This section of the FEDERAL REGISTER

contains notices to the public of the proposed

issuance of rules and regulations. The

purpose of these notices is to give interested

persons an opportunity to participate in the

rule making prior to the adoption of the final

rules.

Proposed Rules Federal Register

58963

Vol. 65, No. 192

Tuesday, October 3, 2000

SMALL BUSINESS ADMINISTRATION

13 CFR Part 126

HUBZone Program

AGENCY: Small Business Administration.

ACTION: Proposed rule.

SUMMARY: The Small Business

Administration (SBA) proposes to

amend its regulations governing the

HUBZone Empowerment Contracting

Program (HUBZone program). Now that

SBA has officially launched the

program, has received over two

thousand applications for HUBZone

certification, and has certified concerns

into the program, SBA believes that it

should make the following four

regulatory amendments and

clarifications to improve the

administration and operation of the

HUBZone program. First, SBA proposes

to amend the provisions governing the

application of the HUBZone program to

various government departments and

agencies. It proposes to add three

federal agencies to the current list of

agencies that are affected directly by the

HUBZone program and to clarify that

the HUBZone program does not apply to

contracts awarded by state and local

governments. Second, SBA proposes to

amend the definition of the term

‘‘principal office’’ to accommodate those

concerns whose industries require

employees to perform their work at

various job sites. Third, SBA proposes

to eliminate the existing program

eligibility restrictions on allowable

affiliations of HUBZone small business

concerns, since those requirements have

proven to be unduly burdensome on

otherwise eligible concerns. Finally,

SBA proposes to ease the program

eligibility requirements and

procurement restrictions concerning

qualified HUBZone small business

concerns that operate as nonmanufacturers because those

requirements are unnecessary and

overly restrictive.

DATES: Submit comments on or before

November 2, 2000.

ADDRESSES: Send your comments to

Michael McHale, Associate

Administrator for the HUBZone

Program, 409 Third Street, SW,

Washington, DC 20416.

FOR FURTHER INFORMATION CONTACT:

Michael McHale, Associate

Administrator for the HUBZone

Program, (202) 205–6731 or

hubzone@sba.gov.

SUPPLEMENTARY INFORMATION: The

HUBZone program was established

pursuant to the HUBZone Act of 1997

(HUBZone Act), Title VI of the Small

Business Reauthorization Act of 1997,

Pub. L. No. 105–135, enacted December

2, 1997. The purpose of the HUBZone

program is ‘‘to provide for Federal

contracting assistance to qualified

HUBZone small business concerns.’’ 15

U.S.C. 657a(a). The HUBZone Act

authorizes the SBA Administrator to

publish regulations implementing the

program. Pub. L. No. 105–135, § 605. On

April 2, 1998, SBA published its

proposed rules for the HUBZone

program. 63 FR 16148. After the close of

the public comment period and review

of the comments, SBA published its

final regulations, which became

effective on September 9, 1998. 63 FR

31896 (June 11, 1998). The final

HUBZone regulations, among other

things, set forth the definition of key

terms used in the regulations, the

criteria for qualification as a HUBZone

small business concern (SBC) and the

Federal contracting assistance available

to qualified HUBZone SBCs.

Based upon the operation of the

program since the effective date of the

final HUBZone regulations, SBA has

become aware of certain amendments

that it believes should be made to the

program’s regulations. SBA proposes

these amendments to clarify existing

regulations, streamline the operation of

the HUBZone program and ease

program eligibility requirements

perceived to be burdensome on

concerns.

SBA proposes to amend § 126.101,

concerning the application of the

HUBZone program to various

government departments and agencies.

Specifically, paragraph (a) of that

section lists the ten federal agencies to

which the HUBZone Act originally

applied and provides in paragraph (b)

that after September 30, 2000, the

HUBZone program will apply to all

federal departments and agencies which

employ one or more contracting officers

as defined by 41 U.S.C. 423(f)(5). On

November 29, 1999, Congress enacted

Pub. L. 106–113. Section 212 of that

statute requires that the HUBZone Act

also apply to three additional agencies:

the Department of Commerce, the

Department of Justice, and the

Department of State. This proposed rule

would add these three federal agencies

to the list in paragraph (a).

This proposed rule would also add a

new paragraph (c) to § 126.101, to make

clear that the HUBZone program does

not apply to contracts awarded by state

and local governments, since the

HUBZone Act only applies to the

federal government. The proposed

paragraph (c) would also indicate that

state and local governments that have

programs similar to the HUBZone

program are free to use SBA’s List of

qualified HUBZone SBCs to identify

such concerns.

SBA proposes to amend the definition

of ‘‘principal office.’’ Currently,

§ 126.103 defines ‘‘principal office’’ to

mean the location where the greatest

number of the concern’s employees at

any one location perform their work.

SBA proposes to amend that definition

to accommodate those concerns whose

primary industry requires employees to

perform their work at various job sites.

SBA received several comments on this

definition of ‘‘principal office’’ when it

originally proposed the current rule, but

believed that the definition would not

prevent those concerns from

participating in the HUBZone program.

See 63 FR 31898. SBA has re-evaluated

this definition in light of experience and

has found that maintaining compliance

with the current definition of ‘‘principal

office’’ is difficult for those concerns

engaged in the service and construction

industries because under this definition,

their principal office is subject to

change from contract to contract. As a

result, SBA proposes that for concerns

whose primary industry is services or

construction (i.e., other than

manufacturing), the principal office

would be the location where the greatest

number of the concern’s employees

perform their work, but excluding those

employees who perform their work at

job-site locations to fulfill specific

contract obligations. For example, a

construction concern might have an

office in a HUBZone where 10

employees perform their work. This

58964 Federal Register / Vol. 65, No. 192 / Tuesday, October 3, 2000 / Proposed Rules

same firm might have a construction

contract at a local government facility

not located in a HUBZone, where 50 of

the concern’s employees work to fulfill

the obligations of the construction

contract. According to the proposed

definition, the concern’s principal office

would be in the HUBZone.

SBA requests public comment

regarding our proposal to restrict this

change only to the construction and

service industries. We chose not to

include manufacturing concerns in this

change because such firms tend to

operate with fixed plant, equipment and

personnel tied to one location. Further,

we believe that the exclusion of

manufacturing firms from this revised

definition is consistent with the purpose

of the HUBZone Act of 1997, to both

encourage employment opportunities

and increase the level of investment in

HUBZones.

Next, SBA proposes to amend

§ 126.204, which provides certain

restrictions on the allowable affiliations

of a qualified HUBZone SBC. Currently,

§ 126.204 permits a qualified HUBZone

SBC to have affiliates only if those

affiliates are qualified HUBZone SBCs,

participants in the 8(a) Business

Development (8(a) BD) program, or

woman-owned businesses (WOBs).

Although that restriction is not required

by statute, SBA included it in both the

proposed and final HUBZone

regulations to ensure that the HUBZone

program was implemented in a manner

that supported rather than undermined

existing programs designed to assist

small businesses. 63 FR 16150. As a

means of support to the 8(a) BD

program, SBA explained in the

preamble to the proposed HUBZone

regulation that minimizing the

restrictions on the participation of 8(a)

BD participants in the HUBZone

program would provide an additional

source of government contract

assistance for 8(a) BD participants and

would therefore enhance the business

development objectives of that program.

63 FR 16151. SBA also explained in the

preamble that allowing WOBs the

maximum opportunity to qualify as

HUBZone SBCs would provide the type

of assistance that Congress determined

in the Small Business Act was necessary

to remove the discriminatory barriers to

the development of WOBs. Id. SBA

adopted this approach in its final

regulations. 63 FR 31899.

Since the effective date of the final

HUBZone regulations, SBA has received

over two thousand applications for

certification under the HUBZone

program. As a result of the limitation on

allowable affiliations with only the

three types of SBCs specified in the

current § 126.204, SBA has had to

decline a number of otherwise eligible

applicants for HUBZone certification.

The restrictions likewise have operated

to limit HUBZone certification of 8(a)

BD participants and WOBs that have

affiliates that are not themselves

qualified HUBZone SBCs, 8(a) BD

participants or WOBs. As a result 8(a)

BD participants, WOBs, as well as other

otherwise eligible SBCs alike, have been

declined HUBZone certification by

reason of the restriction in § 126.204.

SBA now believes that the current

affiliation requirement is unnecessarily

restrictive and should be removed. In

addition, the removal of this restriction

will allow SBCs in non-HUBZone areas

to establish new business ventures in

HUBZones. This is especially critical

due to the historical lack of investment

capital in HUBZones and the need for

such capital to establish new businesses

that will promote economic

development and create jobs.

Accordingly, SBA proposes to

eliminate the existing restrictions on

affiliation under § 126.204. The

proposed § 126.204 would allow a

qualified HUBZone SBC to have

affiliates as long as it, when combined

with its affiliates, is still small pursuant

to SBA’s size regulations contained in

part 121 of this title.

Finally, SBA proposes to amend two

separate, but related, provisions

concerning non-manufacturers. The first

proposed amendment would delete the

eligibility requirement for nonmanufacturers contained in § 126.206.

Under this proposed rule, nonmanufacturer HUBZone concerns would

no longer be required to demonstrate

that they can provide product or

products manufactured by qualified

HUBZone SBCs.

The second proposed amendment

would revise § 126.601. Currently, that

section provides that a qualified

HUBZone SBC that operates as a nonmanufacturer may submit an offer on a

HUBZone contract for supplies only if

the concern’s small manufacturer is also

a qualified HUBZone SBC. This

proposed rule would amend that

provision to allow qualified HUBZone

SBCs that are non-manufacturers the

opportunity to supply the product of

any business for HUBZone contracts at

or below $25,000 in total value. The

reason for this proposed change is that

SBA believes that for many products

purchased in small dollar quantities (at

or below $25,000), there are often too

few or no small business manufacturers

participating in the federal market.

Thus, SBA proposes to allow a qualified

HUBZone SBC to use any manufacturer,

including a large business, for HUBZone

contracts at or below $25,000 in total

value. This provision will encourage the

participation of small business nonmanufacturers that are located in

HUBZones.

SBA believes that an exemption for

contracts greater than $25,000 would

harm qualified HUBZone SBCs that are

manufacturers and possibly impact the

program’s goal of attracting capital

investment and jobs in HUBZones. SBA

further believes that this proposed

exemption for contracts under $25,000

and the requirement in § 126.601 that a

qualified HUBZone SBC that is a nonmanufacturer may bid on HUBZone

contracts for supplies only if the

concern’s small manufacturer is also a

qualified HUBZone SBC, also support

SBA’s proposal to eliminate the

eligibility requirement in § 126.206, that

non-manufacturers demonstrate at the

time of application that they can

provide the product or products

manufactured by a qualified HUBZone

SBC. With respect to the proposed

$25,000 exemption, if the HUBZone

contract is valued at or below the

$25,000 threshold, the SBC would not

be required to use the products of a

qualified HUBZone SBC and so should

not be required to demonstrate that they

would do so as a precondition to

HUBZone certification. With respect to

contracts above the $25,000 threshold,

§ 126.601(d) requires qualified

HUBZone SBCs to use a qualified

HUBZone SBC manufacturer. It is

therefore unnecessary to have a separate

eligibility requirement that the concern

demonstrate at the time of application

that it can provide the product or

products manufactured by a qualified

HUBZone SBC.

SBA solicits comments from the

public addressing the issues raised in

this proposed rule, including more

effective ways to address these issues

and whether we have solved adequately

the problems identified.

Compliance With Executive Orders

12866, 12988, and 13132, the

Paperwork Reduction Act (44 U.S.C.

Ch. 35), and the Regulatory Flexibility

Act (5 U.S.C. 601–602)

The Office of Management and Budget

(OMB) reviewed this rule as a

‘‘significant’’ regulatory action under

Executive Order 12866.

For purposes of Executive Order

12988, SBA has drafted this proposed

rule, to the extent practicable, in

accordance with the standards set forth

in section 3 of that Order.

For purposes of Executive Order

13132, SBA has determined that this

proposed rule has no federalism

Federal Register / Vol. 65, No. 192 / Tuesday, October 3, 2000 / Proposed Rules 58965

implications warranting the preparation

of a Federalism Assessment.

For purposes of the Paperwork

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

has determined that this proposed rule

does not impose new reporting or

recordkeeping requirements.

SBA has determined that this

proposed rule may have a significant

beneficial economic impact on a

substantial number of small entities

within the meaning of the Regulatory

Flexibility Act (RFA), 5 U.S.C. 601, et

seq. The amendments proposed in this

rule involve revising the definition of

‘‘principal office’’ and eliminating

certain requirements governing the

allowable affiliations of qualified

HUBZone SBCs and SBCs that operate

as non-manufacturers. These

amendments will affect a large

percentage of the over 30,000 SBCs that

SBA believes are now eligible or will

become eligible for certification as

qualified HUBZone SBCs over the life of

the program. Thus, SBA has prepared an

Initial Regulatory Flexibility Analysis

(IRFA) and has submitted a complete

copy of the IRFA to the Chief Counsel

for Advocacy of the Small Business

Administration. For a complete copy of

the IRFA, please contact Michael

McHale at (202) 205–6731.

The IRFA explains that this proposed

rule will affect primarily those SBCs

that participate in Federal

procurements, that have affiliates, or

that are non-manufacturers. The

proposed rule will make it easier for

qualified SBCs to participate in the

program because it provides a definition

of ‘‘principal office’’ that accommodates

the fluid nature of the construction and

service industries and it allows

qualified HUBZone SBCs to have any

affiliates provided that they, together

with their affiliates, do not exceed their

applicable size standard under part 121

of title 13 of the Code of Federal

Regulations. This proposed rule will

also facilitate the certification of

qualified HUBZone SBCs and open the

door to more HUBZone contracts by

eliminating the eligibility requirement

that non-manufacturers must

demonstrate that they can supply the

goods of a qualified SBC as a

prerequisite for program certification,

and by exempting non-manufacturers

from making that showing when

submitting offers to supply goods for

HUBZone contracts with a total value of

$25,000 or less.

The IRFA further explains that these

proposed amendments do not duplicate,

overlap or conflict with relevant Federal

regulations. It also indicates that SBA

has reviewed several alternatives to the

proposed amendments and that it

believes that the amendments proposed

are in the best interest of SBCs and the

HUBZone Program.

(Catalog of Federal Domestic Assistance

Programs, No. 59,009)

List of Subjects in 13 CFR Part 126

Administrative practice and

procedure, Government procurement,

Reporting and recordkeeping

requirements, Small businesses.

Accordingly, for the reasons set forth

above, SBA proposes to amend 13 CFR

part 126, as follows:

PART 126—HUBZONE PROGRAM

[AMENDED]

1. Amend the authority citation for 13

CFR part 126 to read as follows:

Authority: 15 U.S.C. 632(a); Pub. L. 106–

113 sec. 212, 113 Stat. 1537–289; Pub. L.

105–135 sec. 601 et seq., 111 Stat. 2592.

2. Amend § 126.101 by removing

paragraphs (a)(1) through (a)(10), by

adding new paragraphs (a)(1) through

(a)(13), and by adding a new paragraph

(c) to read as follows:

§ 126.101 Which government departments

or agencies are affected directly by the

HUBZone program?

(a) * * *

(1) Department of Agriculture;

(2) Department of Commerce;

(3) Department of Defense;

(4) Department of Energy;

(5) Department of Health and Human

Services;

(6) Department of Housing and Urban

Development;

(7) Department of Justice;

(8) Department of State;

(9) Department of Transportation;

(10) Department of Veterans Affairs;

(11) Environmental Protection

Agency;

(12) General Services Administration;

and

(13)National Aeronautics and Space

Administration.

* * * * *

(c) The HUBZone program does not

apply to contracts awarded by state and

local governments. However, state and

local governments may use the List of

qualified HUBZone SBCs to identify

qualified HUBZone SBCs for similar

programs authorized under state or local

law.

3. Amend § 126.103 to revise the

definition of ‘‘principal office’’ to read

as follows:

§ 126.103 What definitions are important in

the HUBZone program?

* * * * *

Principal office means the location

where the greatest number of the

concern’s employees at any one location

perform their work. However, for those

concerns whose ‘‘primary industry’’ (see

13 CFR 121.107) is service or

construction (see 13 CFR 121.201), the

determination of principal office

excludes the concern’s employees who

perform the majority of their work at

job-site locations to fulfill specific

contract obligations.

* * * * *

4. Revise § 126.204 to read as follows:

§ 126.204 May a qualified HUBZone SBC

have affiliates?

A concern may have affiliates

provided that the aggregate size of the

concern and all its affiliates is small as

defined in part 121 of this title.

5. Revise § 126.205 to read as follows:

§ 126.205 May non-manufacturers be

certified as qualified HUBZone SBCs?

Non-manufacturers (referred to in the

HUBZone Act of 1997 as ‘‘regular

dealers’’) may be certified as qualified

HUBZone SBCs if they meet all of the

requirements set forth in § 126.200.

‘‘Non-manufacturer’’ is defined in

§ 121.406(b)(1) of this title.

6. Amend § 126.601 by revising

paragraph (d) to read as follows:

§ 126.601 What additional requirements

must a qualified HUBZone SBC meet to bid

on a contract?

* * * * *

(d) A qualified HUBZone SBC which

is a non-manufacturer may submit an

offer on a HUBZone contract for

supplies if it meets the requirements

under the non-manufacturer rule as

defined in § 121.406(b) of this title, and

if the small manufacturer providing the

end item for the contract is also a

qualified HUBZone SBC. However, for

HUBZone contracts at or below $25,000

in total value, a qualified HUBZone SBC

may supply the end item of any

manufacturer, including a large

business.

Dated: September 26, 2000.

Aida Alvarez,

Administrator.

[FR Doc. 00–25291 Filed 10–2–00; 8:45 am]

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