43584 Federal Register / Vol. 62, No. 157 / Thursday, August 14, 1997 / Proposed Rules

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.

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-bypage, 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 SBAmaintained 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
Federal Register / Vol. 62, No. 157 / Thursday, August 14, 1997 / Proposed Rules 43585

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 employeebased 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

§ 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 § 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

§ 124.501.

Present § 124.2 would be deleted as

unnecessary, administrative material.

Present § 124.3 would be deleted as

unnecessary, administrative material.

Present § 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 § 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 § 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 § 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 § 124.100 would

be amended. The revised definition

would explain that a disadvantaged
43586 Federal Register / Vol. 62, No. 157 / Thursday, August 14, 1997 / Proposed Rules

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 § 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 § 124.204(d),

and by deleting paragraph (c), which is

generally contained in redesignated

§ 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 § 124.101(a)

concerning reconsideration and that

concerning appeal rights is duplicative

of language currently contained in

§§ 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 § 124.205, while appeal rights

would appear only in proposed

§ 124.206. The first sentence of current

§ 124.101(b) would be transferred to

proposed § 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 § 124.102 by transferring

the substance of paragraph (c) to

proposed § 124.112 and by transferring

the substance of paragraph (d) to

proposed § 124.501(h).

Section 124.103 would be amended

by redesignating it as § 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 § 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 trustowned 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 §§ 124.103 (a) and (b) would

be redesignated to become §§ 124.105

(b) and (d). A new paragraph (c) would

be added for limited liability

companies. Present §§ 124.103 (c) and

(d) would be consolidated into proposed

§ 124.105(e).

Pursuant to proposed §§ 124.105 (g)

and (h), SBA would aggregate the

ownership interests of a business

concern and its principal(s) in

determining whether a nondisadvantaged 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 §§ 124.103 and

124.104.

Proposed § 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 § 124.317

(redesignated as § 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 § 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 § 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 § 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 § 124.106(a) would be

reorganized for greater clarity and easier

use. Of particular note, § 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 fulltime 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
Federal Register / Vol. 62, No. 157 / Thursday, August 14, 1997 / Proposed Rules 43587

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 § 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 § 124.106(d) would be

amended along the lines set forth above

for proposed § 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 nondisadvantaged 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 dayto-day operations of, or possess negative

control over, the applicant or

Participant business concern.

The proposed rule would revise

redesignated § 124.106(e) (present

§ 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 § 124.105 to proposed § 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 § 124.103(c)

(present § 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 § 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 § 124.103(c)(2)(iii) (present

§ 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 § 124.106 to proposed § 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
43588 Federal Register / Vol. 62, No. 157 / Thursday, August 14, 1997 / Proposed Rules

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 § 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 § 124.106(a)(2)(iii), would be moved

to proposed § 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 § 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 § 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

§§ 124.302(c) and 124.403(c) to permit

SBA to accelerate graduation, and

would be added to § 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 § 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 § 124.2.

Proposed § 124.112(c) repeats the

current provision (current § 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

§ 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 § 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 § 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

§ 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
Federal Register / Vol. 62, No. 157 / Thursday, August 14, 1997 / Proposed Rules 43589

being located on tribally-owned or ANCowned 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 triballyowned concerns to enhance

development opportunities.

Section 124.113, redesignated as

§ 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

§ 124.114 as § 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 § 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

§ 124.203 to the sections pertaining to

business development, redesignating it

as proposed § 124.401.

It would delete § 124.204 as

duplicative of language in other sections

of part 124, and redesignate § 124.205 as

§ 124.203.

Section 124.206, redesignated as

proposed § 124.204, would delete

duplicative language from paragraph (a),

which is contained in proposed

§ 124.206, and add new proposed

§§ 124.204 (b) and (c). For further

clarity, this section would delete

obsolete and duplicative language in

current §§ 124.206 (b) and (c), and

redesignate current § 124.206(c)(4) as a

separate proposed § 124.207.

Proposed § 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

§ 124.207 as § 124.301, amend

redesignated § 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

§ 124.209(a) in proposed § 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

§§ 124.208 and 124.209 would be

combined into proposed § 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

§§ 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 § 124.206, while the appeal

rights for early graduation, termination,

suspension, or denial of a request for

waiver under current § 124.317 would
43590 Federal Register / Vol. 62, No. 157 / Thursday, August 14, 1997 / Proposed Rules

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 § 124.305.

Redesignated § 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

§§ 124.300–124.321 would be separated

into Business Development (proposed

§§ 124.401–124.405) and Contractual

Assistance (proposed §§ 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 § 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

§ 124.501 to be included within the

requirement defining how a business

plan is updated (proposed § 124.403).

That part of current § 124.501(a)

addressing what SBA does with

capability statements would be moved

to proposed § 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 §§ 124.501–124.517 would

contain most of the substance currently

in §§ 124.307–124.321, but in a revised

organizational structure for easier use.

Proposed §§ 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
Federal Register / Vol. 62, No. 157 / Thursday, August 14, 1997 / Proposed Rules 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 § 124.308. The proposed rule would

separate the offering provisions from the

procedures relating to SBA’s acceptance

of a procurement into proposed

§§ 124.502 and 124.503, respectively.

Section 124.308(c) (proposed

§ 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 § 124.308(b)(1)–

(2) (where it was part of the

‘‘requirement identification’’ process) to

proposed § 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 § 124.503(e)).

Specifically, SBA would exclude Brooks

Act procedures applying to architectengineer 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 § 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 § 124.504 would clarify the

circumstances limiting SBA’s ability to

accept a procurement for award as an

8(a) contract. Existing §§ 124.309 (a) and

(b) would be combined into one

paragraph (proposed § 124.504(a)). The

proposed rule would add a new

provision (proposed § 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

§ 124.309(c); proposed § 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 § 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 § 124.314 (proposed § 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.
43592 Federal Register / Vol. 62, No. 157 / Thursday, August 14, 1997 / Proposed Rules

Current section 124.311 would be

separated into two sections: proposed

§ 124.506, regarding the dollar

thresholds above which procurements

accepted for 8(a) award must be

competed among eligible Participants,

and proposed § 124.507, describing the

procedures that apply to competitive

8(a) procurements. Proposed § 124.506

would eliminate unnecessary language,

but leave most of the substance of

current §§ 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 ANCowned concern. Current § 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 § 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 § 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 § 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 § 124.505.

Proposed § 124.507(d) (current

§ 124.311(i)) would clarify SBA’s

implementation of § 8(a)(1)(C) of the

Small Business Act, 15 U.S.C.

§ 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 § 124.508 would contain the

requirements relating to competitive

business mix targets. The proposed rule

would eliminate obsolete language

contained in current § 124.312 regarding

modified business activity targets. It

would also tighten the language

throughout the section, eliminating

unnecessary wording where

appropriate.

Proposed § 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
Federal Register / Vol. 62, No. 157 / Thursday, August 14, 1997 / Proposed Rules 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 non8(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 ninemonth 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 oneyear 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 § 124.509 would incorporate

the substantive provisions currently

contained in § 124.314, but would cross

reference the performance of work

requirements contained in § 125.6 of

this chapter. Proposed § 124.510 would

do the same for those requirements

currently contained in § 124.315. Again,

clarification would be made wherever

appropriate.

Proposed § 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

§ 124.316. It clarifies that a procuring

agency may execute an in-scope 8(a)

modification without SBA’s signature.

Proposed § 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 § 124.321.

Proposed § 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 § 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 § 124.321(d) to

provisions that must be contained in the

joint venture agreement itself.

The proposed rule would transfer

current § 124.321(i) concerning joint

ventures for Small Disadvantaged

Business (SDB) set-asides and

evaluation preferences to proposed

§ 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 § 124.513 would contain the

provisions currently contained in

§ 124.318, but eliminate duplicative

language.

The provisions of § 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 § 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
43594 Federal Register / Vol. 62, No. 157 / Thursday, August 14, 1997 / Proposed Rules

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

§ 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 § 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

§ 124.505); and one concerning contract

disputes arising between a Participant

and a procuring agency after the award

of an 8(a) contract (proposed § 124.515).

Both are clarified for easier use.

Proposed § 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 § 124.515 would improve

the language of current § 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 § 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 § 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 § 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 § 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
Federal Register / Vol. 62, No. 157 / Thursday, August 14, 1997 / Proposed Rules 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

prote ́ge ́’s primary SIC code, or under a

particular contract for which the mentor

and prote ́ge ́ 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 § 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 non8(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 § 124.401 dealing with advance

payments. Funding for advance

payments does not exist.

The proposed rule would also

eliminate current § 124.402, concerning

business development expense (BDE).

References to it are obsolete.

Proposed §§ 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 § 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 §§ 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 SBAmaintained 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 setaside to then protest the disadvantaged

status of an apparent successful offeror.

Proposed § 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

§ 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
43596 Federal Register / Vol. 62, No. 157 / Thursday, August 14, 1997 / Proposed Rules

disadvantage, economic disadvantage,

ownership or control pursuant to

§ 124.206; early graduation pursuant to

§§ 124.302 and 124.304; termination

pursuant to §§ 124.303 and 124.304; and

denials of requests to issue a waiver of

the performance of work/termination for

convenience requirements pursuant to

§ 124.514. The substance of these

provisions was previously contained in

§ 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 § 134.406(d)

clarifies that where SBA files its answer

to the appeal petition after the date

specified in § 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) mentorprotege 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 postAdarand 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 womenowned 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,
Federal Register / Vol. 62, No. 157 / Thursday, August 14, 1997 / Proposed Rules 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 programsbusiness, 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:

§ 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 § 124.512(b)(1) of

this chapter are met.

(iii) Two firms approved by SBA to be

a mentor and protege under § 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

§ 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:

§ 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:

§ 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:
43598 Federal Register / Vol. 62, No. 157 / Thursday, August 14, 1997 / Proposed Rules

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.
Federal Register / Vol. 62, No. 157 / Thursday, August 14, 1997 / Proposed Rules 43599

Subpart A—8(a) Business

Development

Provisions of General Applicability

§ 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.

§ 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.

§ 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 onefourth 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-inlaw, brother-in-law, sister-in-law, stepfather, step-mother, step-son, stepdaughter, step-brother, step-sister, halfbrother, 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

§ 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.
43600 Federal Register / Vol. 62, No. 157 / Thursday, August 14, 1997 / Proposed Rules

§ 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 §§ 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.

§ 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 nonbusiness 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.
Federal Register / Vol. 62, No. 157 / Thursday, August 14, 1997 / Proposed Rules 43601

§ 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.

§ 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

§ 124.3 for definition of unconditional

ownership; and §§ 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 nondisadvantaged individuals and

concerns. (1) A non-disadvantaged

individual (in the aggregate with all

immediate family members) or a nonParticipant 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.
43602 Federal Register / Vol. 62, No. 157 / Thursday, August 14, 1997 / Proposed Rules

(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 §§ 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 § 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.

§ 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

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

§ 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.

§ 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 §§ 124.304

and 124.305. Whenever SBA determines

that the applicant submitted false

information, the matter will be referred
43604 Federal Register / Vol. 62, No. 157 / Thursday, August 14, 1997 / Proposed Rules

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 §§ 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

§ 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.

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

§ 124.105(h) do not apply to tribes; they

do, however, apply to nondisadvantaged 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 triballyowned 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 § 124.108(b).

(6) Potential for success. (i) A triballyowned 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 triballyowned 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 § 124.108(a).

§ 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 § 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 §§ 124.101

through 124.108 and § 124.112(a) to the

extent that they are not inconsistent

with this section.
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(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 § 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.

§ 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 § 124.101

through § 124.108 and § 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 § 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 CDCowned 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 § 124.108(a).

§ 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

§ 124.101 through § 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

§§ 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 § 124.101 through

§ 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 § 124.601

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

§§ 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

§ 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.

§ 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.

§ 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.

§ 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.

§ 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.

§ 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 § 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.

§ 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

§ 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:
43608 Federal Register / Vol. 62, No. 157 / Thursday, August 14, 1997 / Proposed Rules

(a) Voluntary early graduation or

withdrawal;

(b) Expiration of the program term

established pursuant to § 124.2;

(c) Early graduation pursuant to the

provisions of §§ 124.302 and 124.304; or

(d) Termination pursuant to the

provisions of §§ 124.303 and 124.304.

§ 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

§ 124.403(c) because of benchmark

achievement.

§ 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 §§ 124.105 and

124.106.

(5) Failure by the concern to disclose

to SBA the extent to which nondisadvantaged 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 § 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.

§ 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 § 134.204.

(c) Recommendation and decision.

Following the 30-day response period,
Federal Register / Vol. 62, No. 157 / Thursday, August 14, 1997 / Proposed Rules 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 § 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.

§ 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

§ 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

§ 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 non8(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

§ 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.

§ 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
43610 Federal Register / Vol. 62, No. 157 / Thursday, August 14, 1997 / Proposed Rules

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 § 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.

§ 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 non8(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 § 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.

§ 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 § 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

§ 120.385 of this title;

(3) The transfer of technology or

surplus property owned by the United

States pursuant to § 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.

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

§ 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
43612 Federal Register / Vol. 62, No. 157 / Thursday, August 14, 1997 / Proposed Rules

business mix target or remedial measure

imposed by § 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 § 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

§ 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).

§ 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.

§ 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 § 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 § 124.508(e);
Federal Register / Vol. 62, No. 157 / Thursday, August 14, 1997 / Proposed Rules 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 § 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 § 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.

§ 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
43614 Federal Register / Vol. 62, No. 157 / Thursday, August 14, 1997 / Proposed Rules

(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.

§ 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.

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

§ 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 § 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 § 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 nonconstruction 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 architectengineer services with a value less than

the competitive threshold amount and

which uses the evaluation procedures

prescribed by part 36, subpart 36.6 of
43616 Federal Register / Vol. 62, No. 157 / Thursday, August 14, 1997 / Proposed Rules

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.

§ 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

1Competitive 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 § 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 non8(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 non8(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),
Federal Register / Vol. 62, No. 157 / Thursday, August 14, 1997 / Proposed Rules 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.

§ 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 § 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).

§ 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

§ 124.505.

§ 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.

§ 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
43618 Federal Register / Vol. 62, No. 157 / Thursday, August 14, 1997 / Proposed Rules

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 § 124.509.

(2) Except as provided in § 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 § 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 § 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.

§ 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 § 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.

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

§ 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

§ 134.204) of the Agency decision.

§ 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.

§ 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 § 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 § 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

§ 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 § 124.112(c).

§ 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
43620 Federal Register / Vol. 62, No. 157 / Thursday, August 14, 1997 / Proposed Rules

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 § 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

§ 124.514.

§ 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 employeebased 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.

§ 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

§ 124.518.

(2) Notwithstanding the requirements

set forth in §§ 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

§ 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

§§ 124.303 and 124.304.

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

§ 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

§ 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.

§ 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.

§ 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.

§ 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

§ 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

§ 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.

§ 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
43622 Federal Register / Vol. 62, No. 157 / Thursday, August 14, 1997 / Proposed Rules

socially and economically

disadvantaged individuals, as defined

by §§ 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 § 124.105, and

those in §§ 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 § 124.106; but

see § 124.109(c)(4) for firms owned by

Indian tribes or ANCs, and § 124.111(b)

for firms owned by CDCs); and

(4) Which, for purposes of SDB setasides 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

§ 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

§ 124.108(a).

(e) Potential for success not required.

The potential for success requirement

set forth in § 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 § 125.6 of this title.

§ 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.

§ 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 nonprocurement 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.

§ 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.

§ 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.

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

§ 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

§ 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 § 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 § 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 § 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.

§ 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
43624 Federal Register / Vol. 62, No. 157 / Thursday, August 14, 1997 / Proposed Rules

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.

§ 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.

§ 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.

§ 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.

§ 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 § 124.1015; or

(3) Not received a renewed SDB

certification after being on the register

for three years (see § 124.1014(a)).

§ 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 setaside, 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 SBAmaintained 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

§§ 124.1015 through 124.1019 and

§§ 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.

§ 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.

§ 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

§ 124.1018(c)).

(d) The protest must have specificity

(see § 124.1019).

§ 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
Federal Register / Vol. 62, No. 157 / Thursday, August 14, 1997 / Proposed Rules 43625

designee, will determine whether the

concern is disadvantaged.

§ 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 setasides 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 § 124.1020.

(c) Timeliness of protest. (1) SDB SetAside 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.

§ 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 § 124.1022.

§ 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 selfcertification 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
43626 Federal Register / Vol. 62, No. 157 / Thursday, August 14, 1997 / Proposed Rules

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 nonsubmission 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.

§ 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

§ 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 §§ 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 § 124.1022, or the

concern is certified to be an SDB under

§ 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

§ 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

§ 124.1008.

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

§ 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 ‘‘§ 124.211’’ and inserting in

its place the phrase ‘‘§ 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.

§ 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.

§ 134.213 [Amended]

10. Section 134.213(a) is amended by

removing the second sentence.

§ 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

§ 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 § 124.206;

(b) Early graduation pursuant to

§§ 124.302 and 124.304;

(c) Termination pursuant to

§§ 124.303 and 124.304; and

(d) Denials of requests to issue a

waiver pursuant to § 124.514.

§ 134.402 Appeal petition.

In addition to the requirements of

§ 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.

§ 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 § 124.206 or denials of

requests for waivers pursuant to

§ 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 §§ 124.302

and 124.304 or termination pursuant to

§§ 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.

§ 134.404 Decision by Administrative Law

Judge.

Appeal proceedings brought under

this subpart will be conducted by an

Administrative Law Judge.

§ 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

§ 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.

§ 134.406 Review of the administrative

record.

(a) Except as provided in § 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
43628 Federal Register / Vol. 62, No. 157 / Thursday, August 14, 1997 / Proposed Rules

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 § 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 § 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.

§ 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.

§ 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