 
business.
    (B) Construction contracts by their very nature (e.g., the one-time 
building of a specific structure) are new requirements.
    (C) The expansion or modification of an existing requirement will 
be considered a new requirement where the magnitude of change is 
significant enough to cause a price adjustment of at least 25 percent 
(adjusted for inflation) or to require significant additional types of 
capabilities.
    (D) SBA need not perform an impact determination where a new 
requirement is offered to the 8(a) BD program.
    (2) In determining whether the acceptance of a requirement would 
have an adverse impact on a group of small businesses, SBA will 
consider the effects of combining or consolidating various requirements 
being performed by two or more small business concerns into a single 
contract which would be considered a ``new'' requirement as compared to 
any of the previous smaller requirements. SBA may find adverse impact 
to exist if one of the existing small business contractors meets the 
presumption set forth in paragraph (c)(1)(i) of this section.
    (3) In determining whether the acceptance of a requirement would 
have an adverse impact on other small business programs, SBA will 
consider all relevant factors, including but not limited to, the number 
and value of contracts in the subject industry reserved for the 8(a) BD 
program as compared with other small business programs.
    (d) Benchmark achievement. Where actual participation by 
disadvantaged businesses in a particular industry exceeds the benchmark 
limitations established by the Department of Commerce, in consultation 
with the General Services Administration and the SBA, for that 
industry, SBA may elect not to accept a requirement offered to SBA for 
award as an 8(a) contract in that industry, considering the 
developmental needs of Participants and other anticipated contracting 
opportunities.
    (e) Release for non-8(a) competition. In limited instances, SBA may 
decline to accept the offer of a follow-on or renewal 8(a) acquisition 
to give a concern previously awarded the contract that is leaving or 
has left the 8(a) BD program the opportunity to compete for the 
requirement outside the 8(a) BD program.
    (1) SBA will consider release only where:
    (i) The procurement awarded through the 8(a) BD program is being 
performed by either a Participant whose program term will expire prior 
to contract completion, or, by a former Participant whose program term 
expired within one year of the date of the offering letter;
    (ii) The concern requests in writing that SBA decline to accept the 
offer prior to SBA's acceptance of the requirement for award as an 8(a) 
contract; and
    (iii) The concern qualifies as a small business for the requirement 
now offered to the 8(a) BD program.
    (2) In considering release, SBA will balance the importance of the 
requirement to the concern's business development needs against the 
business development needs of other Participants that are qualified to 
perform the requirement. This determination will include consideration 
of whether rejection of the requirement would seriously reduce the pool 
of similar types of contracts available for award as 8(a) contracts. 
SBA will seek the views of the procuring agency.
    (3) If SBA declines to accept the offer and releases the 
requirement, it will recommend to the procuring agency that the 
requirement be procured as a small business or SDB set-aside.


Sec. 124.505  When will SBA appeal the terms or conditions of a 
particular 8(a) contract or a procuring agency decision not to reserve 
a requirement for the 8(a) BD program?

    (a) What SBA may appeal. The Administrator of SBA may appeal the 
following matters to the head of the procuring agency:
    (1) A contracting officer's decision not to make a particular 
procurement available for award as an 8(a) contract;
    (2) A contracting officer's decision to reject a specific 
Participant for award of an 8(a) contract after SBA's acceptance of the 
requirement for the 8(a) BD program; and
    (3) The terms and conditions of a proposed 8(a) contract, including 
the procuring agency's SIC code designation and estimate of the fair 
market price.
    (b) Procedures for appeal. (1) SBA must notify the contracting 
officer of the SBA Administrator's intent to appeal an adverse decision 
within 5 working days of SBA's receipt of the decision.
    (2) Upon receipt of the notice of intent to appeal, the procuring 
agency must suspend further action regarding the procurement until the 
head of the procuring agency issues a written decision on the appeal, 
unless the head of the procuring agency makes a written determination 
that urgent and compelling circumstances which significantly affect 
interests of the United States will not permit waiting for a 
consideration of the appeal.
    (3) The SBA Administrator must send a written appeal of the adverse 
decision to the head of the procuring agency within 15 working days of 
SBA's notification of intent to appeal or the appeal may be considered 
withdrawn.
    (4) The procuring agency head must specify in writing the reasons 
for a denial of an appeal brought by the Administrator under this 
section.


Sec. 124.506  At what dollar threshold must an 8(a) procurement be 
competed among eligible Participants?

    (a) Competitive thresholds. A procurement offered and accepted for 
the 8(a) BD program must be competed among eligible Participants if:
    (1) There is a reasonable expectation that at least two eligible 
Participants will submit offers at a fair market price;
    (2) The anticipated award price of the contract, including options, 
will exceed $5,000,000 for contracts assigned manufacturing Standard 
Industrial Classification (SIC) codes and $3,000,000 for all other 
contracts; and
    (3) The requirement has not been accepted by SBA for award as a 
sole source 8(a) procurement on behalf of a tribally-owned or ANC-owned 
concern.
    (i) For all types of contracts, the applicable competitive 
threshold amounts will be applied to the procuring agency estimate of 
the total value of the contract, including all options.
    (ii) Where the estimate of the total value of a proposed 8(a) 
contract is less than the applicable competitive threshold amount and 
the requirement is accepted as a sole source requirement on that basis, 
award may be made even though the contract price arrived at through 
negotiations exceeds the competitive threshold, provided that the 
contract price is not more than ten percent greater than the 
competitive threshold amount. Example. If the anticipated award price 
for a

[[Page 43615]]

professional services requirement is determined to be $2.7 million and 
it is accepted as a sole source 8(a) requirement on that basis, a sole 
source award will be valid even if the contract price arrived at after 
negotiation is $3.1 million.
    (iii) A proposed 8(a) requirement with an estimated value exceeding 
the applicable competitive threshold amount may not be divided into 
several separate procurement actions for lesser amounts in order to use 
8(a) sole source procedures to award to a single contractor.
    (b) Exemption from competitive thresholds for Participants owned by 
Indian tribes. SBA may award a sole source 8(a) contract to a 
Participant concern owned and controlled by an Indian tribe or an ANC 
where the anticipated value of the procurement exceeds the applicable 
competitive threshold if SBA has not accepted the requirement into the 
8(a) BD program as a competitive procurement. 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, but a procurement may not be removed from competition to award 
it to a tribally-owned or ANC-owned concern on a sole source basis.
    (c) Competition below thresholds. The AA/8(a)BD, on a nondelegable 
basis, may approve a request from a procuring agency to compete a 
requirement that is below the applicable competitive threshold amount 
among eligible Participants.
    (1) This authority will be used primarily when technical 
competitions are appropriate or when a large number of potential 
awardees exist.
    (2) The AA/8(a)BD will consider whether the procuring agency has 
made and will continue to make available a significant number of its 
contracts to the 8(a) BD program on a noncompetitive basis.
    (3) The AA/8(a)BD will deny a request if the procuring agency 
previously offered the requirement to the 8(a) BD program on a 
noncompetitive basis and the request is made following the inability of 
the procuring agency and the potential sole source awardee to reach an 
agreement on price or some other material term or condition.
    (d) Requirements above thresholds. Except as set forth in paragraph 
(b) of this section, SBA will not accept a contract opportunity above 
the applicable competitive threshold amount as a sole source 8(a) 
requirement.


Sec. 124.507  What procedures apply to competitive 8(a) procurements?

    (a) FAR procedures. Procuring agencies will conduct competitions 
among and evaluate offers received from Participants in accordance with 
the Federal Acquisition Regulation (48 CFR chapter 1).
    (b) Eligibility determination by SBA. In either a negotiated or 
sealed bid competitive 8(a) acquisition, the procuring agency will 
request that the SBA district office servicing the apparent successful 
offeror determine that firm's eligibility for award.
    (1) Within 5 working days after receipt of a procuring agency's 
request for an eligibility determination, SBA will determine whether 
the firm identified by the procuring agency is eligible for award.
    (2) Eligibility is based on 8(a) BD program criteria, including 
whether the Participant is:
    (i) A small business under the SIC code assigned to the 
requirement;
    (ii) In compliance with any applicable competitive business mix 
target established or remedial measure imposed by Sec. 124.508 that 
does not include the denial of future 8(a) contracts;
    (iii) In the developmental stage of program participation if the 
solicitation restricts offerors to the developmental stage of 
participation; and
    (iv) A concern with a bona fide place of business in the applicable 
geographic area if the procurement is for construction.
    (3) If SBA determines that the apparent successful offeror is 
ineligible, SBA will notify the procuring agency. The procuring agency 
will then send to SBA the identity of the next highest evaluated firm 
for an eligibility determination. The process is repeated until SBA 
determines that an identified offeror is eligible for award.
    (4) Except to the extent set forth in paragraph (d) of this 
section, SBA determines whether a Participant is eligible for a 
specific 8(a) competitive requirement as of the date that the 
Participant submitted its initial offer which includes price.
    (5) If the procuring agency contracting officer believes that the 
apparent successful offeror is not responsible to perform the contract, 
he or she must refer the concern to SBA for a possible Certificate of 
Competency in accord with Sec. 125.5 of this chapter.
    (6) A competitive 8(a) contract will be executed using normal 8(a) 
award procedures (i.e., a prime contract between the procuring agency 
and SBA and a contract between SBA and the selected Participant).
    (7) Paragraphs (b)(5) and (b)(6) of this section do not apply if 
SBA has delegated contract execution authority to the procuring agency.
    (c) Restricted competition. (1) Competition within stages of 
program participation. SBA may accept a competitive 8(a) requirement 
that is limited to Participants in the developmental stage of program 
participation or limited to concerns in the transitional stage of 
program participation, or may accept a requirement to be competed among 
firms both in the developmental and transitional stages of program 
participation.
    (2) Construction competitions. Based on its knowledge of the 8(a) 
BD portfolio, SBA will determine whether a competitive 8(a) 
construction requirement should be competed among only those 
Participants having a bona fide place of business within the 
geographical boundaries of one or more SBA district offices, within a 
state, or within the state and nearby areas. Only those Participants 
with their principal places of business within the appropriate 
geographical boundaries are eligible to submit offers.
    (3) Competition for all non-construction requirements. Except for 
construction requirements, all eligible Participants regardless of 
location may submit offers in response to competitive 8(a) 
solicitations. The only geographic restrictions pertaining to 8(a) 
competitive requirements, other than those for construction 
requirements, are any imposed by the solicitations themselves.
    (d) Award to firms whose program terms have expired. A concern that 
has completed its term of participation in the 8(a) BD program may be 
awarded a competitive 8(a) contract if it was a Participant eligible 
for award of the contract on the initial date specified for receipt of 
offers contained in the contract solicitation, and if it continues to 
meet all other applicable eligibility criteria.
    (1) Amendments to the solicitation extending the date for 
submissions of offers will be disregarded.
    (2) For a negotiated procurement, a Participant may submit revised 
offers, including a best and final offer, and be awarded a competitive 
8(a) contract if it was eligible as of the initial date specified for 
the receipt of offers in the solicitation, even though its program term 
may expire after that date.
    (3) An 8(a) requirement for architect-engineer services with a 
value less than the competitive threshold amount and which uses the 
evaluation procedures prescribed by part 36, subpart 36.6 of

[[Page 43616]]

the Federal Acquisition Regulation (48 CFR chapter 1) will not be 
considered a competitive 8(a) requirement under this section for which 
a firm whose program term has expired may be eligible.


Sec. 124.508  What are competitive business mix targets?

    (a) General. (1) To ensure that Participants do not develop an 
unreasonable reliance on 8(a) awards, and to ease their transition into 
the competitive marketplace after exiting the 8(a) BD program, 
Participants must make maximum efforts to obtain business outside the 
8(a) BD program.
    (2) During both the developmental and transitional stages of the 
8(a) BD program, a Participant must make substantial and sustained 
efforts, including following a reasonable marketing strategy, to attain 
the targeted dollar levels of non-8(a) revenue established in its 
business plan. It must attempt to use the 8(a) BD program as a resource 
to strengthen the firm for economic viability when program benefits are 
no longer available.
    (b) Required non-8(a) business activity targets during transitional 
stage. (1) General. During the transitional stage of the 8(a) BD 
program, a Participant must achieve certain targets of non-8(a) 
contract revenue. These targets are called non-8(a) business activity 
targets and are expressed as a percentage of total revenue. The targets 
reflect an increase in non-8(a) revenue over time.
    (2) Non-8(a) business activity targets. Firms in the transitional 
stage of program participation must meet the following non-8(a) 
business activity targets during each year of program participation in 
the transitional stage:

Participant's year in the transitional stage:                  Percent \
                                                                   1\   
    1........................................................         15
    2........................................................         25
    3........................................................         35
    4........................................................         45
    5........................................................         55
                                                                        
\1\ Competitive business mix targets (required minimum non-8(a) revenue 
  as a percentage of total revenue)                                     

    (3) Compliance with competitive business mix targets. Compliance 
with the applicable competitive business mix target is measured at the 
end of any program year in the transitional stage of program 
participation based on the Participant's latest fiscal year-end total 
revenue (e.g., at the end of the first year in the transitional stage 
of program participation, non-8(a) revenue is compared to total 
revenue). Remedial measures, if appropriate, will be imposed during the 
subsequent program year (e.g., non-compliance with the required 
business activity target in year one of the transitional stage of 
program participation would cause SBA to initiate remedial measures 
under paragraph (d) of this section for year two in the transitional 
stage).
    (4) Certification of compliance. A Participant must certify that it 
complies with the applicable competitive business mix target or with 
the measures imposed by SBA under paragraph (d) of this section before 
it receives any 8(a) contract during the transitional stage of the 8(a) 
BD program.
    (c) Reporting and verification of business activity. (1) Once 
admitted to the 8(a) BD program, a Participant must provide to SBA as 
part of its annual review:
    (i) Annual financial statements with a breakdown of 8(a) and non-
8(a) revenue in accord with Sec. 124.602; and
    (ii) An annual report within 30 days from the end of the program 
year of all non-8(a) contracts, options, and modifications affecting 
price executed during the program year.
    (2) At the end of each year of participation in the transitional 
stage, the BOS assigned to work with the Participant will review the 
Participant's total revenues to determine whether the non-8(a) revenues 
have met the applicable target.
    (d) Consequences of not meeting competitive business mix targets. 
(1) Beginning at the end of the first year in the transitional stage 
(the fifth year of participation in the 8(a) BD program), any firm that 
does not meet its applicable competitive business mix target for the 
just completed program year will be ineligible for sole source 8(a) 
contracts in the current program year, unless and until the Participant 
corrects the situation as described in paragraph (d)(2) of this 
section.
    (2) If SBA determines that an 8(a) Participant has failed to meet 
its applicable competitive business mix target during any program year 
in the transitional stage of program participation, SBA may increase 
its monitoring of the Participant's contracting activity during the 
ensuing program year. SBA will also notify the Participant in writing 
that the Participant will not be eligible for further 8(a) sole source 
contract awards until it has demonstrated to SBA that it has complied 
with its competitive business mix requirements as described in 
paragraphs (d)(2) (i) and (ii) of this section. In order for a 
Participant to come into compliance with the competitive business mix 
target and be eligible for further 8(a) sole source contracts, it may:
    (i) Wait until the end of the current program year and demonstrate 
to SBA as part of the normal annual review process that it has met the 
revised competitive business mix target; or
    (ii) At its option, submit information regarding its non-8(a) 
revenue to SBA quarterly throughout the current program year in an 
attempt to come into compliance before the end of the current program 
year. If the Participant satisfies the requirements of paragraphs 
(d)(2)(ii)(A) or (d)(2)(ii)(B) of this section, SBA will reinstate its 
ability to get sole source 8(a) contracts prior to its annual review.
    (A) During the first six months of the current program year (i.e., 
at either the first or second quarterly review), the Participant must 
demonstrate that it has received non-8(a) revenue and new non-8(a) 
contract awards that are equal to or greater than the dollar amount by 
which it failed to meet its competitive business mix target for the 
just completed program year. For this purpose, SBA does not count 
options on existing non-8(a) contracts in determining whether a 
Participant has received new non-8(a) contract awards; or
    (B) During the last six months of the current program year (i.e., 
at either the nine-month or one year review), it has achieved its 
competitive business mix target as of that point in the current program 
year.

    Example 1 to paragraph (d)(2). Firm A had $10 million in total 
revenue during year 2 in the transitional stage (year 6 in the 
program), but failed to meet the minimum competitive business mix 
target of 25 percent. It had 8(a) revenues of $8.5 million and non-
8(a) revenues of $1.5 million. Based on total revenues of $10 
million, Firm A should have had at least $2.5 million in non-8(a) 
revenues. Thus, Firm A missed its target by $1 million (its target 
($2.5 million) minus its actual non-8(a) revenues ($1.5 million)). 
Because Firm A did not achieve its competitive business mix target, 
it cannot receive 8(a) sole source awards until correcting that 
situation. The firm may wait until the next annual review to 
establish that it has met the revised target, or it can choose to 
report contract awards and other non-8(a) revenue to SBA quarterly. 
Firm A elects to submit information to SBA quarterly in year 3 of 
the transitional stage (year 7 in the program). In order to be 
eligible for sole source 8(a) contracts after either its 3 month or 
6 month review, Firm A must show that it has received non-8(a) 
revenue and/or been awarded new non-8(a) contracts totaling $1 
million (the amount by which it missed its target in year 2 of the 
transitional stage).
    Example 2 to paragraph (d)(2). Firm B had $10 million in total 
revenue during year 2 in the transitional stage (year 6 in the 
program), of which $8.5 million were 8(a) revenues and $1.5 million 
were non-8(a) revenues. At its first two quarterly reviews during 
year 3 of the transitional stage (year 7 in the program),

[[Page 43617]]

Firm B could not demonstrate that it had received at least $1 
million in non-8(a) revenue and new non-8(a) awards. In order to be 
eligible for sole source 8(a) contracts after its 9 month or 1 year 
review, Firm B must show that at least 35% (the competitive business 
mix target for year 3 in the transitional stage) of all revenues 
received during year 3 in the transitional stage as of that point 
are from non-8(a) sources.

    (3) In determining whether a Participant achieved its required 
competitive business mix target at the end of any program year in the 
transitional stage, or whether a Participant that failed to meet the 
target for the previous program year has achieved the required level of 
non-8(a) business at its nine-month review, SBA measures 8(a) support 
by adding the base year value of all 8(a) contracts awarded during the 
applicable program year to the value of all options and modifications 
executed during that year.
    (4) As a condition of eligibility for new 8(a) contracts, SBA may 
also impose other requirements on a Participant that fails to achieve 
the competitive business mix targets. These include requiring the 
Participant to obtain management assistance, technical assistance, and/
or counseling, and/or attend seminars relating to management 
assistance, business development, financing, marketing, accounting, or 
proposal preparation.
    (5) SBA will initiate proceedings to terminate a Participant from 
the 8(a) BD program where the firm makes no good faith efforts to 
obtain non-8(a) revenues.


Sec. 124.509  What percentage of work must a Participant perform on an 
8(a) contract?

    (a) To assist the business development of Participants in the 8(a) 
BD program, an 8(a) contractor must perform certain percentages of work 
with its own employees. These percentages and the requirements relating 
to them are the same as those established for small business set-aside 
prime contractors, and are set forth in Sec. 125.6 of this title.
    (b) A Participant must certify in its offer that it will meet the 
applicable percentage of work requirement. SBA will determine 
compliance as of the date of best and final offers for a negotiated 
procurement, and as of the date of bid opening for sealed bid 
procurements.
    (c) Indefinite quantity contracts. (1) In order to ensure that the 
required percentage of an indefinite quantity 8(a) award is performed 
by the Program Participant, at any point in time the Participant must 
have performed the required percentage of the total value of the 
contract to that date. For a service or supply contract, this does not 
mean that the Participant must perform 50 percent of each task order 
with its own force. But, rather, the Participant is required to perform 
50 percent of the combined total of all task orders to date. The 
applicable SBA District Director or his/her designee may waive this 
requirement in writing where a large amount of contracting is essential 
in the early stages of performance before the work to be done by the 
Participant can be performed, provided that there are written 
assurances from both the Participant and the procuring agency that the 
contract will ultimately comply with the requirements of this section. 
Example. If a Program Participant performed 90% of a $100,000 task 
order on an indefinite quantity service contract with its own work 
force, it would have to perform only 10 percent of a second task order 
for $100,000 because the concern would still have performed 50% of the 
combined total value of the contract to date ($100,000 out of 
$200,000).
    (2) Where there is a guaranteed minimum condition in an indefinite 
quantity 8(a) award, the required performance of work percentage need 
not be met on the first task order. In such a case, however, the 
percentage of work that a Program Participant may further contract to 
other concerns on the first task order may not exceed 50 percent of the 
total guaranteed minimum dollar value to be provided by the contract. 
If the first task order exceeds 50 percent of the guaranteed minimum 
amount, the Participant may contract no more than 50 percent of the 
guaranteed amount. Once the guaranteed minimum amount is met, the 
general rule for indefinite quantity contracts set forth in paragraph 
(c)(1) of this section applies. Example. Where a contract guarantees a 
minimum of $100,000 in professional services and the first task order 
is for $60,000 in such services, the Program Participant may perform as 
little as $10,000 of that order. In such a case, however, the 
Participant must perform all of the next task order(s) up to $40,000 to 
ensure that it performs 50% of the $100,000 guaranteed minimum ($10,000 
+ $40,000 = $50,000, or 50% of $100,000).


Sec. 124.510  How is fair market price determined for an 8(a) contract?

    (a) The procuring agency determines what constitutes a ``fair 
market price'' for an 8(a) contract.
    (1) The procuring agency must derive the estimate of a current fair 
market price for a new requirement, or a requirement that does not have 
a satisfactory procurement history, from a price or cost analysis. This 
analysis may take into account prevailing market conditions, commercial 
prices for similar products or services, or data obtained from any 
other agency. The analysis must also consider any cost or pricing data 
that is timely submitted by the SBA.
    (2) The procuring agency must base the estimate of a current fair 
market price for a requirement that has a satisfactory procurement 
history on recent award prices adjusted to ensure comparability. 
Adjustments will take into account differences in quantities, 
performance, times, plans, specifications, transportation costs, 
packaging and packing costs, labor and material costs, overhead costs, 
and any other additional costs which may be appropriate.
    (b) Upon the request of SBA, a procuring agency will provide to SBA 
a written statement detailing the method used by the agency to estimate 
the current fair market price for the 8(a) requirement. This statement 
must be submitted within 10 working days of SBA's request. The 
procuring agency must identify the information, studies, analyses, and 
other data it used in making its estimate.
    (c) The procuring agency's estimate of fair market price and any 
supporting data may not be disclosed by SBA to any Participant or 
potential contractor.
    (d) The concern selected to perform an 8(a) contract may request 
SBA to protest the procuring agency's estimate of current fair market 
price to the Secretary of the Department or head of the agency in 
accordance with Sec. 124.505.


Sec. 124.511  Delegation of contract administration to procuring 
agencies.

    (a) SBA may delegate, by the use of special clauses in the 8(a) 
contract documents or by a separate agreement with the procuring 
agency, all responsibilities for administering an 8(a) contract to the 
procuring agency except the approval of novation agreements under 48 
CFR 42.302(a)(25).
    (b) Because of this delegation of contract administration, a 
contracting officer may execute any priced option or in scope 
modification without SBA's concurrence. The contracting officer must, 
however, notify SBA of all modifications and options exercised.


Sec. 124.512  Under what circumstances can a joint venture be awarded 
an 8(a) contract?

    (a) General. (1) If approved by SBA, a Participant may enter into a 
joint venture agreement with another small business concern, whether or 
not an 8(a) Participant, for the purpose of performing a specific 8(a) 
contract.
    (2) A joint venture agreement is permissible only where an 8(a) 
concern

[[Page 43618]]

lacks the necessary capacity to perform the contract on its own, and 
the agreement is fair and equitable and will be of substantial benefit 
to the 8(a) concern. However, where SBA concludes that an 8(a) concern 
brings very little to the joint venture relationship except its 8(a) 
status, SBA will not approve the joint venture arrangement.
    (b) Size of concerns to an 8(a) joint venture. (1) A joint venture 
of at least one 8(a) Participant and one or more other business 
concerns may submit an offer as a small business for a competitive 8(a) 
procurement so long as each concern is small under the size standard 
corresponding to the SIC code assigned to the contract, provided:
    (i) For a procurement having a revenue-based size standard, the 
procurement exceeds half the size standard corresponding to the SIC 
code assigned to the contract;
    (ii) For a procurement having an employee-based size standard, the 
procurement exceeds $10 million;
    (iii) The size of at least one 8(a) Participant to the joint 
venture is less than one half the size standard corresponding to the 
SIC code assigned to the contract; and
    (iv) The 8(a) Participant(s) identified in paragraph (b)(1)(iii) of 
this section must perform the applicable percentage of work required by 
Sec. 124.509.
    (2) Except as provided in Sec. 124.519, for sole source and 
competitive 8(a) procurements that do not exceed the dollar levels 
identified in paragraph (b)(1) of this section, an 8(a) Participant 
entering into a joint venture agreement with another concern is 
considered to be affiliated for size purposes with the other concern 
with respect to performance of the 8(a) contract. The combined annual 
receipts or employees of the concerns entering into the joint venture 
must meet the size standard for the SIC code assigned to the 8(a) 
contract.
    (c) Contents of joint venture agreement. Every joint venture 
agreement to perform an 8(a) contract, including those between mentors 
and proteges authorized by Sec. 124.519, must contain a provision:
    (1) Setting forth the purpose of the joint venture;
    (2) Designating an 8(a) Participant as the lead entity of the joint 
venture, and an employee of the lead entity as the project manager 
responsible for performance of the 8(a) subcontract;
    (3) Stating that not less than 51 percent of the net profits earned 
by the joint venture be distributed to the 8(a) Participant(s);
    (4) Providing for the establishment and administration of a special 
bank account in the name of the joint venture. This account must 
require the signature of all parties to the joint venture or designees 
for withdrawal purposes. All payments due the joint venture for 
performance on an 8(a) contract will be deposited in the special 
account from which all expenses incurred under the contract will be 
paid;
    (5) Itemizing all major equipment, facilities, and other resources 
to be furnished by each party to the joint venture, with a detailed 
schedule of cost or value of each;
    (6) Specifying the responsibilities of the parties with regard to 
contract performance, source of labor and negotiation of the 8(a) 
contract;
    (7) Designating that accounting and other administrative records 
relating to the joint venture be kept in the office of the lead 8(a) 
concern, unless approval to keep them elsewhere is granted by the 
District Director or his/her designee upon written request;
    (8) Requiring the final original records be retained by the lead 
8(a) concern upon completion of the 8(a) contract performed by the 
joint venture;
    (9) Stating that quarterly financial statements showing cumulative 
contract receipts and expenditures (including salaries of the joint 
venture's principals) must be submitted to SBA not later than 45 days 
after each operating quarter of the joint venture; and
    (10) Stating that a project-end profit and loss statement, 
including a statement of final profit distribution, must be submitted 
to SBA no later than 90 days after completion of the contract.
    (d) Prior approval by SBA. SBA must approve a joint venture 
agreement prior to the award of an 8(a) contract on behalf of the joint 
venture.
    (e) Contract execution. Where SBA has approved a joint venture, the 
procuring agency will execute an 8(a) contract in the name of the 8(a) 
Participant(s), not the joint venture entity.
    (f) Obligation of performance. All parties to the joint venture 
must sign such documents as are necessary to obligate themselves to 
ensure performance of the 8(a) contract.
    (g) Performance of work by 8(a) concern(s). The 8(a) partner(s) to 
an eligible joint venture, and not the aggregate of all parties to the 
joint venture, must perform the percentages of work required by 
Sec. 124.510. Employees furnished by the 8(a) Participant(s) or hired 
through normal employment channels by the joint venture are considered 
to be employees of the 8(a) Participant(s) for this purpose.
    (h) Amendments to joint venture agreement. All amendments to the 
joint venture agreement must be approved by SBA.
    (i) Inspection of records. SBA may inspect the records of the joint 
venture without notice at any time deemed necessary.


Sec. 124.513  Exercise of 8(a) options and modifications.

    (a) Unpriced options. The exercise of an unpriced option is 
considered to be a new contracting action.
    (1) If a concern has exited the 8(a) BD program or is no longer 
small under the size standard corresponding to the SIC code for the 
requirement, negotiations to price the option cannot be entered into 
and the option cannot be exercised.
    (2) If the concern is still a Participant and otherwise eligible 
for the requirement on a sole source basis, the procuring agency 
contracting officer may negotiate price and exercise the option 
provided the option, considered a new contracting action, meets all 
regulatory requirements, including SBA's acceptance of the requirement 
for the 8(a) BD program.
    (3) If the estimated fair market price of the option exceeds the 
applicable threshold amount set forth in Sec. 124.506, the requirement 
must be competed as a new contract among eligible Participants.
    (b) Priced options. The procuring agency contracting officer may 
exercise a priced option to an 8(a) contract whether the concern that 
received the award has exited the 8(a) BD program or is no longer 
eligible if to do so is in the best interests of the Government.
    (c) Modifications beyond the scope. A modification beyond the scope 
of the initial 8(a) contract award is considered to be a new 
contracting action. It will be treated the same as an unpriced option 
as described in paragraph (a) of this section.
    (d) Modifications within the scope. The procuring agency 
contracting officer may exercise a modification within the scope of the 
initial 8(a) contract whether the concern that received the award has 
exited the 8(a) BD program or is no longer eligible if to do so is in 
the best interests of the Government.


Sec. 124.514  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) An 8(a) contract must be performed by the Participant that 
initially received it unless a waiver is granted under paragraph (b) of 
this section.

[[Page 43619]]

    (1) An 8(a) contract, 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.
    (2) An 8(a) contract, whether in the base or an option year, must 
be terminated for the convenience of the Government if the contract is 
transferred or novated for any reason to another firm.
    (3) The procuring agency may not assess repurchase costs or other 
damages against the Participant due solely to the provisions of this 
section.
    (b) The SBA Administrator may waive the requirements of paragraphs 
(a)(1) and (a)(2) of this section if requested to do so by the 8(a) 
contractor when:
    (1) It is necessary for the owners of the concern to surrender 
partial control of such concern on a temporary basis in order to obtain 
equity financing;
    (2) Ownership and control of the concern that is performing the 
8(a) contract will pass to another Participant, but only if the 
acquiring firm would otherwise be eligible to receive the award 
directly as an 8(a) contract;
    (3) Any individual upon whom eligibility was based is no longer 
able to exercise control of the concern due to physical or mental 
incapacity or death;
    (4) The head of the procuring agency, or an official with delegated 
authority from the agency head, certifies that termination of the 
contract would severely impair attainment of the agency's program 
objectives or missions; and
    (5) It is necessary for the disadvantaged owners of the initial 
8(a) awardee to relinquish ownership of a majority of the voting stock 
of the concern in order to raise equity capital, but only if --
    (i) The concern has exited the 8(a) BD program;
    (ii) The disadvantaged owners will maintain ownership of the 
largest single outstanding block of voting stock (including stock held 
by affiliated parties); and
    (iii) The disadvantaged owners will maintain control of the daily 
business operations of the concern.
    (c) The 8(a) contractor must request a waiver in writing prior to 
the relinquishment 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 days after such occurrence. The Participant seeking 
to relinquish ownership or control must specify the grounds upon which 
it requests a waiver, and must demonstrate that the proposed 
transaction would meet such grounds.
    (d) SBA determines the eligibility of an acquiring Participant 
under paragraph (b)(2) of this section by referring to the items 
identified in Sec. 124.507(b)(2) and deciding whether prior to the 
transaction the acquiring Participant is a responsible and eligible 
concern with respect to each contract to be transferred.
    (e) Anyone other than a procuring agency head who submits a 
certification regarding the impairment of the agency's objectives under 
paragraph (b)(4) of this section, must also certify delegated authority 
to make the certification.
    (f) A concern performing an 8(a) contract must notify the SBA in 
writing immediately upon entering into an agreement or agreement in 
principle (either oral or written) to transfer all or part of its stock 
or other ownership interest or assets to any other party. Such an 
agreement could include an oral agreement to enter into a transaction 
to transfer interests in the future.
    (g) The Administrator has discretion to decline a request for 
waiver even though legal authority exists to grant the waiver.
    (h) The 8(a) contractor may appeal SBA's denial of a waiver request 
by filing a petition with OHA pursuant to part 134 of this title within 
45 days of the date of service (as defined in Sec. 134.204) of the 
Agency decision.


Sec. 124.515  Who decides contract disputes arising between a 
Participant and a procuring agency after the award of an 8(a) contract?

    For purposes of the Disputes Clause of a specific 8(a) contract, 
the contracting officer is that of the procuring agency. A dispute 
arising between an 8(a) contractor and the procuring agency contracting 
officer will be decided by the procuring agency, and appeals may be 
taken by the 8(a) contractor without SBA involvement.


Sec. 124.516  Can the eligibility or size of a Participant for award of 
an 8(a) contract be questioned?

    (a) The eligibility of a Participant for a sole source or 
competitive 8(a) requirement may not be challenged by another 
Participant or any other party, either to SBA or any administrative 
forum as part of a bid or other contract protest.
    (b) The size status of the apparent successful offeror for a 
competitive 8(a) procurement may be protested pursuant to 
Sec. 121.1001(a)(2) of this chapter. The size status of a nominated 
Participant for a sole source 8(a) procurement may not be protested by 
another Participant or any other party.
    (c) A Participant cannot appeal SBA's determination not to award it 
a specific 8(a) contract because the concern lacks an element of 
responsibility or is ineligible for the contract, other than the right 
set forth in Sec. 124.501(h) to request a formal size determination 
where SBA cannot verify it to be small.
    (d)(1) The SIC code assigned to a sole source 8(a) requirement may 
not be challenged by another Participant or any other party either to 
SBA or any administrative forum as part of a bid or contract protest. 
Only the AA/8(a)BD may appeal a SIC code designation with respect to a 
sole source 8(a) requirement.
    (2) In connection with a competitive 8(a) procurement, any 
interested party who has been adversely affected by a SIC code 
designation may appeal the designation to SBA's OHA pursuant to 
Sec. 121.1103 of this chapter.
    (e) Anyone with information questioning the eligibility of a 
Participant to continue participation in the 8(a) BD program or for 
purposes of a specific 8(a) contract may submit such information to SBA 
under Sec. 124.112(c).


Sec. 124.517  How can an 8(a) contract be terminated before performance 
is completed?

    (a) Termination for default. A decision to terminate a specific 
8(a) contract for default can be made by the procuring agency 
contracting officer after consulting with SBA. The contracting officer 
must advise SBA of any intent to terminate an 8(a) contract for default 
in writing before doing so. SBA may provide to the Participant any 
program benefits reasonably available in order to assist it in avoiding 
termination for default. SBA will advise the contracting officer of 
this effort. Any procuring agency contracting officer who believes 
grounds for termination continue to exist may terminate the 8(a) 
contract for default, in accordance with the FAR (48 CFR chapter 1). 
SBA will have no liability for termination costs or reprocurement 
costs.
    (b) Termination for convenience. After consulting with SBA, the 
procuring agency contracting officer may terminate an 8(a) contract for 
convenience when it is in the best interests of the Government to do 
so. A termination for convenience is appropriate if any disadvantaged 
owner

[[Page 43620]]

of the Participant performing the contract relinquishes ownership or 
control of such concern, or enters into any agreement to relinquish 
such ownership or control, unless a waiver is granted pursuant to 
Sec. 124.514.
    (c) Substitution of one 8(a) contractor for another. Where a 
procuring agency contracting officer demonstrates to SBA that an 8(a) 
contract will otherwise be terminated for default, SBA may authorize 
another Participant to complete performance and, in conjunction with 
the procuring agency, permit novation of the contract without invoking 
the termination for convenience or waiver provisions of Sec. 124.514.


Sec. 124.518  Are there any dollar limits on the amount of 8(a) 
contracts that a Participant may receive?

    (a) A Participant (other than one owned by an Indian tribe or an 
ANC) may not receive sole source 8(a) contract awards where it has 
received 8(a) contracts in excess of the dollar amount set forth in 
this section during its participation in the 8(a) BD program.
    (1) For a firm having a revenue-based primary SIC code at time of 
program entry, the limit above which it can no longer receive sole 
source 8(a) contracts is five times the size standard corresponding to 
that SIC code or $100,000,000, whichever is less.
    (2) For a firm having an employee-based primary SIC code at time of 
program entry, the limit above which it can no longer receive sole 
source 8(a) contracts is $100,000,000.
    (3) SBA will not consider 8(a) contracts awarded under $100,000 in 
determining whether a Participant has reached the limit identified in 
paragraphs (a)(1) and (a)(2) of this section.
    (b) Once the limit is reached, a firm could not receive any more 
8(a) sole source contracts, but could remain eligible for competitive 
8(a) awards.
    (c) The limitation set forth in paragraph (a) of this section will 
not apply for firms that are current Participants in the 8(a) BD 
program as of December 31, 1996.
    (d) SBA includes the dollar value of 8(a) options and modifications 
in determining whether a Participant has reached the limit identified 
in paragraph (a) of this section. If an option is not exercised or the 
contract value is reduced by modification, SBA will deduct those 
values.
    (e) A Participant's eligibility for a sole source award is measured 
as of the date of award without taking into account whether the value 
of that award will cause the limit to be exceeded.


Sec. 124.519  Mentor/protege program.

    (a) Who can be a mentor? Concerns that have graduated from the 8(a) 
BD program and those that are in the transitional stage of program 
participation may mentor developing 8(a) Participants and receive 
benefits as set forth in this section. This could include businesses 
that have become large.
    (1) In order to qualify as a mentor, a concern must demonstrate 
that it:
    (i) Possesses favorable financial health, including profitability 
for at least the last two years;
    (ii) Possesses good character; and
    (iii) Can impart value to a protege firm due to lessons learned and 
practical experience gained because of the 8(a) BD program.
    (2) A mentor could have no more than one protege at a time.
    (3) In order to demonstrate its favorable financial health, a firm 
seeking to be a mentor must submit its federal tax returns for the last 
two years to SBA for review.
    (4) Once approved, a mentor must annually certify that it continues 
to possess good character and a favorable financial position.
    (b) Proteges. (1) In order to be a protege firm, a Participant 
must:
    (i) Be in the developmental stage of program participation;
    (ii) Have never received an 8(a) contract; or
    (ii) Have a size that is less than half the size standard 
corresponding to its primary SIC code.
    (2) Only firms that are in good standing in the 8(a) BD program 
(e.g., firms that do not have termination proceedings against them, and 
are up to date with all reporting requirements) may qualify as a 
protege.
    (3) A protege firm can have only one mentor at a time.
    (c) Benefits. (1) A mentor and protege can joint venture as a small 
business for any government procurement, including procurements less 
than half the size standard corresponding to the assigned SIC code and 
8(a) sole source contracts, provided the protege qualifies as small for 
the procurement and, for purposes of 8(a) sole source requirements, has 
not reached the dollar limit set forth in Sec. 124.518.
    (2) Notwithstanding the requirements set forth in Secs. 124.105(g) 
and (h), in order to raise capital for the protege firm, the mentor may 
own an equity interest of up to 33% in the protege firm.
    (3) Notwithstanding the mentor/protege relationship, a protege firm 
may qualify for other assistance as a small business, including SBA 
financial assistance.
    (d) Written agreement. (1) The mentor and protege firms must enter 
a written agreement whereby the mentor commits to provide management 
and/or technical assistance to the protege firm for at least one year.
    (2) The written agreement must be approved by the AA/8(a) BD.
    (3) The protege firm must have the right to terminate the agreement 
with 30 days advance notice to the mentor and to SBA.
    (4) Once approved, the protege must annually certify to SBA that 
there has been no change in the terms of the agreement.

Miscellaneous Reporting Requirements


Sec. 124.601  What reports does SBA require on parties assisting 
Participants in obtaining federal contracts?

    (a) Each Participant must submit annually a written report to its 
assigned BOS that includes a listing of any agents, representatives, 
attorneys, accountants, consultants and other parties (other than 
employees) receiving fees, commissions, or compensation of any kind to 
assist such participant in obtaining a Federal contract. The listing 
must indicate the amount of compensation paid and a description of the 
activities performed for such compensation.
    (b) Failure to submit the report is good cause for the initiation 
of a termination proceeding pursuant to Secs. 124.303 and 124.304.


Sec. 124.602  What kind of annual financial statement must a 
Participant submit to SBA?

    (a) Participants with gross annual receipts of more than $5,000,000 
must submit to SBA audited annual financial statements prepared by a 
licensed independent public accountant within 120 days after the close 
of the concern's fiscal year.
    (1) The servicing SBA District Director may waive the requirement 
for audited financial statements for good cause shown by the 
Participant.
    (2) Circumstances where waivers of audited financial statements may 
be granted include, but are not limited to, the following:
    (i) The concern has an unexpected increase in sales towards the end 
of its fiscal year that creates an unforeseen requirement for audited 
statements;
    (ii) The concern unexpectedly experiences severe financial 
difficulties which would make the cost of audited financial statements 
a particular burden; and
    (iii) The concern has been a Participant less than 12 months.

[[Page 43621]]

    (b) Participants with gross annual receipts between $1,000,000 and 
$5,000,000 must submit to SBA reviewed annual financial statements 
prepared by a licensed independent public accountant within 90 days 
after the close of the concern's fiscal year.
    (c) Participants with gross annual receipts of less than $1,000,000 
must submit to SBA an annual statement prepared in-house or a 
compilation statement prepared by a licensed independent public 
accountant, verified as to accuracy by an authorized officer, partner, 
limited liability member, or sole proprietor of the Participant, 
including signature and date, within 90 days after the close of the 
concern's fiscal year.
    (d) Any audited or reviewed financial statements submitted to SBA 
pursuant to paragraphs (a) or (b) of this section must be prepared in 
accordance with Generally Accepted Accounting Principles.
    (e) While financial statements need not be submitted until 90 or 
120 days after the close of a Participant's fiscal year, depending on 
the receipts of the concern, a Participant seeking to be awarded an 
8(a) contract between the close of its fiscal year and such 90 or 120-
day time period must submit a final sales report signed by the CEO or 
President to SBA in order for SBA to determine the concern's 
eligibility for the 8(a) contract. This report must show a breakdown of 
8(a) and non-8(a) sales.
    (f) Notwithstanding the amount of a concern's gross annual 
receipts, SBA may require audited or reviewed statements whenever they 
are needed to obtain more complete information as to a concern's 
assets, liabilities, income or expenses, such as when the concern's 
capacity to perform a specific 8(a) contract must be determined, or 
when they are needed to determine continued program eligibility.


Sec. 124.603  What reports regarding the continued business operations 
of former Participants does SBA require?

    Former Participants shall provide such information as SBA may 
request concerning such former Participant's continued business 
operations, contracts and financial condition for a period of three 
years following the date on which the concern exits the program. 
Failure to provide such information when requested will constitute a 
violation of this part, and may result in the nonexercise of options on 
or termination of contracts awarded through the 8(a) BD program, 
debarment, or other legal recourse.

Management and Technical Assistance Program


Sec. 124.701  What is the purpose of the 7(j) management and technical 
assistance program?

    Section 7(j)(1) of the Small Business Act, 15 U.S.C. 636(j)(1), 
authorizes SBA to enter into grants, cooperative agreements, or 
contracts with public or private organizations to pay all or part of 
the cost of technical or management assistance for individuals or 
concerns eligible for assistance under sections 7(a)(11), 7(j)(10), or 
8(a) of the Small Business Act.


Sec. 124.702  What types of assistance are available through the 7(j) 
program?

    Through its private sector service providers, SBA may provide a 
wide variety of management and technical assistance to eligible 
individuals or concerns to meet their specific needs, including:
    (a) Counseling and training in the areas of financing, management, 
accounting, bookkeeping, marketing, and operation of small business 
concerns; and
    (b) The identification and development of new business 
opportunities.


Sec. 124.703  Who is eligible to receive 7(j) assistance?

    The following businesses are eligible to receive assistance from 
SBA through its service providers:
    (a) Businesses which qualify as small within the meaning of size 
standards prescribed in 13 CFR part 121, and which are located in urban 
or rural areas with a high proportion of unemployed or low-income 
individuals, or which are owned by such low-income individuals; and
    (b) Businesses eligible to receive 8(a) contracts.


Sec. 124.704  What additional management and technical assistance is 
reserved exclusively for concerns eligible to receive 8(a) contracts?

    In addition to the management and technical assistance available 
under Sec. 124.702, Section 7(j)(10) of the Small Business Act 
authorizes SBA to provide additional management and technical 
assistance through its service providers exclusively to small business 
concerns eligible to receive 8(a) contracts, including:
    (a) Assistance to develop comprehensive business plans with 
specific business targets, objectives, and goals;
    (b) Other nonfinancial services necessary for a Participant's 
growth and development, including loan packaging; and
    (c) Assistance in obtaining equity and debt financing.

Subpart B--Eligibility, Certification, and Protests Relating to 
Federal Small Disadvantaged Business Programs


Sec. 124.1001  General applicability.

    (a) This subpart defines a Small Disadvantaged Business (SDB). It 
also sets forth procedures by which a firm can apply to be recognized 
as an SDB, including procedures to be used by private sector entities 
approved by SBA for determining whether a particular concern is owned 
and controlled by one or more disadvantaged individuals. Finally, this 
subpart establishes procedures by which SBA determines whether a 
particular concern qualifies as an SDB in response to a protest 
challenging the firm's status as disadvantaged.
    (b) Only small firms that have been found to be owned and 
controlled by disadvantaged individuals and appear on the SBA-
maintained list of qualified SDBs are eligible to participate in 
Federal SDB set-aside, price evaluation adjustment, evaluation factor 
or subfactor, or monetary subcontracting incentive programs, or SBA's 
section 8(d) subcontracting program.


Sec. 124.1002  What is a Small Disadvantaged Business (SDB)?

    (a) Reliance on 8(a) criteria. In determining whether a firm 
qualifies as an SDB, use the definitions of social and economic 
disadvantage and other eligibility requirements established in subpart 
A of this part, including the requirements placed on ownership and 
control and disadvantaged status, unless otherwise provided in this 
subpart. Qualified private certifiers must use those requirements 
applicable to ownership and control in determining whether a particular 
firm is actually owned and controlled by individuals claiming 
disadvantaged status.
    (b) SDB eligibility criteria. A small disadvantaged business (SDB) 
is a concern:
    (1) Which qualifies as small under part 121 of this title for the 
size standard corresponding to the applicable four digit Standard 
Industrial Classification (SIC) code.
    (i) For purposes of SDB certification, the applicable SIC code is 
that which relates to the primary business activity of the concern;
    (ii) For purposes of an SDB protest, the applicable SIC code is 
that assigned by the contracting officer to the procurement at issue;
    (2) Which is at least 51 percent unconditionally owned by one or 
more

[[Page 43622]]

socially and economically disadvantaged individuals, as defined by 
Secs. 124.103 and 124.104 and paragraph (c) of this section, an Indian 
tribe, an Alaska Native Corporation (ANC), a Native Hawaiian 
Organization, or a Community Development Corporation (CDC) (See 
ownership requirements set forth in Sec. 124.105, and those in 
Secs. 124.109, 124.110, and 124.111 pertaining to concerns owned by 
tribes and ANCs, Native Hawaiian Organizations, or CDCs, respectively);
    (3) Whose management and daily business operations are controlled 
by one or more socially and economically disadvantaged individuals (See 
control requirements set forth in Sec. 124.106; but see 
Sec. 124.109(c)(4) for firms owned by Indian tribes or ANCs, and 
Sec. 124.111(b) for firms owned by CDCs); and
    (4) Which, for purposes of SDB set-asides and SDB evaluation 
adjustments relating to the Department of Defense, NASA and the Coast 
Guard only, has the majority of its earnings accruing directly to the 
socially and economically disadvantaged individuals.
    (c) Disadvantaged status. In assessing the personal financial 
condition of an individual claiming economic disadvantage, the net 
worth must be less than $750,000 after taking into account the 
applicable exclusions set forth in Sec. 124.104(c)(2).
    (d) Additional eligibility criteria. Each individual claiming 
disadvantaged status must be a citizen of the United States and possess 
good character. See Sec. 124.108(a).
    (e) Potential for success not required. The potential for success 
requirement set forth in Sec. 124.107 does not apply.
    (f) Joint ventures. Joint ventures are permitted for Small 
Disadvantaged Business (SDB) set-asides and SDB evaluation adjustments, 
provided that the requirements set forth in this paragraph are met.
    (1) The disadvantaged participant to the joint venture must be a 
certified SDB and appear on the list of qualified SDBs;
    (2) For purposes of this paragraph, the term joint venture means 
two or more concerns forming an association to engage in and carry out 
a single, specific business venture for joint profit. Two or more 
concerns that form an ongoing relationship to conduct business would 
not be considered ``joint venturers'' within the meaning of this 
paragraph, and would also not be eligible as an entity owned and 
controlled by one or more socially and economically disadvantaged 
individuals.
    (3) A concern that is owned and controlled by one or more socially 
and economically disadvantaged individuals entering into a joint 
venture agreement with one or more other business concerns is 
considered to be affiliated for size purposes with such other 
concern(s). The combined annual receipts or employees of the concerns 
entering into the joint venture must meet the applicable size standard 
corresponding to the SIC code designated for the contract.
    (4) The majority of the venture's earnings must accrue directly to 
the socially and economically disadvantaged individuals in the SDB 
concern(s) in the joint venture.
    (5) The percentage ownership involvement in a joint venture by 
disadvantaged individuals must be at least 51 percent.

    Example 1 to paragraph (b)(5). Small business concern A is 100% 
owned by disadvantaged individuals. Small business concern B is 100% 
owned by nondisadvantaged individuals. The percentage involvement by 
concern A in a joint venture between A and B must be at least 51%.
    Example 2 to paragraph (b)(5). Small business concern C is 51% 
owned by disadvantaged individuals. Small business concern D is 100% 
owned by nondisadvantaged individuals. Any joint venture between C 
and D would be ineligible because the amount of ownership 
involvement in such a joint venture by disadvantaged individuals 
would be less than 51%. Even a 90% involvement by concern C in a 
joint venture with D would mean an overall ownership involvement by 
disadvantaged individuals of only 45.9% (51% of 90), and an overall 
ownership involvement by nondisadvantaged individuals of 54.1% (10 + 
(49% of 90)).

    (g) Performance of work. In order to be awarded a Federal contract 
reserved for SDB participation or through an SDB evaluation adjustment, 
a certified SDB must agree to perform certain percentages of work with 
its own employees. These percentages and the requirements relating to 
them are set forth in Sec. 125.6 of this title.


Sec. 124.1003  What is a Private Certifier?

    A Private Certifier is an organization or business concern approved 
by SBA to determine whether firms are owned and controlled by one or 
more individuals claiming disadvantaged status.


Sec. 124.1004  How does an organization or business concern become a 
Private Certifier?

    (a) SBA may execute no-cost contracts with organizations or 
business concerns seeking to become Private Certifiers. Any such 
contract will include provisions for the oversight, monitoring, and 
evaluation of all certification activities by SBA.
    (b) The organization or business concern must demonstrate a 
knowledge of SBA's regulations regarding ownership and control, as well 
as business organizations and the legal principles affecting their 
ownership and control generally, including stock issuances, voting 
rights, convertability of debt to equity, options, and powers and 
responsibilities of officers and directors, general and limited 
partners, and limited liability members.
    (c) The organization or concern must also, along with its 
principals, demonstrate good character. Good character does not exist 
for these purposes if the organization or concern or any of its 
principals:
    (1) Are debarred or suspended under any Federal procurement or non-
procurement debarment and suspension regulations; or
    (2) Have been indicted or convicted for any criminal offense or 
suffered a civil judgment indicating a lack of business integrity.
    (d) As a condition of approval, SBA may require that the principals 
of the concern attend and pass a training session on SBA's rules and 
requirements.
    (e) A Private Certifier must provide access to SBA of its books and 
records when requested, including records pertaining to its 
certification activities. SBA may review this information, as well as 
the decisions of a Private Certifier, in determining whether SBA will 
renew or extend the term of the Private Certifier, or terminate the 
Private Certifier for cause.
    (f) Private Certifiers may not certify any company with which they 
have other business dealings.


Sec. 124.1005  Can a Private Certifier charge a fee?

    A Private Certifier may charge a reasonable fee a firm in order to 
process the firm's determination of ownership and control.


Sec. 124.1006  Is there a list of Private Certifiers?

    SBA maintains a list of approved Private Certifiers on the SBA's 
Home Page on the Internet. Any interested person may also obtain a copy 
of the list from the local SBA district office.


Sec. 124.1007  How long may an organization or concern be a Private 
Certifier?

    (a) SBA's approval document will specify how long the organization 
or concern may act as a Private Certifier. If the approval is through a 
no cost contract, the contract will generally be for one year, with 
possible renewal or option years.

[[Page 43623]]

    (b) SBA may terminate a contract with an organization or business 
concern to be a Private Certifier for the convenience of the Government 
at any time, and may terminate the contract for default where 
appropriate.


Sec. 124.1008  How does a firm become certified as an SDB?

    Any firm may apply for certification as a federally recognized SDB. 
SBA's various district offices provide further information and required 
application forms to any firm interested in SDB certification. In order 
to become certified as an SDB, a firm must obtain a determination that 
it is owned and controlled by one or more individuals claiming to be 
disadvantaged from a Private Certifier (or from SBA if a Private 
Certifier is not reasonably available), and must submit evidence of 
that determination to SBA along with certifications or narratives 
regarding the disadvantaged status of those individuals as set forth in 
paragraph (e) of this section.
    (a) Determination regarding ownership and control. A firm must 
first submit a completed application for a determination of ownership 
and control to an approved Private Certifier, or to SBA if a Private 
Certifier is not reasonably available.
    (1) The firm must identify one or more individuals claiming 
disadvantaged status to the Private Certifier, which then will 
determine whether those individuals own and control the firm.
    (2) Where no Private Certifier is reasonably available, the firm 
may submit its application for a determination of ownership and control 
to the Assistant Administrator, Division of Program Certification and 
Eligibility (DPCE), Office of Minority Enterprise Development, Small 
Business Administration, 409 3rd Street, SW, Washington, DC 20416.
    (b) Required forms. A firm seeking a determination of its ownership 
and control must submit the following forms and documents to the 
Private Certifier (or to SBA where no Private Certifier is reasonably 
available): SBA Form 1010B, ``Statement of Business Eligibility;'' 
stock certificates; stock register; articles of incorporation, with 
amendments; current by-laws; resolutions affecting rights and 
responsibilities of officers and directors; voting agreements; 
partnership agreements; limited liability articles of organization; and 
any other relevant information regarding the concern's ownership and 
control.
    (c) Application processing. (1) A Private Certifier must advise 
each applicant within 15 days after the receipt of an application for 
an ownership and control determination whether the application is 
complete and suitable for evaluation and, if not, what additional 
information or clarification is required. The Private Certifier will 
process an application for an ownership and control determination 
within 30 days of receipt of a complete application package.
    (2) The burden is on the applicant to demonstrate that those 
individuals claiming disadvantaged status own and control the concern.
    (d) Ownership and control decision. The Private Certifier will 
issue a written decision as to whether the applicant is owned and 
controlled by the individuals identified as claiming disadvantaged 
status. If the Private Certifier finds that the applicant is not owned 
and controlled by the individuals claiming disadvantaged status, the 
decision will state the specific reasons for the finding, and inform 
the applicant of its right to appeal the decision to SBA pursuant to 
Sec. 124.1009.
    (e) SDB certification. Once a concern receives a decision finding 
that it is owned and controlled by those individuals claiming 
disadvantaged status (either through an initial determination or on 
appeal), the concern must apply to the appropriate office of the 
relevant procuring agency, or to SBA if the agency has entered into an 
agreement with SBA to have SBA make disadvantaged status 
determinations, for inclusion on the SBA-maintained list of qualified 
SDBs. A firm seeking inclusion on the list of qualified SDBs must 
represent that it is small for the size standard corresponding to the 
SIC code for its primary business activity.
    (1) Members of designated groups. (i) Those individuals claiming 
disadvantaged status that are members of the same designated groups 
that are presumed to be socially disadvantaged for purposes of SBA's 
8(a) BD program (see Sec. 124.103(b)) are presumed to be socially and 
economically disadvantaged for purposes of SDB certification. These 
individuals must represent that they are members of one of the 
designated groups, that they are identified as a member of one of the 
designated groups, that they are socially and economically 
disadvantaged, and that they are citizens of the United States.
    (ii) Provided that the ownership and control determination of the 
Private Certifier is not based to any extent on ownership and/or 
control by non-group members, the relevant procuring agency or SBA may 
accept these representations as true and certify the firm as an SDB.
    (2) Individuals not members of designated groups. (i) Each 
individual claiming disadvantaged status that is not a member of one of 
the designated groups must submit to SBA a statement identifying 
personally how his or her entry into or advancement in the business 
world has been impaired because of personally specific factors (see 
Sec. 124.103(c)), and how his or her ability to compete in the free 
enterprise system has been impaired due to diminished capital and 
credit opportunities (see Sec. 124.104).
    (ii) If the relevant procuring agency or SBA determines that the 
individual(s) claiming disadvantage are disadvantaged, it will certify 
the firm as an SDB. If the relevant procuring agency or SBA determines 
that one or more of the individuals upon whose status the Private 
Certifier relied in making its ownership and control decision is not 
disadvantaged, it will reject the firm's application for SDB 
certification. The procuring agency or SBA will issue a written 
decision setting forth its reasons for decline.
    (iii) A firm may appeal SBA's decision that one or more of the 
individuals claiming disadvantaged status is not disadvantaged to SBA's 
Office of Hearings and Appeals (OHA). OHA will determine whether SBA's 
decision was arbitrary, capricious, or contrary to law. OHA will issue 
a determination on appeal within 10 days, if possible.
    (f) Current 8(a) BD program participants. Any firm that is 
currently a participant in SBA's 8(a) BD program need not apply to an 
Private Certifier for an ownership and control determination or to a 
procuring agency or SBA for a separate certification as an SDB. SBA 
will automatically include it on the list of qualified SDBs.


Sec. 124.1009  How does a firm appeal a decision of a Private 
Certifier?

    (a) If a Private Certifier finds that a firm is not owned and 
controlled by the individual(s) claiming disadvantaged status, the firm 
may appeal that decision to OHA.
    (b) Where an appeal is filed, the Private Certifier must submit the 
full record upon which its decision was based to OHA.
    (c) OHA will perform a new ownership and control determination on 
the firm, without regard to the decision of the Private Certifier. OHA 
will issue a determination within 10 days, if possible.
    (d) If OHA finds that the firm is owned and controlled by the

[[Page 43624]]

individual(s) claiming disadvantaged status, the firm may apply to SBA 
for inclusion on the list of qualified SDBs. If OHA finds that the firm 
is not owned and controlled by such individual(s), the administrative 
judge will state the reasons for that decision, which will be the final 
decision of the Agency.


Sec. 124.1010  Can a firm represent itself to be an SDB if it is not on 
the list of qualified SDBs?

    A firm cannot represent itself to be an SDB concern in order to 
receive a preference as an SDB for any Federal procurement program if 
it is not on the SBA-maintained list of qualified SDBs. A firm may, 
however, represent itself to be an SDB concern for general statistical 
purposes without regard to its inclusion on the SBA-maintained list of 
qualified SDBs.


Sec. 124.1011  What is a misrepresentation of disadvantaged status?

    (a) A representation of disadvantaged status by any firm that SBA 
has found not to be owned and controlled by one or more disadvantaged 
individuals (either in connection with an SDB application or protest) 
will be deemed a misrepresentation of disadvantaged status, unless and 
until the firm reapplies for and obtains SDB certification.
    (b) Any person or entity that misrepresents its status as a ``small 
business concern owned and controlled by socially and economically 
disadvantaged individuals'' in order to obtain an 8(d) or SDB 
contracting opportunity for anyone will be subject to the penalties 
imposed by section 16(d) of the Small Business Act, 15 U.S.C. 645(d), 
as well as any other penalty authorized by law.


Sec. 124.1012  Can a firm reapply for SDB certification?

    (a) A concern which has been denied SDB certification may reapply 
for certification 12 months after the date of the final Agency decision 
to decline the application (either on appeal of an ownership and 
control determination, or a negative finding of disadvantaged status).
    (b) A concern which received a decision that it was not owned and 
controlled by the individual(s) claiming disadvantaged status from an 
Private Certifier and does not appeal that decision to SBA may apply 
for a new ownership and control determination at any time.


Sec. 124.1013  Is there a list of certified SDBs?

    (a) If a procuring agency certifies a firm to be an SDB, it must 
notify SBA of its certification. If SBA certifies a firm to be an SDB 
or receives notification of a procuring agency certification, SBA will 
enter the name of the firm into an SBA-maintained central on-line 
register.
    (b) The register of SDBs will contain the names of all firms that 
are currently certified to be SDBs, including the names of all firms 
currently participating in SBA's 8(a) BD program.
    (c) On a continuing basis, SBA will delete from the on-line 
register those firms that have:
    (1) Exited SBA's 8(a) BD program for any reason and have not 
otherwise received SDB certification;
    (2) Been determined not to be disadvantaged in response to an SDB 
protest brought under Sec. 124.1015; or
    (3) Not received a renewed SDB certification after being on the 
register for three years (see Sec. 124.1014(a)).


Sec. 124.1014  What is the effect of receiving an SDB certification?

    (a) Once SBA certifies a firm to be an SDB by placing it on the 
list of qualified SDBs, the firm generally will be considered to be a 
disadvantaged business for a period of three years from the date of the 
certification.
    (b) Once SBA certifies a firm to be an SDB by placing it on the 
list of qualified SDBs, the firm may represent itself as an SDB for 
purposes of Federal SDB set-aside, price evaluation adjustment, 
evaluation factor or subfactor, monetary subcontracting incentive 
programs, or section 8(d) subcontract, subject to the following 
provisions:
    (1) In order to participate as an SDB, the firm must be listed on 
the SBA-maintained SDB register on the date of its representation.
    (2) For purposes of a particular procurement, the firm must 
represent that it is both disadvantaged and small at the time it 
submits its initial offer including price (see part 121 of this title). 
At the same time, the firm must also represent that no material change 
has occurred in the disadvantaged ownership and control of the firm 
since its SDB certification, and specifically that the net worth of the 
disadvantaged individuals upon whom the SDB certification was based 
does not exceed $750,000.
    (c) A firm's status as ``disadvantaged'' or ``small'' may be 
protested pursuant to Secs. 124.1015 through 124.1019 and 
Secs. 121.1001 through 121.1005, respectively, despite the presence of 
the firm on the SDB register.
    (d) A firm must submit a new application and receive a new 
certification in order to be recognized as an SDB after three years. If 
a firm does not submit a new application and receive a new 
certification, SBA will remove its name from the SDB register three 
years after the date of the certification.


Sec. 124.1015  Who may protest the disadvantaged status of a concern?

    (a)(1) In connection with a specific SDB set-aside or a requirement 
for which the apparent successful offeror has invoked an SDB evaluation 
adjustment, the following entities may protest the disadvantaged status 
of the apparent successful offeror:
    (i) Any other concern which submitted an offer for that 
requirement, unless the contracting officer has found the concern to be 
non-responsive or outside the competitive range, or SBA has previously 
found the concern to be ineligible for the SDB set-aside requirement at 
issue;
    (ii) The procuring agency contracting officer; or
    (iii) The SBA.
    (2) A protest may challenge whether the apparent successful offeror 
is owned and controlled by one or more disadvantaged individuals, 
including whether one or more of the individuals claiming disadvantaged 
status are in fact socially or economically disadvantaged.
    (b) In connection with an 8(d) subcontract, or a requirement for 
which the apparent successful offeror received an evaluation adjustment 
for proposing one or more SDB subcontractors, the procuring agency 
contracting officer or SBA may protest the disadvantaged status of a 
proposed subcontractor. Other interested parties may submit information 
to the contracting officer or SBA in an effort to persuade the 
contracting officer or SBA to initiate a protest.


Sec. 124.1016  When will SBA not decide an SDB protest?

    (a) SBA will not evaluate the disadvantaged status of any concern 
other than the apparent successful offeror.
    (b) SBA will not normally consider a post award protest. SBA may 
consider a post award protest in its discretion where it determines 
that an SDB determination after award is meaningful (e.g., where the 
contracting officer agrees to terminate the contract if the protest is 
sustained).
    (c) The protest must be timely (see Sec. 124.1018(c)).
    (d) The protest must have specificity (see Sec. 124.1019).


Sec. 124.1017  Who decides disadvantaged status protests?

    In response to a protest challenging the disadvantaged status of a 
concern, the SBA's Assistant Administrator of DPCE in the Office of 
8(a)BD, or

[[Page 43625]]

designee, will determine whether the concern is disadvantaged.


Sec. 124.1018  What submission procedures apply to disadvantaged status 
protests?

    (a) General. The protest procedures described in this section are 
separate and distinct from those governing size protests and appeals. 
All protests relating to whether a concern is a ``small'' business for 
purposes of any Federal program, including SDB set-asides and SDB 
evaluation adjustments, must be filed and processed pursuant to part 
121 of this title.
    (b) Filing. (1) All protests challenging the disadvantaged status 
of a concern with respect to a particular Federal procurement 
requirement must be submitted in writing to the procuring agency 
contracting officer, except in cases where the contracting officer or 
SBA initiates a protest.
    (2) Any contracting officer who initiates a protest must submit the 
protest in writing to SBA in accord with paragraph (c) of this section.
    (3) In cases where SBA initiates a protest, the protest must be 
submitted in writing to the Assistant Administrator of DPCE and 
notification provided in accord with Sec. 124.1020.
    (c) Timeliness of protest. (1) SDB Set-Aside and SDB Evaluation 
Adjustment protests. (i) General. In order for a protest to be timely, 
it must be received by the contracting officer prior to the close of 
business on the fifth day, exclusive of Saturdays, Sundays and legal 
holidays, after the bid opening date for sealed bids, or after the 
receipt from the contracting officer of notification of the identity of 
the prospective awardee in negotiated acquisitions.
    (ii) Oral protests. An oral protest relating to an SDB set-aside or 
SDB evaluation adjustment made to the contracting officer within the 
allotted 5-day period will be considered a timely protest only if the 
contracting officer receives a confirming letter postmarked, FAXed, or 
delivered no later than one calendar day after the date of such oral 
protest.
    (iii) Protests of contracting officers or SBA. The time limitations 
in paragraph (c)(1)(i) of this section do not apply to contracting 
officers or SBA, and they may file protests before or after awards, 
except to the extent set forth in paragraph (c)(3) of this section.
    (iv) Untimely protests. A protest received after the time limits 
set forth in this paragraph (c)(1) will be dismissed by SBA.
    (2) Section 8(d) protests. In connection with an 8(d) subcontract, 
the contracting officer or SBA must submit a protest to the Assistant 
Administrator of DPCE prior to the completion of performance by the 
intended 8(d) subcontractor.
    (3) Premature protests. Protests in connection with any procurement 
which are submitted by any person, including the contracting officer, 
before bid opening or notification of intended award, whichever 
applies, will be considered premature, and will be returned to the 
protestor without action. A contracting officer that receives a 
premature protest must return it to the protestor without submitting it 
to the SBA.
    (d) Referral to SBA. (1) Any contracting officer who receives a 
protest that is not premature must promptly forward it to the SBA's 
Assistant Administrator of DPCE, 409 3rd Street, SW, Washington, DC 
20416.
    (2) A contracting officer's referral of a protest to SBA must 
contain the following:
    (i) The written protest and any accompanying materials;
    (ii) The date on which the protest was received by the contracting 
officer;
    (iii) A copy of the protested concern's self-certification as an 
SDB, and the date of such self-certification; and
    (iv) The date of bid opening or the date on which notification of 
the apparent successful offeror was sent to all unsuccessful offerors, 
as applicable.


Sec. 124.1019  What format or degree of specificity does SBA require to 
consider an SDB protest?

    (a) An SDB protest need not be in any specific format in order for 
SBA to consider it.
    (b) A protest must be sufficiently specific to provide reasonable 
notice as to all grounds upon which the protested concern's 
disadvantaged status is challenged.
    (1) A protest merely asserting that the protested concern is not 
disadvantaged, without setting forth specific facts or allegations is 
insufficient and will be dismissed.
    (2) The contracting officer must forward to SBA any non-premature 
protest received, notwithstanding whether he or she believes it is 
sufficiently specific or timely.
    (c) A dismissal of a protest by the Assistant Administrator of DPCE 
for lack of specificity or lack of timeliness may be appealed to SBA's 
AA/8(a)BD pursuant to Sec. 124.1022.


Sec. 124.1020  What will SBA do when it receives an SDB protest?

    (a) Upon receipt of a protest challenging the disadvantaged status 
of a concern, the Assistant Administrator of DPCE will immediately 
notify the protestor and the contracting officer of the date the 
protest was received and whether it will be processed or dismissed for 
lack of timeliness or specificity.
    (b) In cases where the protest is timely and sufficiently specific, 
the Assistant Administrator of DPCE will also immediately advise the 
protested concern of the protest and forward a copy of it to the 
protested concern.
    (1) The Assistant Administrator of DPCE is authorized to ask the 
protested concern to provide any or all of the following information 
and documentation, completed so as to show the circumstances existing 
on the date of self-certification: SBA Form 1010A, ``Statement of 
Personal Eligibility'' for each individual claiming disadvantaged 
status; SBA Form 1010B, ``Statement of Business Eligibility;'' SBA Form 
413, ``Personal Financial Statement,'' for each individual claiming 
disadvantaged status; information as to whether the protested concern, 
or any of its owners, officers or directors, have applied for admission 
to or participated in the SBA's 8(a) BD program and if so, the name of 
the company which applied or participated and the date of the 
application or entry into the program; business tax returns for the 
last two completed fiscal years prior to the date of self-
certification; personal tax returns for the last two years prior to the 
date of self-certification for all individuals claiming disadvantaged 
status, all officers, all directors and for any individual owning at 
least 10% of the business entity; annual business financial statements 
for the last two completed fiscal years prior to the date of self-
certification; a current monthly or quarterly business financial 
statement no older than 90 days; articles of incorporation; corporate 
by-laws; partnership agreements; limited liability company articles of 
organization; and any other relevant information as to whether the 
protested concern is disadvantaged.
    (2) SBA's disadvantaged status determination is not limited to 
consideration only of the issues raised in the protest. All applicable 
criteria may be considered.
    (3) Unless the protest presents specific credible information which 
calls into question the veracity of application or other documents 
previously submitted to SBA by a current Participant in SBA's 8(a) BD 
program, SBA will allow the Participant to submit, in lieu of the 
information specified in paragraph (b)(1) of this section, a sworn 
affidavit or declaration that circumstances concerning the

[[Page 43626]]

ownership and control of the business and the disadvantaged status of 
its principals have not changed since its application or entry into the 
program or its most recent annual review, and a copy of its most 
recently completed annual review.
    (i) If the ownership or control of the business or the 
disadvantaged status of any principals have changed, the protested 
concern must comply with paragraph (b)(1) of this section.
    (ii) An affidavit or declaration may be allowed only if SBA 
admitted the protested concern to the 8(a) BD program, or conducted an 
annual review of the protested concern, during the 12-month period 
preceding the date on which SBA receives the protest, and if 
proceedings to suspend, terminate or early graduate the concern from 
the 8(a) BD program are not pending.
    (c) Within 10 working days of the date that notification of the 
protest was received from the Assistant Administrator of DPCE, the 
protested concern must submit to the Assistant Administrator of DPCE, 
by personal delivery, FAX, or mail, the information and documentation 
requested pursuant to paragraph (b)(1) of this section or the affidavit 
permitted by paragraph (b)(2) of this section. Materials submitted must 
be received by the close of business on the 10th working day.
    (1) SBA will consider only materials submitted timely, and the late 
or non-submission of materials needed to make a disadvantaged status 
determination may result in sustaining the protest.
    (2) The burden is on the protested concern to demonstrate its 
disadvantaged status, whether or not it is currently shown on the list 
of qualified SDBs.
    (3) The protested concern must timely submit to SBA any information 
it deems relevant to a determination of its disadvantaged status.


Sec. 124.1021  How does SBA make disadvantaged status determinations?

    (a) General. The Assistant Administrator of DPCE will determine a 
protested concern's disadvantaged status within 15 working days after 
receipt of a protest. If the procuring agency contracting officer does 
not receive an SBA determination within 15 working days after the SBA's 
receipt of the protest, the contracting officer may presume that the 
challenged offeror is disadvantaged, unless the SBA requests and the 
contracting officer grants an extension to the 15-day response period.
    (b) Award after protest. (1) After receiving a protest involving an 
offeror being considered for award, the contracting officer shall not 
award the contract until:
    (i) The SBA has made an SDB determination, or
    (ii) 15 working days have expired since SBA's receipt of a protest 
and the contracting officer has not agreed to an extension of the 15-
day response period.
    (2) Notwithstanding paragraph (b)(1) of this section, the 
contracting officer may award a contract after the receipt of an SDB 
protest where he or she determines in writing that an award must be 
made to protect the public interest.
    (c) Withdrawal of protest. If a protest is withdrawn, SBA will not 
complete a new disadvantaged status determination, and its previous SDB 
certification will stand.
    (d) Basis for determination. (1) Except with respect to a concern 
which is a current Participant in SBA's 8(a) BD program and is 
authorized under Sec. 124.1020(b)(3) to submit an affidavit concerning 
its disadvantaged status, the disadvantaged status determination will 
be based on the protest record, including reasonable inferences 
therefrom, as supplied by the protestor, protested concern, SBA or 
others.
    (2) SBA may in its discretion make a part of the protest record 
information already in its files, and information submitted by the 
protestor, the protested concern, the contracting officer, or other 
persons contacted for additional specific information.
    (e) Disadvantaged status. In evaluating the social and economic 
disadvantage of individuals claiming disadvantaged status, SBA will 
consider the same information and factors set forth in Secs. 124.103 
and 124.104.
    (f) Disadvantaged status determination. SBA will render a written 
determination including the basis for its findings and conclusions.
    (g) Notification of determination. After making its disadvantaged 
status determination, the SBA will immediately notify the contracting 
officer, the protestor, and the protested concern of its determination. 
SBA will promptly provide by certified mail, return receipt requested, 
a copy of its written determination to the same entities, consistent 
with law.
    (h) Results of an SBA disadvantaged status determination. A 
disadvantaged status determination becomes effective immediately.
    (1) If the concern is found not to be disadvantaged, the 
determination remains in full force and effect unless reversed upon 
appeal by SBA's AA/8(a)BD pursuant to Sec. 124.1022, or the concern is 
certified to be an SDB under Sec. 124.1008. The concern is precluded 
from applying for SDB certification for 12 months from the date of the 
final agency decision (whether by the Assistant Administrator of DPCE 
without an appeal, or by the AA/8(a)BD on appeal).
    (2) If the concern is found to be disadvantaged, the determination 
remains in full force and effect unless and until reversed upon appeal 
by SBA's AA/8(a)BD pursuant to Sec. 124.1022. A final agency decision 
(whether by the Assistant Administrator of DPCE without an appeal, or 
by the AA/8(a)BD on appeal) finding the protested concern to be an SDB 
remains in effect generally for three years from the date of the 
decision under the same conditions as if the concern had been granted 
SDB certification under Sec. 124.1008.


Sec. 124.1022  Appeals of disadvantaged status determinations.

    (a) Who may appeal. Appeals of protest determinations may be filed 
with the SBA's AA/8(a)BD by the protested concern, the protestor, or 
the contracting officer.
    (b) Timeliness of appeal. An appeal must be in writing and must be 
received by the AA/8(a)BD no later than 5 working days after the date 
of receipt of the protest determination. SBA will dismiss any appeal 
received after the five-day time period.
    (c) Notice of appeal. Notice of the appeal must be provided by the 
party bringing an appeal to the procuring agency contracting officer 
and either the protested concern or original protestor, as appropriate.
    (d) Grounds for appeal. SBA will re-examine a protest determination 
only if there was a clear and significant error in the processing of 
the protest, or if the Assistant Administrator of DPCE failed 
completely to consider a significant fact contained within the 
information supplied by the protestor or the protested concern. SBA 
will not consider protest determination appeals based on additional 
information or changed circumstances which were not disclosed at the 
time of the decision of the Assistant Administrator of DPCE, or which 
are based on disagreement with the findings and conclusions contained 
in the determination.
    (e) Contents of appeal. No specific format is required for the 
appeal. However, the appeal must identify the protest determination 
which is appealed, and set forth a full and specific statement as to 
why the determination is erroneous under paragraph (c) of this section.
    (f) Completion of appeal after award. An appeal may proceed to 
completion

[[Page 43627]]

even though an award of the SDB acquisition or other procurement 
requirement which prompted the protest has been made, if so desired by 
the protested concern, or where SBA determines that a decision on 
appeal is meaningful, such as where the contracting officer agrees:
    (1) In the case where an award is made to a concern other than the 
protested concern, to terminate the contract and award to the protested 
concern if the appeal finds that the protested concern is 
disadvantaged; or
    (2) In the case where an award is made to the protested concern, to 
terminate the contract if the appeal finds that the protested concern 
is not disadvantaged.
    (g) The appeal will be decided by the AA/8(a)BD within 5 working 
days of its receipt, if practicable.
    (h) The appeal decision will be based only on the information and 
documentation in the protest record as supplemented by the appeal. SBA 
will provide a copy of the decision to the contracting officer, the 
protestor, and the protested concern, consistent with law.
    (i) The decision of the AA/8(a)BD is the final decision of the SBA.

PART 134--[AMENDED]

    5. The authority citation for 13 CFR part 134 would continue to 
read as follows:

    Authority: 5 U.S.C. 504; 15 U.S.C. 632, 634(b)(6) and 637(a).

    6. Section 134.201 is amended by revising the second and third 
sentences to read as follows:


Sec. 134.201  Scope of the rules in this subpart B.

    * * * Specific procedural rules pertaining to 8(a) program appeals 
and to proceedings under the Program Fraud Civil Remedies Act are set 
forth, respectively in subpart D of this part and part 142 of this 
chapter. In the case of a conflict between a particular rule in this 
subpart and a rule of procedure pertaining to OHA appearing in another 
subpart of this part or another part of this chapter, the latter rule 
shall govern.
    7. Section 134.202 is amended in paragraph (c) by removing the 
reference to ``subpart D of this part'' and inserting in its place the 
phrase ``subpart E of this part,'' and in paragraph (d) by removing the 
phrase ``Sec. 124.211'' and inserting in its place the phrase 
``Sec. 124.305.''
    8. Section 134.206(a) is amended by removing the words ``the 
service of'' and inserting in their place the words ``the filing of.''
    9. Section 134.211 is amended by adding the following new paragraph 
(d) at the end thereof.


Sec. 134.211  Motions.

* * * * *
    (d) Stay. A motion to dismiss stays the time to answer. The Judge 
will establish the time for serving and filing an answer in the order 
determining the motion to dismiss.


Sec. 134.213  [Amended]

    10. Section 134.213(a) is amended by removing the second sentence.


Sec. 134.222  [Amended]

    11. Section 134.222 is amended by removing the ``;'' and the word 
``or'' at the end of paragraph (a)(2), by inserting a ``.'' at the end 
of paragraph (a)(2), and by removing paragraph (a)(3).
    12. Subpart D is redesignated as Subpart E, sections 134.401 
through 134.418 are redesignated as sections 134.501 through 134.518, 
and the following new Subpart D is inserted:

Subpart D--Rules of Practice for Appeals Under the 8(a) Program


Sec. 134.401  Scope of the rules in this subpart D.

    The rules of practice in this subpart D apply to all appeals to OHA 
from:
    (a) Denials of 8(a) BD program admission based solely on a negative 
finding(s) of social disadvantage, economic disadvantage, ownership or 
control pursuant to Sec. 124.206;
    (b) Early graduation pursuant to Secs. 124.302 and 124.304;
    (c) Termination pursuant to Secs. 124.303 and 124.304; and
    (d) Denials of requests to issue a waiver pursuant to Sec. 124.514.


Sec. 134.402  Appeal petition.

    In addition to the requirements of Sec. 134.203, an appeal petition 
must state, with specific reference to the determination and the record 
supporting such determination, the reasons why the determination is 
alleged to be arbitrary, capricious or contrary to law.


Sec. 134.403  Service of appeal petition.

    (a) Concurrent with its filing with OHA, a concern must also serve 
SBA's AA/8(a)BD and SBA's Office of General Counsel with a copy of the 
petition, including attachments.
    (b) In the context of appeals relating to denials of program 
admission pursuant to Sec. 124.206 or denials of requests for waivers 
pursuant to Sec. 124.514, service on the Office of General Counsel must 
be made to the SBA's Associate General Counsel for General Law. For 
appeals relating to early graduation pursuant to Secs. 124.302 and 
124.304 or termination pursuant to Secs. 124.303 and 124.304, service 
on the Office of General Counsel must be made to the Associate General 
Counsel for Litigation.
    (c) Service should be addressed to the AA/8(a)BD and either 
Associate General Counsel at the Small Business Administration, 409 3rd 
Street, SW, Washington, DC 20416.


Sec. 134.404  Decision by Administrative Law Judge.

    Appeal proceedings brought under this subpart will be conducted by 
an Administrative Law Judge.


Sec. 134.405  Jurisdiction.

    (a) The Administrative Law Judge selected to preside over an appeal 
shall decline to accept jurisdiction over any matter if:
    (1) The appeal does not, on its face, allege facts that, if proven 
to be true, would warrant reversal or modification of the 
determination, including appeals of denials of 8(a) BD program 
admission based in whole or in part on grounds other than a negative 
finding of social disadvantage, economic disadvantage, ownership or 
control;
    (2) The appeal is untimely filed under Sec. 134.202 or is not 
otherwise filed in accordance with the requirements of this subpart or 
the requirements in subparts A and B of this part; or
    (3) The matter has been decided or is the subject of an 
adjudication before a court of competent jurisdiction over such 
matters.
    (b) Once the Administrative Law Judge accepts jurisdiction over an 
appeal, subsequent initiation of an adjudication of the matter by a 
court of competent jurisdiction will not preclude the Administrative 
Law Judge from rendering a final decision on the matter.


Sec. 134.406  Review of the administrative record.

    (a) Except as provided in Sec. 134.407, any proceeding conducted 
under this subpart shall be decided solely on a review of the written 
administrative record.
    (b) The Administrative Law Judge's review is limited to determining 
whether the Agency's determination is arbitrary, capricious, or 
contrary to law. As long as the Agency's determination is reasonable, 
the Administrative Law Judge must uphold it on appeal.
    (c) The administrative record must contain all documents that are 
relevant to the determination on appeal before the Administrative Law 
Judge. The administrative record, however, need not contain all 
documents pertaining to the appellant. For example, the administrative 
record in a termination proceeding need not include the

[[Page 43628]]

Participant's entire business plan file or documents pertaining to 
specific 8(a) contracts that are unrelated to the termination action.
    (d) Where the Agency files its answer to the appeal petition after 
the date specified in Sec. 134.206, the Administrative Law Judge may 
decline to consider the answer and base his or her decision solely on a 
review of the administrative record.
    (e) The Administrative Law Judge may remand a case to the AA/8(a)BD 
(or, in the case of a denial of a request for waiver under 
Sec. 124.514, to the Administrator) for further consideration if he or 
she determines that, due to the absence in the written administrative 
record of the reasons upon which the determination was based, the 
administrative record is insufficiently complete to decide whether the 
determination is arbitrary, capricious or contrary to law. Such a 
remand will be for a period of 10 working days.


Sec. 124.407  Evidence beyond the record and discovery.

    (a) The Administrative Law Judge may not admit evidence beyond the 
written administrative record nor permit any form of discovery unless 
he or she first determines that the appellant, upon written submission, 
has made a substantial showing, based on credible evidence and not mere 
allegation, that the Agency determination in question may have resulted 
from bad faith or improper behavior.
    (1) Prior to any such determination, the Administrative Law Judge 
must permit the Agency to respond in writing to any allegations of bad 
faith or improper behavior.
    (2) Upon a determination by the Administrative Law Judge that the 
appellant has made such a substantial showing, the Administrative Law 
Judge may permit appropriate discovery, and accept relevant evidence 
beyond the written administrative record, which is specifically limited 
to the alleged bad faith or improper behavior.
    (b) A determination by the Administrative Law Judge that the 
required showing set forth in paragraph (a) of this section has been 
made does not shift the burden of proof, which continues to rest with 
the appellant.


Sec. 134.408  Decision on appeal.

    (a) A decision of the Administrative Law Judge under this subpart 
is the final agency decision, and is binding on the parties.
    (b) The Administrative Law Judge shall issue a decision, insofar as 
practicable, within 90 days after an appeal petition is filed. If the 
Administrative Law Judge does not issue a decision within 90 days after 
an appeal petition is filed, he or she must indicate the reason that 
the 90-day time limit has not been met in the decision, when issued.
    (c) The Administrative Law Judge may re-examine an appeal decision 
if there is a clear showing of an error of fact or law material to the 
decision.

    Dated: July 23, 1997,
Aida Alvarez,
Administrator.
[FR Doc. 97-21514 Filed 8-13-97; 8:45 am]
BILLING CODE 8025-01-P