[Federal Register Volume 63, Number 112 (Thursday, June 11, 1998)]
[Rules and Regulations]
[Pages 31896-31916]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-15581]


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SMALL BUSINESS ADMINISTRATION

13 CFR Parts 121, 125, and 126


HUBZone Empowerment Contracting Program

AGENCY: Small Business Administration.

ACTION: Final rule.

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SUMMARY: The HUBZone Act of 1997, Title VI of Public Law 105-135, 
enacted on December 2, 1997 (111 Stat. 2592), created the HUBZone 
Empowerment Contracting Program (hereinafter ``the HUBZone Program''). 
This final rule adds a new Part 126 to Title 13 of the Code of Federal 
Regulations to implement the HUBZone program.

DATES: The effective date of this rule is September 9, 1998. However, 
at the conclusion of the congressional review, if the effective date 
has been changed, the Small Business Administration (SBA) will publish 
a document in the Federal Register to establish the actual effective 
date or to terminate the rule.

FOR FURTHER INFORMATION CONTACT: Michael McHale, Assistant 
Administrator, Office of Procurement Policy and Liaison, 409 Third 
Street, SW, Washington, DC 20416, (202) 205-6731.

SUPPLEMENTARY INFORMATION: On April 2, 1998, SBA published a proposed 
rule to implement the HUBZone program. See 63 FR 16148. The proposed 
rule set forth the program requirements for qualification as a HUBZone 
small business concern (HUBZone SBC), the federal contracting 
assistance available to qualified HUBZone SBCs, and other aspects of 
this program. SBA published a technical correction on April 14, 1998. 
See 63 FR 18150.
    The public comment period closed on May 4, 1998. SBA received 35 
comment letters on the proposed rule. This final rule includes changes 
based on some of the comments received.

Section-by-Section Analysis

    The conforming amendments to Part 121 of this title remain as 
proposed. However, SBA has added a second conforming amendment to Part 
125 of this title. Section 125.2 of this title must be amended to 
include HUBZone contracts in the contracts reviewed by SBA's 
procurement center representatives.
    A new part 126 is added to Title 13 of the Code of Federal 
Regulations to implement the HUBZone program.
    Section 126.100 explains that the purpose of the HUBZone program is 
to provide federal contracting assistance for qualified small business 
concerns (SBC) located in historically underutilized business zones in 
an effort to increase employment opportunities and investment in those 
areas. SBA received no comments concerning this section and it remains 
as proposed.
    Section 126.101 lists the departments and agencies affected 
directly by the HUBZone program. SBA received no comments concerning 
this section and it remains as proposed.
    Section 126.102 describes the effect the HUBZone program will have 
on the 8(d) subcontracting program. The HUBZone Act of 1997 amended 
section 8(d) of the Small Business Act, 15 U.S.C. 637(d), to include 
qualified HUBZone SBCs in the formal subcontracting plans required by 
8(d) of the Small Business Act and described in section 125.3 of this 
title. Two comments on this section stated that SBA has not adequately 
addressed how SBA will implement the inclusion of qualified HUBZone 
SBCs in the 8(d) subcontracting assistance program. SBA refers 
commenters to changes made to section 125.3 of this title, concerning 
SBA's 8(d) subcontracting program, to implement the inclusion of 
qualified HUBZone SBCs in this program. Changes to the Federal 
Acquisition Regulation also will need to be made to further implement 
these changes. This section remains as proposed.
    Section 126.103 defines terms that are important to the HUBZone 
program. SBA received comments regarding several of the proposed 
definitions.
    In defining some terms essential to the HUBZone program, the 
HUBZone Act of 1997 relied upon definitions provided by other federal 
agencies. This final rule cross-references those definitions for use in 
connection with the HUBZone program.
    HUBZone definition: The HUBZone Act defines a HUBZone as ``a 
historically underutilized business zone which is in an area located 
within one or more qualified census tracts, qualified non-metropolitan 
counties, or lands within the external boundaries of an Indian 
reservation.'' Further, the HUBZone Act states that the term 
``qualified census tract'' has the meaning given that term in 
Sec. 42(d)(5)(C)(ii)(I) of the Internal Revenue Code. This section of 
the Internal Revenue Code refers to the low-income housing credit 
program maintained by the Department of Housing and Urban Development 
(HUD). The Secretary of HUD designates the qualified census tracts by 
Notice published periodically in the Federal Register. These notices 
are titled ``Statutorily Mandated Designation of Qualified Census 
Tracts and Difficult Development Areas for Section 42 of the Internal 
Revenue Code of 1986.'' The most recent Notice may be found at 59 FR 
53518 (1994). The rule includes a cross-reference to 
Sec. 42(d)(5)(C)(ii)(I) of the Internal Revenue Code.
    Qualified non-metropolitan counties definition: The term qualified 
non-metropolitan counties is based on the most recent data available 
concerning median household income and unemployment rates. The Bureau 
of Census of the Department of Commerce gathers the data regarding 
median household income and the Bureau of Labor Statistics of the 
Department of Labor gathers the data regarding unemployment rates. The 
public can find the information from the Bureau of Census at any local 
Federal Depository Library. To find the nearest Federal Depository 
Library, call toll-free (888) 293-6498. The information from the Bureau 
of Labor Statistics is available for public inspection at the U.S. 
Department of Labor, Bureau of Labor Statistics, Division of Local Area 
Unemployment Statistics office in Washington, D.C. (the text of the 
rule lists the complete address). Again, the rule cross-references this 
information to provide guidance in determining whether or not a small 
business concern is located in a HUBZone.
    Qualified census tract definition: The terms qualified census tract 
and qualified non-metropolitan counties are based on statistics 
gathered periodically by various federal agencies. The census reflects 
changes every 10 years, while unemployment statistics are calculated

[[Page 31897]]

annually. Changes in either can generate changes in the areas that 
qualify as HUBZones--even as often as annually.
    Several commenters requested that SBA make various changes to these 
definitions that create HUBZones. Several comments stated that the 
definitions are unfair because communities that need the assistance of 
the HUBZone program will not get it because they do not fall within one 
of the definitions of HUBZone, especially small rural states and rural 
counties. One commenter stated that the criteria should include actual 
population and employment trends in a particular area. Another 
commenter stated that a definition based on poverty rates would be more 
appropriate in an inner-city community that does not contain low income 
housing. Some commenters suggested alternative definitions. For 
example, one comment suggested that SBA use Department of Commerce's 
Economic Development Administration's designation of ``Long Term 
Economic Deteriorated Areas'' as one definition of HUBZone. Two 
comments suggested that areas in which an active SBA Certified 
Development Company operates should be considered HUBZones. The 
definition of HUBZone is based on statutory language in the HUBZone Act 
of 1997 and, therefore, SBA has no authority to modify it. The 
definitions remain as proposed.
    Lands within the external boundaries of an Indian reservation 
definition: The HUBZone Act of 1997 does not define ``lands within the 
external boundaries of an Indian reservation.'' For purposes of the 
HUBZone program, SBA proposed a definition of ``Indian reservation'' 
used in the Bureau of Indian Affairs'' (BIA) regulations and the rule 
includes a cross-reference to 25 CFR 151.2(f). The BIA definition of 
``Indian reservation'' includes ``that area of land over which the 
tribe is recognized by the United States as having governmental 
jurisdiction, except that, in the State of Oklahoma or where there has 
been a final judicial determination that a reservation has been 
disestablished or diminished, Indian reservation means that area of 
land constituting the former reservation of the tribe as defined by the 
Secretary [of the Interior or authorized representative].'' 25 CFR 
151.2(f). BIA's definition of ``tribe'' includes Alaska Native 
entities. See 25 CFR 81.1(w).
    Indian reservation definition: Several commenters objected to the 
proposed definition of ``Indian reservation'' by reference to a Bureau 
of Indian Affairs regulation. One commenter said that using BIA's 
definition is inappropriate because it includes only federally 
recognized Indian tribes and that SBA should include in the definition 
state-recognized tribes and individual Indians residing on ``former 
Indian lands.'' One comment stated that the BIA definition should not 
control because it restricts the definition to lands over which the 
tribes exercise governmental jurisdiction and there are pockets of land 
within the outermost boundaries of a reservation that were allotted to 
individual Indians and therefore passed out of tribal ownership and 
control, creating a ``checkerboard'' pattern. This commenter suggested 
that the phrase ``lands within the external boundaries of an Indian 
reservation'' includes those pockets of land, even though those pockets 
are not considered part of the reservation itself.
    SBA has decided to keep the definition of ``Indian reservation'' as 
proposed. SBA believes that its use of a definition of ``Indian 
reservation'' created by the Federal agency responsible for Indian 
affairs is appropriate. SBA believes that if Congress had intended to 
include other than federally recognized Indian tribes or Indian land 
not part of an Indian reservation, Congress would have expressly stated 
that in the HUBZone Act of 1997.
    However, to accommodate the ``checkerboard'' pattern of ownership, 
SBA has added a definition for the term ``lands within the external 
boundaries of an Indian reservation.'' The definition states that all 
lands within the outside perimeter of an Indian reservation, whether 
tribally owned and governed or not, are included in the scope of 
``lands within the external boundaries of an Indian reservation'' and, 
therefore, are in a HUBZone.
    Contract opportunity definition: SBA has redefined contract 
opportunity in light of several comments received which point out 
practical difficulties with the proposed rule and its reliance on goal 
achievement statistics. After further consideration of the issue, SBA 
has chosen to eliminate goaling statistics to define HUBZone 
contracting opportunities. That approach was considered impractical by 
procuring agencies and, therefore, was not likely to encourage the use 
of HUBZone contracting. In resolving this issue, SBA balanced HUBZone 
contracting with the stated Congressional purpose in the Small Business 
Act of maximizing 8(a) contracting, where practicable. In effect, SBA 
has replaced the three percent limitation on HUBZone set-aside 
contracting with revised provisions at Sec. 126.607 which create a 
priority for HUBZone firms which are also 8(a) participants and other 
8(a) participants. No limitation on the amount of HUBZone contracting 
would then apply. This approach is also consistent with comments asking 
for a clear order of precedence regarding HUBZone contracting. In terms 
of priority, this approach would also retain consistency with the 
existing Defense Federal Acquisition Regulation Supplement. SBA 
anticipates that the HUBZone statutory goals will be readily achieved 
by this approach, and that there will now be no regulatory impediment 
to exceeding those goals.
    County definition: SBA has added a definition of ``county'' to make 
clear that county equivalents are considered counties for purposes of 
the ``non-metropolitan county'' definition of HUBZone.
    Employee definition: Two commenters suggested alternative 
definitions for ``employee.'' One stated that the proposed definition 
is limiting and should be expanded to include temporary employees. 
Another commenter recommended that SBA use the term ``full-time 
equivalent'' in lieu of ``employee.'' The purpose behind the definition 
as proposed was to focus on those jobs that best fulfill the statutory 
purpose of the HUBZone Act of 1997. This is why SBA specifically 
excluded temporary and leased employees and independent contractors 
from the definition. SBA also sought to encourage the maximum number of 
jobs by allowing companies to count part-time employees but only where 
their combined hours added up to at least 40 hours per week. This 
definition remains as proposed.
    HUBZone small business concern definition: One commenter objected 
that the 100 percent ownership requirement is too rigid. Two commenters 
noted that this requirement may be especially difficult for publicly-
held corporations to meet. SBA considers that the statutory language in 
the HUBZone Act of 1997 requires that the HUBZone SBC be 100 percent 
owned and controlled by U.S. citizens. This definition remains as 
proposed.
    HUBZone 8(a) concern definition: SBA has added a definition for 
HUBZone 8(a) concerns to provide guidance in applying Sec. 126.607.
    Principal office definition: The six comments received on this 
definition stated either that: (1) the ``principal office'' may change 
contract-by-contract for certain types of businesses with on-site 
contract performance (e.g., construction, trash removal); or (2) the 
term ``principal office'' is generally understood to mean the central 
headquarters or center of operations of the business, not where most of 
the businesses' employees are located.

[[Page 31898]]

Suggestions for alternative definitions included ``where the company 
performs its general and administrative business functions,'' ``central 
headquarters or center of operations,'' and ``where the greatest 
proportion of the concern's labor cost is incurred.''
    According to the HUBZone Act of 1997, a HUBZone SBC's principal 
office must be located in a HUBZone. SBA crafted the definition to 
fulfill the statutory purpose of hiring residents in HUBZones by 
encouraging businesses to move to or expand their business operations 
in a HUBZone (as opposed to just their headquarters, which may be where 
only a few employees work). As a result, SBA declines to accept these 
suggested changes. SBA acknowledges that for some types of businesses, 
their ``principal office'' may change contract by contract. However, 
this should not prevent those businesses from meeting the terms of this 
definition and participating in the HUBZone program. SBA has retained 
the definition as proposed.
    Reside definition: Several comments stated that it is unclear how 
SBA or the qualified HUBZone SBC will determine an employee's intent to 
reside in a HUBZone indefinitely. One commenter suggested that the 
criteria be more stringent than voter registration, noting that persons 
may have a voter registration in a state where they have not lived for 
some time. Another commenter stated that it will be a burden on SBA to 
check on residency and voting registration.
    SBA has retained the definition as proposed. According to the 
HUBZone Act of 1997, at least 35 percent of a qualified HUBZone SBC's 
employees must reside in a HUBZone. SBA's definition requires either of 
two means of indicating a permanent residence in the HUBZone (living 
there for 180 days or more or being a registered voter), along with 
``intent to remain there indefinitely.'' SBA believes that the HUBZone 
SBC can readily obtain documentation regarding its employees' length of 
residency or voting registration in order to meet this definition. SBA 
also believes that a HUBZone SBC reasonably may rely on its employees' 
representation of their intent to remain in the HUBZone indefinitely.
    Section 126.200 contains the HUBZone eligibility requirements. In 
general, as described in the regulations, the company must be a small 
business concern; the company must be owned and controlled by one or 
more persons each of whom is a citizen of the United States; the 
principal office of the concern must be located in a HUBZone; at least 
35 percent of the concern's employees must reside in a HUBZone; the 
concern must attempt to maintain this percentage during the performance 
of any HUBZone contract; and the concern must comply with certain 
contract performance requirements in connection with HUBZone contracts. 
To be counted as residing in the HUBZone, an employee either must be 
registered to vote in the HUBZone or have resided in the HUBZone for a 
period of not less than 180 days.
    SBA received two general comments on this section. One commenter 
recommended that large businesses be included in the HUBZone program in 
order to encourage further economic growth within HUBZones. SBA 
considers the statutory language in the HUBZone Act of 1997 to include 
only small business concerns in the HUBZone program. Another commenter 
suggested that the 35-percent residency requirement will have a 
disproportionately adverse affect on smaller HUBZones which may not 
have an adequate pool of individuals residing within the HUBZone to 
hire as employees in order to meet the 35-percent requirement. SBA does 
not consider the statutory language in the HUBZone Act of 1997 to allow 
any exception to this 35-percent requirement. As a result, SBA did not 
incorporate either of these suggestions.
    In addition, SBA received six comments suggesting that the phrase 
``attempt to maintain'' the appropriate percentage of employees who 
reside in a HUBZone is not appropriate language. Commenters suggested 
that SBA should strengthen the language to make it mandatory. SBA 
declines to accept this recommendation because the phrase ``attempt to 
maintain'' comes directly from section 3(p)(5)(A)(i)(II) of the Small 
Business Act, as amended by section 602(a) of the HUBZone Act of 1997. 
This language remains the same as in the proposed section.
    For additional clarity and to ensure consistency with section 
126.304, SBA has inserted all of the statutory requirements into this 
section.
    Section 126.201 describes who is considered to own a HUBZone SBC. 
SBA received no comments concerning this section and it remains as 
proposed.
    Section 126.202 explains who is considered to control a HUBZone 
SBC. SBA received no comments on this section and it remains as 
proposed.
    Section 126.203 states that a HUBZone SBC must meet SBA's size 
standards for its primary industry classification as defined in Part 
121 of this title. SBA asked for comments on a proposal to set a 
minimum size standard of at least 16 employees and a maximum size 
standard of one-half of the procurement assistance size standard for 
initial qualification only. SBA received 22 comments addressing these 
issues.
    Minimum size standard of 16 employees: SBA received two comments in 
support of this idea and 13 comments in opposition. The reasons behind 
the opposition were primarily that the size standard would (1) be an 
unnecessary barrier to start-up businesses; (2) unduly burden rural 
states where many businesses are under 16 employees; (3) eliminate 
opportunities for businesses most likely to create new jobs; (4) 
negatively affect some types of businesses that do not carry 16 full-
time employees (e.g., retailers, service providers); and (5) eliminate 
from eligibility those businesses with fewer than 16 employees that 
already are located in HUBZones. One commenter noted that SBA's own 
statistics show that about 80 percent of small business concerns have 
fewer than 10 employees, so the overwhelming majority of small 
businesses would be excluded from the program under this minimum size 
standard. The commenter further noted that the impact would be even 
greater on minority- and women-owned concerns which tend to be smaller 
and have fewer employees. The commenter stated that the HUBZone statute 
did not give SBA discretion to add limitations to the statutory 
definition. Other commenters stated that HUBZones could benefit from 
businesses of any size.
    Maximum size standard at time of initial qualification of one-half 
of the procurement assistance size standard: SBA received two comments 
in support and five in opposition. One opposing commenter stated that 
this approach would reduce the number of contracts available for award 
to qualified HUBZone SBCs. This reduction would hinder procuring 
agencies' ability to reach the HUBZone contracting goal and reduce the 
benefit to HUBZone communities. Additionally, this commenter believed 
that there are certain industries in which most of the businesses would 
be over one-half of the size standard for that industry. The commenter 
observed that SBA's rationale stated that the HUBZone program is not a 
business development program so SBA should not be concerned with 
whether a firm grows out of its size standard due to receiving HUBZone 
contracts. Rather, SBA should be concerned primarily with accomplishing 
the statutory purpose of job creation and investment in HUBZones.
    Two commenters believed that providing an exception to the one-half

[[Page 31899]]

size standard for 8(a) participants and women-owned businesses (WOBs) 
might not survive legal challenge. SBA also received four comments in 
support of including Indian-owned businesses as another exception to a 
one-half size standard. SBA received another comment stating that SBA 
should deem Indian-owned businesses 8(a) participants for purposes of 
this program. This commenter also stated that 8(a) participants owned 
by white women or white men and WOBs owned by white women should not 
receive the benefit of this exception to the maximum one-half size 
standard.
    SBA has carefully considered all of these comments on this issue 
and has decided not to impose either a minimum size standard of 16 
employees or a maximum one-half size standard for initial qualification 
for the program. As a result, Sec. 126.203 remains as proposed with 
regard to what size standards apply to HUBZone SBCs.
    Under Sec. 126.203(a), if SBA cannot verify that a concern is 
small, SBA may deny the concern status as a qualified HUBZone SBC or 
request a formal size determination from the responsible Government 
Contracting Area Director or designee. SBA received no comments on this 
section and it remains as proposed.
    Section 126.204 provides that qualified HUBZone SBCs may have 
affiliates so long as the affiliates are qualified HUBZone SBCs, 8(a) 
participants, or WOBs. SBA received two comments in opposition to the 
proposed rule regarding affiliation. Both commenters opposed 
restricting allowable affiliation to only specified types of SBCs. One 
commenter noted that there is no similar restriction under the 8(a) 
program. Another commenter suggested expanding allowable affiliation to 
include any other SBC. SBA has considered these comments but has 
declined to accept these recommendations. For the reasons stated in the 
preamble to the proposed rule, SBA continues to believe the regulation 
as proposed is appropriate. The regulation remains as proposed.
    Section 126.205 explains that WOBs, 8(a) participants, and small 
disadvantaged business concerns (SDBs) also can qualify as HUBZone SBCs 
if they meet the requirements set forth in this part. SBA received two 
comments on this section. One stated that the section adds nothing 
substantive. The other stated that allowing firms to qualify under more 
than one ``preference'' program likely will result in higher 
contracting costs to the government. SBA believes that the HUBZone Act 
of 1997 does not permit excluding any other types of SBCs (i.e., SDBs, 
WOBs, 8(a) participants, etc.) from participating in the HUBZone 
program. As a result, SBA retains the section as proposed.
    Section 126.206 states the conditions under which non-manufacturers 
can qualify as HUBZone SBCs. SBA received five comments concerning this 
section. Three stated that the section does not specifically require 
that the HUBZone SBC non-manufacturer supply the products of a 
manufacturer that is located in a HUBZone and that meets the employee 
residency requirement. Four comments stated that the term ``regular 
dealer'' is obsolete and suggested SBA use the term ``non-
manufacturer'' or ``dealer'' instead.
    SBA has modified the section to state that the non-manufacturer 
must use a manufacturer that is a qualified HUBZone SBC. SBA believes 
this requirement will further enhance the impact of HUBZone contracting 
on job creation in HUBZones. Also, SBA has replaced the term ``regular 
dealer'' with ``non-manufacturer'' throughout Part 126. This term is 
consistent with current law and practice in government contracting, 
including Sec. 121.406(b) of this title (SBA's non-manufacturer rule). 
To show an equivalency, SBA notes in this section that the HUBZone Act 
of 1997 uses the term ``regular dealer.''
    Section 126.207 explains that a qualified HUBZone SBC may have 
offices or facilities located in another HUBZone or even outside a 
HUBZone. However, in order to qualify as a HUBZone SBC, the concern's 
principal office must be located in a HUBZone. SBA addresses the 
comments it received referring to this section under other sections. 
This section remains as proposed.
    Sections 126.300 through 126.306 describe how a concern is 
certified as a qualified HUBZone SBC. Those sections explain how SBA 
certifies a concern for the program, when the certification takes 
place, and whether a concern can certify itself.
    Several commenters addressed the certification process as a whole. 
One commenter suggested that the mere existence of a certification 
process might discourage participation in the program. Another feared 
that self-certification risked fraud and abuse and asked SBA to specify 
when it would seek further information or pursue verification. A third 
commenter suggested that the period between self-certifications should 
be three years, not one year. That commenter believed that annual re-
certification would be burdensome to the HUBZone SBCs.
    SBA has retained these sections essentially as proposed. Both the 
self-certification and the verification portions of the HUBZone program 
are based upon the HUBZone Act of 1997. SBA modeled its annual 
certification process on the 8(a) program where experience has 
demonstrated that waiting longer than one year postpones addressing too 
many significant changes in a concern's eligibility. A longer period 
would allow too many substantive changes to occur, whether voluntary or 
involuntary, without SBA's knowledge. Although there may be qualified 
HUBZone SBCs that do not experience changes in the course of a three-
year period, SBA's program experience suggests that one year is the 
optimum period between self-certifications.
    Section 126.300 describes how SBA will certify a concern as a 
qualified HUBZone SBC. One comment suggested that SBA should not rely 
solely on the submitter's information and should modify its procedure 
based upon a review of various state and local empowerment programs' 
certification processes. This commenter believed that lack of 
verification might result in protests.
    SBA has retained the section as proposed. SBA believes that the 
application process, including an applicant's representations and SBA's 
ability to request additional information to verify those 
representations, along with the program examination process, adequately 
addresses the commenter's concerns.
    Section 126.301 states that only SBA may certify a qualified 
HUBZone SBC. Section 126.302 prescribes when a concern may apply for 
certification and section 126.303 provides the address where concerns 
must file their certifications. SBA received no comments on these 
sections and therefore they are retained without change.
    Section 126.304 sets forth what a concern must submit to be 
certified by SBA as a qualified HUBZone SBC. Two commenters raised 
concerns about the language governing a concern's application and 
submissions to SBA. The first commenter observed that SBA should move 
paragraphs (a)(4) and (a)(5) of this section (setting forth the ``good 
faith efforts'' requirement to maintain the 35 percent residence 
standard and ensuring that limitations on subcontracting are met, 
respectively) to other sections. SBA has not adopted this 
recommendation because paragraphs (a)(4) or (a)(5) contain 
representations that the concern is required to make in the application 
process. The second

[[Page 31900]]

commenter was concerned with the substantive requirements. Those are 
dealt with in the discussion of Sec. 126.500 and Sec. 126.700, 
respectively.
    SBA has revised Sec. 126.304(a) to eliminate unnecessary verbiage 
and to add a cross-reference to Sec. 126.700 for more complete details 
regarding contract performance requirements.
    Section 126.304(b) explains that if a concern is applying for 
certification based on a location ``within the external boundaries of 
an Indian reservation,'' it must submit official documentation from the 
Bureau of Indian Affairs Land Titles and Records Office governing their 
area that confirms that the concern is located within the external 
boundaries of an Indian reservation. This additional requirement is 
necessary because, although the qualified census tracts and qualified 
non-metropolitan counties are contained in databases available in an 
electronic format, the data concerning Indian reservations is available 
only through the BIA Land Titles and Records Offices, not in an 
electronic format. Consequently, concerns applying for HUBZone status 
based on location within the external boundaries of an Indian 
reservation must submit the additional documentation. SBA has added a 
sentence to this subsection stating that if BIA is unable to verify 
whether a business is located within the external boundaries of an 
Indian reservation, applicants should contact SBA.
    SBA intends to develop electronic data for lands within the 
external boundaries of an Indian reservation. If SBA succeeds in this 
effort, it may be able to eliminate this requirement in the future'.
    One commenter recommended that ``a letter signed by an official'' 
of BIA be required instead of ``official documentation from the 
appropriate Bureau of Indian Affairs (BIA) Land Titles and Records 
Office with jurisdiction over the concern's area * * *.'' The commenter 
suggested that the proposed provision was more complex than necessary 
and would create potential delays and hindrances for Alaska Native 
applicants. Another commenter noted that specifying a particular BIA 
office might create problems if BIA reorganized.
    SBA has retained the section as proposed. The section requires 
``official documentation,'' which may include a letter. BIA, in 
consultation with SBA, will decide what documentation best meets this 
requirement, provides efficient service for applicants, and protects 
the government against fraud and abuse. SBA does not expect Alaska 
Native applicants to encounter unusual or unexpected delays and 
hindrances in obtaining BIA approval and, therefore, has not modified 
the section. Although BIA may restructure itself, the function which 
that office provides to HUBZone applicants would be transferred to a 
successor office. SBA believes that specifying the name of the BIA 
office is the most accurate procedure.
    Another commenter recommended adding the Form 912 (``Statement of 
Personal History'') to the list of required items in Sec. 126.304(c). 
SBA declined to adopt this recommendation for three reasons. First, any 
listing of forms runs the risk of omitting others. Moreover, as 
presently worded, the subsection already requires the concern to 
``submit the forms, attachments, and any additional information 
required by SBA.'' Thus, SBA already is authorized to request any form 
it may deem appropriate. Finally, specifying a form by its number would 
necessitate another formal rulemaking procedure to modify the section 
in the event a form number changes.
    Section 126.305 explains the format for certifications to SBA and 
Sec. 126.306 describes how SBA will process the certifications. Section 
126.307 states where SBA will maintain the List and Sec. 126.308 
explains what a concern can do in the event SBA inadvertently omits a 
qualified HUBZone SBC from the List. SBA received no comments on any of 
these sections and therefore they remain as proposed.
    Section 126.309 provides a procedure for declined or de-certified 
concerns to seek certification at a later date. One commenter objected 
that the certification process lacks the procedural due process 
safeguards (rights of appeals and reconsideration) that are present in 
the 8(a) program. SBA has retained this section as proposed (except for 
a clarifying word) because a firm does not enter or depart, or 
participate in the HUBZone program in the same way it does with the 
8(a) program. The 8(a) program not only helps program participants to 
obtain federal contracts but also provides ongoing support from SBA 
program staff to assist participants in their business development. 
There is a definite entry date, normally a nine-year term, and there is 
a termination. The HUBZone program merely determines a concern's 
eligibility to be placed on a list that may permit it to obtain federal 
contracts. There is no other SBA support available to HUBZone SBCs 
through the HUBZone program; Congress designed the program to foster 
community development, not the development of individual concerns.
    Four commenters addressed the one-year waiting period imposed on 
declined or de-certified concerns. One recommended that ``reservation-
based concerns'' be exempt from the one-year waiting period before 
reapplying. Another suggested that a 30-60 day period was more 
appropriate. Two other commenters believed a one-year period might be 
appropriate for intentional misrepresentations or fraud but not for 
unintentional or minor technical errors.
    SBA will not decline applicants for technical errors or problems 
easily remedied by supplying clarifying information. Instead, SBA will 
screen out such errors and problems during the application process and 
will work with applicants who wish to overcome the errors or omissions. 
SBA is aware that difficulties might arise and Sec. 126.306(b) 
specifically authorizes SBA to request that the concern provide 
additional information or that it clarify the information contained in 
its submission.
    SBA considered the comments received and has decided to retain the 
one-year waiting period. SBA chose the one-year period to give HUBZone 
SBCs a reasonable period of time within which to make the changes or 
modifications that are necessary to enable them to qualify for the 
HUBZone program, and at the same time to allow SBA to administer the 
HUBZone program effectively with available resources.
    Sections 126.400 through 126.405 discuss program examinations, 
including who will conduct program exams, what the examiners will 
review, and when examinations will be conducted. In addition, these 
sections set out the action SBA may take when it cannot verify a 
concern's eligibility and what action SBA will take once it has 
verified a concern's eligibility. Qualified HUBZone SBCs have an 
obligation to maintain relevant documentation for six years.
    Proposed Sec. 126.401(b) required that qualified HUBZone SBCs 
retain all documentation demonstrating that it satisfied program 
qualifying requirements for six years. One commenter believed that SBA 
should require HUBZone concerns to maintain relevant documents for 
three years. SBA has decided to retain this section as proposed in 
order not to hinder enforcement. Many relevant statutes have statutes 
of limitation much longer than three years.
    Sections 126.402 and 126.403 set forth when SBA may conduct program 
examinations and state that SBA may require additional information from 
a HUBZone SBC. SBA received no

[[Page 31901]]

comments on these sections and has retained them as proposed.
    Section 126.404 discusses the action SBA may take if it is unable 
to verify a HUBZone SBC's eligibility. One commenter suggested adding 
language to make clear that the AA/HUB's decision on de-certification 
is final. SBA has adopted this recommendation and inserted language in 
Sec. 126.404(c) stating that the AA/HUB's decision is the final Agency 
decision. Although SBA received no comments on Sec. 126.404(b) (which 
governs the situation when SBA is unable to verify a qualified HUBZone 
SBC's eligibility), it added language to clarify the rule. Subsection 
(a) provides that SBA will notify the concern in writing that it is no 
longer eligible and subsection (b) granted the concern ``10 business 
days to respond to the notification.'' SBA has modified subsection (b) 
to make clear that the 10-day period runs from the date the concern 
receives SBA's letter of notification.
    Sections 126.500 through 126.503 set forth how a concern maintains 
its qualified HUBZone SBC status; a qualified HUBZone SBC's ongoing 
obligation to SBA and the consequences for failure to uphold that 
obligation; the length of time a concern may qualify as a HUBZone SBC; 
and when SBA may remove a concern from the List. Specifically, a 
concern wishing to remain on the List must self-certify annually to SBA 
that it remains a qualified HUBZone SBC. This self-certification must 
take place within 30 days after each annual anniversary of their date 
of certification.
    One commenter pointed out that two sentences in Secs. 126.500 and 
126.502 are inconsistent. SBA has modified the language in 
Secs. 126.500(a) and 126.502 to clarify how long a concern may remain 
on the List. SBA eliminated the second sentence in Sec. 126.500(a) 
because it answered a question that is not posed in this section and 
there is a more complete and correct answer in Sec. 126.502. Section 
126.500(a) only addresses a HUBZone SBCs responsibilities for 
maintaining its status whereas Sec. 126.502 speaks directly to the time 
limit for inclusion on SBA's List. SBA also corrects the cross-
references listed in Sec. 126.502 by adding Sec. 126.200 and 
eliminating Sec. 126.503.
    Section 126.500 states the requirements for a qualified HUBZone SBC 
to maintain its status. Two commenters objected that the proposed 
regulations did not adequately address the situation when an area that 
had previously qualified as a HUBZone ceases to be a HUBZone. Both 
commenters noted that the regulations do not indicate how or when the 
HUBZone SBCs in that area would be notified. One also suggested that 
the three-year grandfathering period should be extended to a five-year 
minimum.
    SBA has eliminated the ``grandfathering'' provision (in section 
126.502) after careful re-examination. SBA believes that it is 
consistent with congressional intent to not afford HUBZone program 
benefits to concerns in a location when that location no longer meets 
the definition of ``HUBZone.'' Congress elected to tie the HUBZone 
definition to data which is well-known to be vulnerable to change. 
Therefore, the SBA website will endeavor to provide detailed 
statistical data to aid concerns in assessing the likelihood of a 
change in designation in the future.
    In the proposed rule, Sec. 126.600 through 126.616 explained the 
general conditions applicable to HUBZone contracts. Based on the 
comments received regarding these sections, SBA has revised some of 
these regulations. Section 126.600 states that HUBZone contracts are 
contracts awarded to a qualified HUBZone SBC through sole source 
awards, set-aside awards based on competition restricted to qualified 
HUBZone SBCs, or awards to qualified HUBZone SBCs through full and open 
competition after a price evaluation preference in favor of qualified 
HUBZone SBCs. SBA received no comments on this section; therefore, the 
section remains as proposed.
    Section 126.601 provides the additional requirements that a 
qualified HUBZone SBC must meet in order to bid on a HUBZone contract. 
SBA received comments with different views on this section. Two 
commenters suggested that SBA does not have the authority to require a 
certification to the contracting officer in order to bid on a HUBZone 
contract. Additionally, the commenters observed that the certifications 
required appear contrary to Sec. 4301, ``Elimination of Certain 
Certification Requirements,'' in the Clinger-Cohen Act of 1996. The 
HUBZone Act of 1997 gives the Administrator the authority to establish 
appropriate certification procedures by regulation. Furthermore, the 
Clinger-Cohen Act of 1996 eliminated certain, but not all, 
certifications and none of those eliminated relate to small business 
concerns. Finally, the certifications required by this section are 
consistent with other SBA programs for federal contracting assistance 
(8(a), SDB, and WOB).
    One commenter was concerned that Sec. 126.601(c) implies that each 
party to a HUBZone joint venture must itself be a qualified HUBZone 
SBC. This is not the case. As stated in Sec. 126.616(a), a qualified 
HUBZone SBC may enter into a joint venture with one or more other 
qualified HUBZone SBCs, 8(a) participants, or women-owned businesses, 
for the purpose of performing a specific HUBZone contract. Section 
126.601(c) simply requires that each qualified HUBZone SBC that is a 
party to a joint venture make the applicable certifications separately. 
The List includes the names of individual concerns that SBA has 
certified as qualified HUBZone SBCs--not joint ventures. In order for 
the contracting officer to ensure that each qualified HUBZone SBC that 
is a party to the joint venture is on the List, each concern must 
certify under its own name.
    Finally, one commenter suggested that manufacturers that will 
provide a product to non-manufacturers and meet the requirements of 
Sec. 126.601(d) should be on the List of Qualified HUBZone SBCs. SBA 
has changed this section to specify that manufacturers must also be 
qualified HUBZone SBCs. Consequently, such firms are listed.
    Section 126.602 clarifies that a qualified HUBZone SBC must 
``attempt to maintain'' the employee residency percentage during 
performance of any HUBZone contract.
    SBA received a comment stating that the limitation originally 
listed in Sec. 126.602(b) also is listed in Sec. 126.700, but the other 
subcontracting limitations listed in Sec. 126.700 are not listed here. 
Additionally, numerous commenters challenged the authority and the 
ability of contracting officers to effectively monitor and enforce the 
requirements in proposed Sec. 126.602 (a) and (b). Proposed 
Sec. 126.602(c) set forth that requirement. Many comments indicated 
that SBA is in a better position than the contracting officer to 
monitor and enforce these requirements. Further, requiring the 
contracting officer to enforce these requirements is inconsistent with 
other SBA programs (including 8(a) and small business set-asides).
    After considering these comments, SBA has revised this section to 
provide that enforcement of Sec. 126.602 will be the responsibility of 
SBA and SBA will monitor compliance in accordance with Secs. 126.400-
126.505 of this title. Violations of Sec. 126.700 may be grounds for 
termination of the contract at the election of the contracting officer. 
The contracting officer's responsibility can generally be met by 
obtaining an appropriate representation from the potential awardee. SBA 
will propose modifications to the FAR that will add this requirement as 
a new contract

[[Page 31902]]

clause, making it a requirement of contract performance. As revised, 
this section is consistent with other SBA programs. SBA has further 
revised this section by eliminating proposed Sec. 126.602(c).
    Section 126.603 states that HUBZone certification does not 
guarantee receipt of HUBZone contracts. SBA received no comments on 
this section; therefore, it remains as proposed.
    Section 126.604 provides that the contracting officer determines 
whether a HUBZone contract opportunity exists. Two commenters suggested 
that SBA revise this section to add that the contacting officer will 
make this decision with the advice and recommendation of the procuring 
agency's Director, Office of Small and Disadvantaged Business 
Utilization and either the agency's small business technical advisor or 
SBA's procurement center representative (PCR). Existing provisions of 
the FAR already require the contracting officer to work with those 
individuals, consequently, this section remains as proposed.
    One commenter expressed concern that such decisions by the 
contracting officers should be tracked for the first two years of 
program implementation. SBA will track the number and dollar amounts of 
contracts awarded to qualified HUBZone SBCs for the duration of the 
program. Additionally, as discussed further in connection with 
Sec. 126.611, if a contracting officer receives a recommendation from 
SBA's PCR and decides not to make an award to a qualified HUBZone SBC 
either on a HUBZone sole source or set-aside basis, the contracting 
officer must notify SBA's PCR or the AA/HUB, and ultimately the 
Administrator may appeal the contracting officer's decision.
    Section 126.605 lists those requirements which are not available as 
HUBZone contracts. One commenter recommended that SBA amend 
Sec. 126.605 to exclude all acquisitions at or under the simplified 
acquisition threshold including all procurements with an estimated 
value under $2,500 (micro-purchases). SBA does not agree completely 
with this suggestion. SBA has reconsidered the proposed exclusion as to 
requirements between $2,500 and $100,000. SBA now believes, after 
further review, that only contracting actions below the micropurchase 
threshold should not be available for HUBZone set-aside procedures 
because to include them would be impractical and would likely cause no 
meaningful impact in terms of job creation. Moreover, it would 
discourage the use of purchase cards to make small purchases. This does 
not mean that HUBZone firms could not provide goods and services at the 
micropurchase level, only that their HUBZone status would be incidental 
to the contracting action.
    Additionally, SBA has determined that the proposed exclusion of 
contracts above $2,500 and at or below $100,000 should be changed. SBA 
believes these contracts represent too significant a block of potential 
HUBZone contracting actions to exclude them from the program. At the 
same time, SBA is mindful of the significant benefits of simplified 
acquisition procedures which also include a reservation for small 
business. Accordingly, the final rule does not exclude contracts above 
the micropurchase threshold and below the simplified acquisition 
threshold, but makes the use of HUBZone contracting optional for such 
contracts. Revised Sec. 126.608 makes this clear.
    Two commenters recommended that small business set-asides be 
excluded from HUBZone contracts. SBA declines to accept this 
recommendation since a very significant segment of government 
contracting requirements would be lost to HUBZones. As indicated, only 
contracts below the micropurchase threshold have been excluded in the 
final rule.
    Finally, one commenter asked what the effect of the HUBZone program 
would be on the Small Business Competitiveness Demonstration program. 
SBA has reviewed this issue and has decided to include requirements 
which fall within the Small Business Competitiveness Demonstration 
Program in Sec. 126.605. Exclusion of such procurements from the 
HUBZone program would result in a significant loss of contract 
requirements in many labor intensive industries, including 
construction, refuse collection and non-nuclear ship repair.
    SBA has retained Sec. 126.605 (a) and (b) as proposed, amended 
subsection (c) to exclude contracts below the micropurchase threshold, 
and deleted Sec. 126.605(d) as no longer necessary in light of the 
changed definition of contract opportunity in Sec. 126.103.
    Section 126.606 states that a contracting officer may request that 
SBA release an 8(a) requirement for award as a HUBZone contract. SBA 
will release only where neither the incumbent nor any other 8(a) 
participant can perform the requirement and where the 8(a) program will 
not be adversely affected. One commenter suggested that SBA release an 
8(a) requirement if a HUBZone SBC can perform the work as an 8(a) 
participant would. SBA believes such a modification would adversely 
affect the 8(a) program. Furthermore, the legislative history includes 
numerous statements of congressional intent indicating that the HUBZone 
program should not adversely affect the 8(a) program. SBA declines to 
accept this recommendation and this section is retained as proposed.
    Section 126.607 describes when a contracting officer must set aside 
a requirement for qualified HUBZone SBCs. SBA has changed the heading 
for Sec. 126.607 to now apply more generally to HUBZone contracting. 
For the reasons discussed above in connection with the changes to the 
``contract opportunity'' definition, this section now establishes a 
priority first for qualified HUBZone 8(a) concerns and then other 8(a) 
concerns. After these preferences, the contracting officer must use a 
HUBZone set-aside competition when possible. Section 126.607 has been 
revised to accomplish these changes, while preserving the guidance to 
contracting officers with respect to consulting SBA's List of Qualified 
HUBZone SBCs to locate at least two such firms which are likely to 
compete.
    One commenter suggested that SBA add the term ``responsible'' 
before ``qualified HUBZone SBCs'' in subsection (c)(1) (proposed 
subsection (a)(1)). The comment describes this as a ``vital element.'' 
The HUBZone Act of 1997 does not include the term ``responsible'' in 
the applicable provision. However, SBA agrees that responsibility is a 
vital element in the contracting officer's decision and has revised the 
section to include the term.
    SBA has eliminated the proposed Sec. 126.608 and has created a new 
Sec. 126.608 to address commenters' concerns with respect to Simplified 
Acquisition Threshold procedures. As indicated above, the new 
Sec. 126.608 clarifies that Simplified Acquisition Threshold procedures 
can be used for HUBZone contracting. SBA eliminated the proposed 
Sec. 126.608 because it was merely restating general procurement 
practices. SBA did not intend to create special rules to be followed in 
the HUBZone context where a competition results in only one or no 
acceptable offer received.
    Section 126.609 now explains what the contracting officer must do 
if a contracting opportunity does not exist for competition among 
qualified HUBZone SBCs. SBA has clarified this section. Section 126.609 
now refers specifically to Sec. 126.607, and provides guidance to 
contracting officers if a contract opportunity does not exist for 
competition among qualified HUBZone SBCs. SBA received numerous

[[Page 31903]]

comments on the issue of order of precedence generally.
    Sixteen commenters stated that SBA exceeded its authority in 
proposed Secs. 126.608 and 126.609 by creating an order of precedence 
among SBA programs and directing the contracting officer to make 
certain types of awards (either sole source or full and open 
competition). The commenters also stated that the two provisions are 
``confusing,'' ``contradictory,'' and ``inconsistent.'' However, many 
of the commenters stated that SBA has the authority to create an order 
of precedence within SBA programs, but the implementation of any such 
order should be left to the FAR. One commenter endorsed the order of 
precedence as proposed and another commenter suggested a priority for 
8(a).
    SBA believes that it is within its authority to create an order of 
precedence among SBA's programs; therefore SBA has made the order of 
precedence in this rule mandatory. However, SBA agrees that the 
procurement methods a contracting officer uses in other respects should 
be left to the contracting officer in accordance with existing 
procedures set out in the FAR. As indicated, Sec. 126.608 has been 
eliminated in its proposed form. SBA has revised Sec. 126.609 to be 
consistent with that approach. SBA has revised Sec. 126.609 to make the 
order of precedence mandatory. In light of revisions to Sec. 126.607, 
that section is now simply referred to, and the remaining priorities 
are identified in Sec. 126.609.
    Section 126.610 states that SBA may appeal a contracting officer's 
decision not to reserve a procurement for award as a HUBZone contract. 
One commenter recommended that SBA expand this right of appeal to 
include contracting officer decisions that adversely affect 8(a) 
participants. However, the right of the Administrator to appeal the 
contracting officer's decision not to reserve a requirement for award 
as a HUBZone contract is the only appeal right provided by the HUBZone 
Act of 1997. Thus, the text remains as proposed.
    Section 126.611 describes the process for SBA's appeal of a 
contracting officer's decision not to reserve a procurement for award 
as a HUBZone contract. One commenter indicated that this section did 
not clearly identify when a contracting officer must notify SBA of such 
a decision. Also, five commenters suggested that requiring the 
contracting officers to notify SBA every time they decided not to 
reserve a procurement for award as a HUBZone contract imposes a 
``significant administrative burden'' on the procurement process and on 
contracting officers. One commenter suggested including the HUBZone 
notification requirement in the documentation reviewed by SBA's PCR. 
The commenter felt that if an acquisition is not reviewed by a PCR, a 
separate HUBZone notification should not be required. Another commenter 
suggested that the contracting officer should notify the PCR only if 
she or he decides not to set aside a contract opportunity.
    Presently, both the FAR and Sec. 125.2 of this title discuss the 
process by which the contracting officer notifies SBA of such decisions 
in other small business set-aside programs. SBA has modified slightly 
subsection 126.611(a). It now provides that the contracting officer 
must notify the SBA's PCR of a decision not to reserve a procurement 
for award as a HUBZone contract when the contracting officer rejects a 
PCR's recommendation to make a requirement available. As previously 
proposed, if SBA intends to appeal the decision, SBA must notify the 
contracting officer within five days of receipt of the notification. 
SBA expects this notification to be in accordance with the procedures 
that presently exist in the FAR and 13 CFR 125.2. Sections 126.611(b), 
(c) and (d) are unchanged.
    Section 126.612 states when a contracting officer may award a sole 
source contract to a qualified HUBZone SBC. One comment suggested that 
SBA add a new paragraph to this section to provide that where 
unemployment exceeds 20 percent on an Indian reservation, the 
anticipated contract award price limits in subsections (b)(1) and (2) 
do not apply. Three other commenters argued that the limits in 
subsections (b)(1) and (2) should not apply to Indian reservation-based 
businesses. The limitations on sole source requirements set out in 
subsections (b)(1) and (2) of this section are taken directly from 
section 31(b)(2)(A) of the Small Business Act, as amended by section 
602(b)(1) of the HUBZone Act of 1997. The statute did not include any 
exceptions to these limitations. Consequently, SBA does not have the 
authority to provide such an exception. Section 126.612 remains 
essentially as proposed (there are some minor clarifying word changes).
    SBA received 18 comments addressing proposed Secs. 126.613 and 
126.614. The comments focused on two issues: (1) SBA's interpretation 
of the HUBZone price evaluation preference as flawed, and (2) whether 
concerns should be allowed to take advantage of ``dual status'' 
(HUBZone SBC and SDB).
    Proposed Sec. 126.613 explains how the HUBZone price evaluation 
preference affects the bid of a qualified HUBZone SBC in full and open 
competition. In a full and open competition, a contracting officer must 
deem the price offered by a qualified HUBZone SBC to be lower than the 
price offered by another offeror (other than another small business 
concern) if the price offered by the qualified HUBZone SBC is not more 
than 10 percent higher than the price offered by the otherwise lowest, 
responsive, and responsible offeror. This section includes an example 
of the application of the HUBZone price evaluation preference. The 
example has been revised to make it more clear that the preference 
applies to benefit HUBZone SBCs only where the HUBZone SBC would 
receive the award.
    The comments regarding the HUBZone price evaluation preference 
suggested that according to the HUBZone Act of 1997, the preference 
should never displace the offer of another small business concern. 
Commenters suggested that in the example included in this section, the 
small business concern submitting the $100 offer should receive the 
award. In other words, the HUBZone price evaluation preference should 
do no more than eliminate the lowest, responsive, responsible offeror 
that is a large business, leaving the small business concern as the new 
lowest, responsive, responsible offeror which would receive the award. 
One commenter suggested using the term ``apparent successful offeror'' 
instead of ``lowest, responsive, and responsible offeror.'' 
Responsibility is determined later in the acquisition process and not 
at the time the offers are evaluated. SBA did not change the term. The 
term ``lowest, responsive, and responsible offeror'' is taken directly 
from the statute.
    SBA does not interpret section 31(b)(3) of the Small Business Act, 
as amended by section 602(b) of the HUBZone Act of 1997, in this way. 
SBA interprets this statutory language to require that the lowest offer 
from a qualified HUBZone SBC displace the lowest, responsive, 
responsible offeror that is a large business, and replace that offeror 
with that HUBZone SBC. This would result in the HUBZone SBC receiving 
the award, in the example included in this section of the rule.
    SBA does not agree that a small business concern that is not a 
qualified HUBZone SBC can benefit from the HUBZone price evaluation 
preference. SBA believes that this result is contrary to the intent and 
goals of the HUBZone program.

[[Page 31904]]

    Proposed Sec. 126.614 described how a contracting officer must 
apply both HUBZone and SDB price evaluation preferences in a full and 
open competition in some detail and with an example. The comments SBA 
received on this section generally agreed that SBA's ``methodology is 
flawed'' and that the proposed application would result in an award to 
a qualified HUBZone/SDB at a ``differential above 20 percent.'' Two 
comments suggested that statutory authority does not allow payment of 
differentials above 20 percent. Commenters also stated that SBA's 
methodology does not take into account exceptions to the application of 
the SDB price evaluation preference (e.g., otherwise successful offers 
of eligible products under the Trade Agreements Act when the 
acquisition meets or exceeds a certain dollar threshold). The consensus 
of the commenters concerned with process was that SBA regulations 
should contain a broad policy statement regarding the HUBZone price 
evaluation preference and SBA should leave the actual implementation to 
the FAR.
    In addition, SBA also received numerous comments dealing with the 
substance of the issue and whether dual status should be permitted at 
all. There were four in favor of allowing dual status and seven 
against. The comments in favor stated that dual status will encourage 
more minority-owned concerns to compete for federal contracts in 
HUBZones and create jobs; will assist SDBs in competing against 
qualified HUBZone SBCs; and would avoid harm to the SDB program. The 
opposing comments stated that concerns should be required to select one 
status or the other at the time they submit their offer on a contract 
because the application of multiple preferences is too confusing; would 
not work with negotiated procurements; would make it extremely 
difficult for a contracting officer to declare a price to be fair and 
reasonable; and would provide an unfair competitive advantage in favor 
of the ``dual status'' concerns.
    SBA has considered these comments carefully and has decided not to 
change its position in the final rule. As a result, SBA has eliminated 
proposed Sec. 126.614 from the final rule. Nothing in the HUBZone Act 
requires that the HUBZone program displace a contracting activity's 
authority or responsibilities regarding any other programs designed to 
promote the development of small, small disadvantaged, or women-owned 
small businesses. Therefore, SBA has implemented the HUBZone program in 
such a way that any preference a concern receives under this program 
must be added to the preference it may receive pursuant to other 
statutory or regulatory programs.
    However, SBA has decided not to prescribe how a contracting officer 
must apply the two types of preferences in a full and open competition, 
leaving the mechanics for implementation in the FAR.
    As a result, SBA has revised Sec. 126.614 to merely state the 
principle that firms which are both qualified HUBZone SBCs and SDBs 
must receive the benefit of both.
    Section 126.615 states that a large business may not participate as 
a prime contractor on a HUBZone contract but may participate as a 
subcontractor to an otherwise qualified HUBZone SBC. SBA received no 
comments on this section and it remains as proposed.
    Section 126.616 describes the circumstances in which a contracting 
officer may award a HUBZone contract to a joint venture. This section 
also explains that a qualified HUBZone SBC may enter into a joint 
venture with one or more qualified HUBZone SBCs, 8(a) participants, or 
WOBs for the purpose of performing a specific HUBZone contract. One 
commenter argued that SBA should allow qualified HUBZone SBCs to joint 
venture with large businesses because the ability to joint venture with 
``big business'' will bring jobs to HUBZones more rapidly. SBA declines 
to accept this recommendation because the HUBZone program is intended 
to provide contracting assistance to small, not large, business. If 
qualified HUBZone SBCs joint venture with large businesses, then the 
benefits of the program would flow to large businesses in addition to 
small. Additionally, SBA has found that in recent history small 
businesses create more jobs annually than large businesses. Thus, SBA 
has not modified this section in the final rule.
    In the proposed rule, SBA specifically requested comments on 
whether HUBZone contract opportunities should be limited to certain 
types of contracts. For example, should HUBZone contracts only be 
available for industries that are considered ``labor intensive''? Three 
commenters specifically addressed the issue. One commenter stated that, 
based on the intention of the program (creating jobs in HUBZones), 
restricting the types of contracts to labor intensive industries would 
be reasonable and would ensure that the HUBZone program is targeted at 
contracts with the greatest potential for creating jobs. However, the 
other commenters adamantly opposed the idea. These commenters argued 
that such a limitation would exclude participation by small business 
concerns that Congress intended to include in the program. Further, the 
commenters stated that there appears to be no statutory justification 
for imposing any limit on the types of industries involved in the 
program. Finally, the commenters noted that the term ``labor 
intensive'' is subjective and such a limitation would be problematic 
both in administration of the program and enforcement. As a result, SBA 
has not included any such limitation in the final rule.
    SBA also asked commenters to discuss whether HUBZone contract 
opportunities should be limited to those not now awarded to SBCs and to 
make suggestions for ways in which HUBZone implementation can better 
help government contracting activities meet their SDB and WOB goals. 
SBA received no comments specifically addressing these issues.
    SBA has retained Secs. 126.700 through 127.703, as proposed. SBA 
received four comments on Sec. 126.700 which addressed the amount of 
subcontracting that is allowed by general construction and special 
trade contractors. Specifically, three commenters questioned the 
provisions in the proposed rule that requires general construction 
firms to spend at least 15 percent of the cost of contract performance 
for personnel on the concern's employees or the employees of other 
qualified HUBZone SBCs. Special trade contractors have the same 
requirement except that their performance percentage is 25 percent. 
Although these percentages are less than the standards applied for 
servicing and manufacturing firms, these standards represent 
conventional industry practices and, therefore, remain unchanged.
    One commenter proposed that large firms be authorized to perform up 
to 75 percent of manufacturing as a subcontractor on contracts that are 
performed on Indian reservations. This proposal is inconsistent with 
the clear language of the HUBZone legislation which states that not 
less than 50 percent of the cost of manufacturing supplies (not 
including the cost of materials) will be incurred in connection with 
the performance of the contract in a HUBZone by one or more HUBZone 
small business concerns.
    Section 126.702 provides a process by which representatives of 
national trade or industry groups may request a change in 
subcontracting percentage for specific industry groups (as defined by 
two-digit major group industry codes). One commenter suggested that SBA 
revise

[[Page 31905]]

Sec. 126.702 to permit individual businesses to request changes in the 
subcontracting percentage limitations. SBA declines to accept this 
recommendation. SBA wants to insure that such requests reflect the 
views of a large number of businesses before invoking the procedures 
for changing the percentages. SBA received no comments regarding 
proposed Secs. 126.701 and 126.703; however, as stated above, SBA has 
eliminated the subcontracting percentage and has modified these 
sections accordingly.
    Section 126.800 addresses protests relating to a small business 
concern's HUBZone status. This section explains who may file a protest; 
what the protest must contain; how and where a protest must be filed; 
who decides the protest; and what appeal rights are available. One 
commenter recommended that the SDB language in the 8(a) program should 
be applied to the HUBZone program to forestall frivolous protests under 
Sec. 126.800. SBA has declined to accept this recommendation as 
unnecessary. Although the SDB and the HUBZone provisions in this title 
are organized differently, there is little substantive difference 
between them. Section 126.800(b) permits any ``interested party'' to 
protest a HUBZone SBC's status. As defined in Sec. 126.103, an 
``interested party'' may be any of the same three entities which are 
listed in Sec. 124.603, the SDB provision. Although expressed 
differently, the effect of the two provisions is the same. The 
difference between the SDB and HUBZone procedures lies in the fact that 
the HUBZone regulations separate out sole source procurements for 
different treatment. HUBZone regulations permit only the SBA or the 
contracting officer to file protests in those cases. The SDB protest 
procedures do not do so because there are no SDB sole source contracts.
    Three commenters urged that the protest procedures set forth in 
Sec. 126.800 should permit any small business that is prevented from 
competing for a sole source contract to protest the proposed awardee's 
qualified HUBZone status. (SBA changed ``apparent successful offeror'' 
to ``proposed awardee'' to more accurately reflect the fact that there 
is no competition in a sole source procurement.) SBA has retained the 
section as proposed. Third parties may not protest a sole source award 
because they have no stake in the contract, or ``standing.'' In other 
types of procurements, a competitor who protests an award may have 
standing to get the award if its protest is successful. In sole source 
procurements, however, there are no ``competitors'' because of the 
nature of the procurement.
    Although other concerns may not ``protest'' an award, they may 
notify SBA if they have information that a HUBZone SBC is not qualified 
for any reason. SBA, in its sole discretion, may pursue a program 
examination of that concern pursuant to Sec. 126.402. Although that 
course of action might not halt an award, third parties with pertinent 
information about a proposed awardee also are encouraged to notify the 
contracting officer or SBA directly to urge that a formal protest be 
filed.
    Section 126.801 sets forth the procedure for submitting a protest 
of a HUBZone SBC's status. Three commenters asked whether a protestor 
may combine concurrent size and status protests in a single letter and 
rely upon SBA to divide up the protests procedurally. SBA has added a 
phrase to make clear that existing size regulations require a protestor 
to file a size protest with the contracting officer. Protestors must 
direct protests relating to HUBZone status to SBA.
    One commenter suggested replacing the phrase ``unsuccessful 
offeror'' in Sec. 126.801(c)(1) with the phrase ``interested party'' to 
conform to the language used in Sec. 126.800. SBA accepts this 
recommendation and makes this change. SBA notes that Sec. 126.800(b) 
authorizes ``any interested party'' to protest the status of a 
qualified HUBZone SBC. SBA believes it is internally consistent as well 
as substantively correct to change ``unsuccessful offeror'' to 
``interested party'' in Sec. 126.801(c)(1).
    Section 126.802 states who decides a HUBZone status protest. SBA 
received no comments on this section and has decided to keep the 
section as proposed. SBA received one comment on Sec. 126.803, which 
explains SBA's processing of protests. The commenter suggested that SBA 
define ``public interest'' and that the award decision should be made, 
or approved, at a higher level than contracting officer. SBA based this 
section on the FAR (Secs. 12.302(h)(1) and 19.505(f)) and it is 
consistent with the recently proposed SDB protest procedures. As a 
result, SBA declines to accept this recommendation.
    Section 126.804 notes that SBA will decide all protests not 
otherwise dismissed and Sec. 126.805 sets forth the appeal rights that 
are available. SBA received no comments on either of these sections and 
has retained them as proposed.
    Section 126.900 prescribes the penalties applicable under the 
HUBZone program including procurement and non-procurement suspension or 
debarment, as well as applicable civil and criminal penalties. SBA 
received one comment which observed that HUBZone SBCs would not be 
penalized under Sec. 126.900 during the year they are certified. This 
commenter stated further that SBA appeared to have no ability to halt 
contract performance by a HUBZone SBC losing its certification during 
the year. SBA has retained the section as proposed. This section allows 
the imposition of substantial penalties on a concern at any time that 
SBA discovers the concern has made misrepresentations about its status 
as a qualified HUBZone SBC. In addition, SBA has authority to notify a 
contracting agency that a HUBZone SBC is no longer qualified but SBA 
does not have authority to require that agency to terminate the 
contract. Contract termination (whether for convenience or default) is 
governed by the FAR.

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 rule is a major rule within the meaning of 
Executive Order 12866, and has 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. SBA submits the 
following economic analysis prepared pursuant to Executive Order 12866 
and Initial Regulatory Flexibility Analysis (IRFA) prepared pursuant to 
the Regulatory Flexibility Act.
    In making its determination that this rule is a major rule and has 
a significant economic impact on a substantial number of small 
entities, SBA used the definition of small business set forth in 13 CFR 
Part 121.
    The HUBZone Act of 1997, Title VI of Public Law 105-135, 111 Stat. 
2592 (December 2, 1997), creates the HUBZone program and directs the 
Administrator of SBA to promulgate regulations to implement it. The 
rule sets forth the program requirements for qualification as a HUBZone 
SBC, the federal contracting assistance available to qualified HUBZone 
SBCs, and other aspects of this program.
    The HUBZone program will benefit SBCs by increasing the number of 
federal government contracts awarded to them. There is a statutory 
requirement that HUBZone SBCs receive three percent of contract 
dollars. SBA received no additional information from the public during 
the comment period on the impact of the proposed rule on all small 
businesses. The

[[Page 31906]]

program also will benefit HUBZone communities by providing much needed 
jobs and investment in those communities.
    Prior to submitting an offer on a HUBZone contract, an interested 
small business must apply to SBA for certification as a qualified 
HUBZone SBC. The concern must submit information relating to its 
eligibility for the program, including supporting documentation. Once a 
concern is certified as a qualified HUBZone SBC, it must self-certify 
annually to SBA that there has been no material change in its 
circumstances that would affect eligibility. The information required 
for certification consists of general information about the business. 
The Paperwork Reduction Act aspect of this certification is that each 
concern will be able to complete the certification application in one 
hour or less.
    The HUBZone program is different from existing government 
contracting programs because it focuses on job creation in high 
unemployment and poverty-level communities. Commenters requested that 
SBA discuss the impact of the HUBZone program on other contracting/
procurement assistance programs. One commenter specifically raised the 
issue of the interaction between the HUBZone program and the previously 
proposed Empowerment Contracting program by the Department of Commerce 
in May 1997. The Department of Commerce did not and will not publish a 
final rule which would implement the empowerment contracting program. 
Two commenters raised the issue of the competition between HUBZone 
concerns and 8(a) participants owned by Community Development 
Companies. These 8(a) participants will be treated as any other 8(a) 
participant.
    The small entities affected by this rule are those who fit within 
the definition of a small business concern as defined by SBA in 13 CFR 
part 121 and new part 126 and who participate in government 
contracting. Because the program is new, SBA cannot estimate precisely 
the number or classes of small entities that this rule will affect. 
However, as explained below, SBA estimates that more than 30,000 SBCs 
will apply for certification as qualified HUBZone SBCs.
    Based on 1992 census data and making reasonable extrapolations to 
account for growth in recent years, SBA estimates that there are 
approximately five million businesses with employees in the United 
States; of this number, approximately 4.9 million--or 98 percent--are 
considered small. Clearly, not all of the businesses who are considered 
small seek to participate in federal government contracting or will 
seek to participate in the HUBZone program. Currently, there are 
approximately 170,000 SBCs registered on PRO-Net, SBA's database of 
SBCs actively seeking federal government contracts. While PRO-Net is 
not a perfect measure of businesses that may be interested in 
contracting with the government, it is the most accurate measure 
currently available to SBA.
    The number of entities that seek certification as qualified HUBZone 
SBCs will depend, first, on the number of businesses located in 
HUBZones. The potential number of HUBZones is significant. Based on the 
data available, there are approximately 61,000 census tracts in the 
United States; of those tracts, about 7,000--or 11 percent--are 
qualified census tracts for purposes of the HUBZone program. In 
addition, there are approximately 3,000 non-metropolitan counties in 
the United States; of those counties, about 900--or 30 percent--are 
qualified non-metropolitan counties for purposes of the HUBZone 
program. SBA believes that there are 310 Indian reservations and 217 
Alaska Native villages. Based on combining the qualified census tract 
and qualified non-metropolitan county data, SBA estimates that 
approximately 12 percent of the census tracts and non-metropolitan 
counties in the United States will qualify as HUBZones.
    If all small businesses interested in Federal procurement were 
evenly distributed geographically, then approximately 12 percent of the 
170,000 SBCs registered on PRO-Net--or 20,000--would be located in 
HUBZones. However, SBA believes that a much higher number of small 
business are located in qualified census tracts than in qualified non-
metropolitan counties; therefore, SBA adjusts this number upward and 
estimates that 25,000 SBCs (or 15 percent of all SBCs) will be both 
interested in Federal procurement and located in HUBZones. However, as 
stated above, the number of concerns registered on PRO-Net may not 
reflect the entire universe of small businesses that are interested in 
contracting with the government.
    The incentives available through participation in the program 
could, moreover, result in additional SBCs relocating to HUBZone areas. 
SBA is unable to predict the impact of this factor on the total number 
of qualified HUBZone SBCs, but estimates that roughly 30,000 concerns 
that are either now HUBZone SBCs or will become HUBZone SBCs as a 
result of these incentive effects will apply for certification. As 
discussed above, these 30,000 HUBZone SBCs will be spread over about 
7000 census tracts, about 900 non-metropolitan counties, 310 Indian 
reservations and 217 Alaska Native villages.
    Because the HUBZone program is new, SBA also cannot estimate 
precisely the economic impact the rule may have on the economy. 
According to the Congressional Budget Office (CBO), in 1996 the federal 
agencies specified in the HUBZone Act contracted for more than 90 
percent of all federal procurement obligations. (143 Cong. Rec. S8976 
(daily ed. September 9, 1997)). In FY 1996, the federal government 
spent $197.6 billion on the procurement of goods and services. The 
government awarded small businesses $41.1 billion in direct contract 
actions--21 percent of the total $197.6 billion in federal procurement.
    The HUBZone Act of 1997 amends the Small Business Act to increase 
the Government-wide federal contracting goal for SBCs from 20 percent 
to 23 percent of all federal prime contracts. In addition, the HUBZone 
Act sets the government contracting goal for HUBZone SBCs initially at 
one percent of all federal prime contracts with a gradual increase to 
three percent by the year 2003. Thus, by 2003, assuming the 
participating agencies reach the three percent contracting goal, 
HUBZone SBCs may be awarded approximately $6 billion in federal 
contract actions (three percent of the approximately $200 billion 
procurement budget).
    Contracts for the purchase of Federal Government goods and services 
under the HUBZone program would operate in the following three ways: 
(1) a contract award to a qualified HUBZone small business concern can 
be made by a procuring agency if a contracting opportunity exists and 
it determines that two or more qualified HUBZone small business 
concerns will submit offers for the contract and the award can be made 
at a fair market price; (2) consistent with other criteria, a 
contracting officer can award a sole source contract to a qualified 
HUBZone small business concern if it submits a reasonable and 
responsive offer and is determined by the appropriate agency 
contracting officer to be a responsible contractor. Sole-source 
contracts cannot exceed $5 million for manufacturing contracts and $3 
million for all other contract opportunities; and (3) a 10 percent 
Price Evaluation Preference in full and open competition can be made on 
behalf of the Qualified HUBZone small business concern if its offer is 
not more than 10 percent higher than the other offeror, so long as it 
is not a small business concern.

[[Page 31907]]

    In addition to the procurement contract awards available to 
qualified HUBZone concerns, the HUBZone program will have other effects 
on the economy including the possibility of increased costs to the 
government. CBO anticipates that implementation of the HUBZone program 
will increase the incidence of sole source contracting. According to 
CBO, about 19 percent of federal procurement is awarded through sole 
source contracts. It is not possible to project any increase in sole 
source awards at this time, and there might not be any increase in sole 
source awards at all. Instead, qualified HUBZone SBCs might receive 
sole source awards that would otherwise go to large businesses or other 
small businesses.
    CBO also estimates that implementing the HUBZone program would 
significantly increase discretionary spending for the federal agencies 
affected by the program. According to CBO, ``[s]uch costs could total 
tens of millions of dollars each year, but CBO cannot estimate such 
costs precisely.'' (143 Cong. Rec. S8976 (daily ed. September 9, 
1997)). CBO anticipated that these additional costs would stem from 
both additional administrative responsibilities for SBA and other 
federal agencies, as well as the likely increased use of sole source 
contracting. SBA is not in a position to shed much additional light on 
this subject. SBA has received an appropriation of $2 million in FY 
1998 to begin implementing the program and has requested $4 million for 
FY 1999. No other cost information is available at the present time. 
Assessing whether the government will have a net cost from this program 
is very subjective. It is at least possible that increased competition 
from HUBZone SBCs will cause competing concerns to lower prices thereby 
reducing government procurement costs (perhaps substantially).
    While it is at least possible that increased competition from 
HUBZone SBCs will cause competing concerns, it is useful to perform an 
informal sensitivity analysis on the possible implications for 
increased Federal Government contracting costs that derive from the 
description of contracting procedures under the HUBZone program. 
Calculations here assume that the program is fully in effect in the 
year 2003 and that HUBZone contracts are at the level (from above) of 
$6 billion. If all HUBZone contracts are awarded to qualified HUBZone 
SBCs in competitions in which two or more qualified HUBZone SBCs submit 
offers and the award is made at a fair market price, then the 
additional cost to the Federal Government could be close to zero. But, 
as noted above, there are expected to be about 30,000 HUBZone SBCs 
competing for contracts and they are expected to be spread over about 
7000 census tracts and about 900 non-metropolitan counties, so the 
likelihood of this always happening is not large. The second 
possibility is that all HUBZone contracts would be awarded as sole 
source contracts to qualified HUBZone SBCs that submit reasonable and 
responsive offers and are determined by the appropriate contracting 
officer to be responsible contractors. (The sole-source contracts could 
not exceed $5 million for manufacturing contracts and $3 million for 
all other contract opportunities.) The extra costs to the Federal 
Government in this case would be the additional costs over competitive 
awards to the Federal Government that are usually associated with sole 
source contracting. The third possibility is that all HUBZone contracts 
would be awarded at a 10 percent Price Evaluation Preference in full 
and open competition. One could assume that the SBC offer is exactly 10 
percent higher than other (non SBC) offers. In this unlikely case, the 
additional cost to the Federal Government is $600 million per year or 
10 percent of $6 billion, the amount by which the SBC offer would 
exceed other non-SBC offers that did not receive preference.
    Under all of these circumstances, SBA has determined that this 
final rule is a major rule within the meaning of E.O. 12866, and has a 
significant impact on a substantial number of small entities within the 
meaning of the Regulatory Flexibility Act.
    For purposes of the Paperwork Reduction Act, 44 U.S.C. Ch. 35, SBA 
certifies that this final rule imposes new reporting or recordkeeping 
requirements on concerns applying to be certified as qualified HUBZone 
SBCs. The rule requires such concerns to submit evidence that they meet 
the eligibility requirements set forth in the rule; once certified, in 
order to remain on the List a concern must self-certify annually to SBA 
that it remains qualified; and qualified HUBZone SBCs must notify SBA 
immediately of any material change in circumstances which could affect 
their eligibility.
    For purposes of Executive Order 12612, SBA certifies that this rule 
has no federalism implications warranting the preparation of a 
Federalism Assessment.
    For purposes of Executive Order 12778, SBA certifies that it has 
drafted this rule, to the extent practicable, in accordance with the 
standards set forth in section 2 of that Order.

(Catalog of Federal Domestic Assistance Programs, No. 59.009)

List of Subjects

13 CFR Part 121

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

13 CFR Part 125

    Government contracts, Government procurement, Reporting and 
recordkeeping requirements, Research, Small businesses, Technical 
assistance.

13 CFR Part 126

    Administrative practice and procedure, Government procurement, 
Reporting and recordkeeping requirements, Small businesses.

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

PART 121--[AMENDED]

    1. The authority citation for 13 CFR part 121 is revised to read as 
follows:

    Authority: Pub. L. 105-135 sec. 601 et seq., 111 Stat. 2592; 15 
U.S.C. 632(a), 634(b)(6), 637(a) and 644(c); and Pub. L. 102-486, 
106 Stat. 2776, 3133.


Sec. 121.401  [Amended]

    2. Section 121.401 is amended by deleting the word ``and'' before 
``Federal Small Disadvantaged Business Programs,'' adding a comma after 
``Federal Small Disadvantaged Business Programs,'' and adding the 
following language at the end of the sentence: ``and SBA's HUBZone 
program''.
    3. Section 121.1001 is amended by redesignating paragraph (a)(5) as 
(a)(6) and by adding the following new paragraph (a)(5) to read as 
follows:


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

    (a) Size Status Protests. * * *
    (5) For SBA's HUBZone program, the following entities may protest 
in connection with a particular HUBZone procurement:
    (i) Any concern that submits an offer for a specific HUBZone set-
aside contract;
    (ii) Any concern that submitted an offer in full and open 
competition and its opportunity for award will be affected by a price 
evaluation preference given a qualified HUBZone SBC;
    (iii) The contracting officer; and
    (iv) The Associate Administrator for Government Contracting, or 
designee.
* * * * *
    4. Section 121.1008 is amended by revising paragraph (a) to read as 
follows:

[[Page 31908]]

Sec. 121.1008  What happens after SBA receives a size protest or a 
request for a formal size determination?

    (a) When a size protest is received, the SBA Government Contracting 
Area Director, or designee, will promptly notify the contracting 
officer, the protested concern, and the protestor that a protest has 
been received. In the event the size protest pertains to a requirement 
involving SBA's HUBZone Program, the Government Contracting Area 
Director will advise the AA/HUB of receipt of the protest. In the event 
the size protest pertains to a requirement involving SBA's SBIR 
Program, the Government Contracting Area Director will advise the 
Assistant Administrator for Technology of the receipt of the protest. 
SBA will provide a copy of the protest to the protested concern along 
with a blank SBA Application for Small Business Size Determination (SBA 
Form 355) by certified mail, return receipt requested, or by any 
overnight delivery service that provides proof of receipt. SBA will ask 
the protested concern to respond to the allegations of the protestor.
* * * * *

PART 125--[AMENDED]

    5. The authority section for 13 CFR part 125 is revised to read as 
follows:

    Authority: Pub. L. 105-135 sec. 601 et seq., 111 Stat. 2592; 15 
U.S.C. 634(b)(6), 637, and 644; 31 U.S.C. 9701, 9792.

    6. Section 125.2 is amended by revising the second sentence in 
paragraph (a)(1) to read as follows:


Sec. 125.2  Prime contracting assistance.

    (a) * * *
    (1) * * * PCRs review all acquisitions not set aside for small 
businesses, including HUBZone small business concerns, to determine 
whether a set-aside would be appropriate. * * *
* * * * *
    7. Section 125.3 is amended by revising paragraphs (b) and (c) and 
by revising the last sentence of paragraph (d) to read as follows:


Sec. 125.3  Subcontracting assistance.

    (a) * * *
    (b) Upon determination of the successful subcontract offeror on a 
subcontract for which a small business, small disadvantaged business, 
and/or a HUBZone small business received a preference, but prior to 
award, the prime contractor must inform each unsuccessful offeror in 
writing of the name and location of the apparent successful offeror and 
if the successful offeror was a small business, small disadvantaged 
business, or HUBZone business. This applies to all subcontracts over 
$10,000.
    (c) SBA Commercial Market Representatives (CMRs) facilitate the 
process of matching large prime contractors with small, small 
disadvantaged, and HUBZone subcontractors. CMRs identify, develop, and 
market small businesses to the prime contractors and assist the small 
concerns in obtaining subcontracts.
    (d) * * * Source identification means identifying those small, 
small disadvantaged, and HUBZone concerns which can fulfill the needs 
assessed from the opportunity development process.

PART 126--[ADDED]

    8. Add a new part 126 to read as follows:

PART 126--HUBZONE PROGRAM

Subpart A--Provisions of General Applicability

126.100  What is the purpose of the HUBZone program?
126.101  Which government departments or agencies are affected 
directly by the HUBZone program?
126.102  What is the effect of the HUBZone program on the section 
8(d) subcontracting program?
126.103  What definitions are important in the HUBZone program?

Subpart B--Requirements to be a Qualified Hubzone SBC

126.200  What requirements must a concern meet to receive SBA 
certification as a qualified HUBZone SBC?
126.201  For this purpose, who does SBA consider to own a HUBZone 
SBC?
126.202  Who does SBA consider to control a HUBZone SBC?
126.203  What size standards apply to HUBZone SBCs?
126.204  May a qualified HUBZone SBC have affiliates?
126.205  May WOBs, 8(a) participants or SDBs be qualified HUBZone 
SBCs?
126.206  May non-manufacturers be qualified HUBZone SBCs?
126.207  May a qualified HUBZone SBC have offices or facilities in 
another HUBZone or outside a HUBZone?

Subpart C--Certification

126.300  How may a concern be certified as a qualified HUBZone SBC?
126.301  Is there any other way for a concern to obtain 
certification?
126.302  When may a concern apply for certification?
126.303  Where must a concern file its certification?
126.304  What must a concern submit to SBA?
126.305  What format must the certification to SBA take?
126.306  How will SBA process the certification?
126.307  Where will SBA maintain the List of qualified HUBZone SBCs?
126.308  What happens if SBA inadvertently omits a qualified HUBZone 
SBC from the List?
126.309  How may a declined or de-certified concern seek 
certification at a later date?

Subpart D--Program Examinations

126.400  Who will conduct program examinations?
126.401  What will SBA examine?
126.402  When may SBA conduct program examinations?
126.403  May SBA require additional information from a HUBZone SBC?
126.404  What happens if SBA is unable to verify a qualified HUBZone 
SBC's eligibility?
126.405  What happens if SBA verifies eligibility?

Subpart E--Maintaining Hubzone Status

126.500  How does a qualified HUBZone SBC maintain HUBZone status?
126.501  What are a qualified HUBZone SBC's ongoing obligations to 
SBA?
126.502  Is there a limit to the length of time a qualified HUBZone 
SBC may be on the List?
126.503  When is a concern removed from the List?

Subpart F--Contractual Assistance

126.600  What are HUBZone contracts?
126.601  What additional requirements must a qualified HUBZone SBC 
meet to bid on a contract?
126.602  Must a qualified HUBZone SBC maintain the employee 
residency percentage during contract performance?
126.603  Does HUBZone certification guarantee receipt of HUBZone 
contracts?
126.604  Who decides if a contract opportunity for HUBZone set-aside 
competition exists?
126.605  What requirements are not available for HUBZone contracts?
126.606  May a contracting officer request that SBA release an 8(a) 
requirement for award as a HUBZone contract?
126.607  When must a contracting officer set aside a requirement for 
qualified HUBZone SBCs?
126.608  Are there HUBZone contracting opportunities below the 
simplified acquisition threshold?
126.609  What must the contracting officer do if a contracting 
opportunity does not exist for competition among qualified HUBZone 
SBCs?
126.610  May SBA appeal a contracting officer's decision not to 
reserve a procurement for award as a HUBZone contract?
126.611  What is the process for such an appeal?
126.612  When may a contracting officer award sole source contracts 
to a qualified HUBZone SBC?
126.613  How does a price evaluation preference affect the bid of a 
qualified HUBZone SBC in full and open competition?

[[Page 31909]]

126.614  How does a contracting officer treat a concern that is both 
a qualified HUBZone SBC and an SDB in a full and open competition?
126.615  May a large business participate on a HUBZone contract?
126.616  What requirements must a joint venture satisfy to bid on a 
HUBZone contract?

Subpart G--Contract Performance Requirements

126.700  What are the subcontracting percentages requirements under 
this program?
126.701  Can these subcontracting percentages requirements change?
126.702  How can the subcontracting percentages requirements be 
changed?
126.703  What are the procedures for requesting changes in 
subcontracting percentages?

Subpart H--Protests

126.800  Who may protest the status of a qualified HUBZone SBC?
126.801  How does one file a HUBZone status protest?
126.802  Who decides a HUBZone status protest?
126.803  How will SBA process a HUBZone status protest?
126.804  Will SBA decide all HUBZone status protests?
126.805  What are the procedures for appeals of HUBZone status 
determinations?

Subpart I--Penalties

126.900  What penalties may be imposed under this part?

    Authority: Pub. L. 105-135 sec. 601 et seq., 111 Stat. 2592; 15 
U.S.C. 632(a).

Subpart A--Provisions of General Applicability


Sec. 126.100  What is the purpose of the HUBZone program?

    The purpose of the HUBZone program is to provide federal 
contracting assistance for qualified SBCs located in historically 
underutilized business zones in an effort to increase employment 
opportunities, investment, and economic development in such areas.


Sec. 126.101  Which government departments or agencies are affected 
directly by the HUBZone program?

    (a) Until September 30, 2000, the HUBZone program applies only to 
procurements by the following departments and agencies:

(1) Department of Agriculture;
(2) Department of Defense;
(3) Department of Energy;
(4) Department of Health and Human Services;
(5) Department of Housing and Urban Development;
(6) Department of Transportation;
(7) Department of Veterans Affairs;
(8) Environmental Protection Agency;
(9) General Services Administration; and
(10) National Aeronautics and Space Administration.

    (b) 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).


Sec. 126.102  What is the effect of the HUBZone program on the section 
8(d) subcontracting program?

    The HUBZone Act of 1997 amended the section 8(d) subcontracting 
program to include qualified HUBZone SBCs in the formal subcontracting 
plans described in Sec. 125.3 of this title.


Sec. 126.103  What definitions are important in the HUBZone program?

    Administrator means the Administrator of the United States Small 
Business Administration (SBA).
    AA/8(a)BD means SBA's Associate Administrator for 8(a) Business 
Development.
    AA/HUB means SBA's Associate Administrator for the HUBZone Program.
    ADA/GC&8(a)BD means SBA's Associate Deputy Administrator for 
Government Contracting and 8(a) Business Development.
    Certify means the process by which SBA determines that a HUBZone 
SBC is qualified for the HUBZone program and entitled to be included in 
SBA's ``List of Qualified HUBZone SBCs.''
    Citizen means a person born or naturalized in the United States. 
SBA does not consider holders of permanent visas and resident aliens to 
be citizens.
    Concern means a firm which satisfies the requirements in 
Secs. 121.105(a) and (b) of this title.
    Contract opportunity means a situation in which a requirement for a 
procurement exists, none of the exclusions from Sec. 126.605 applies, 
and any applicable conditions in Sec. 126.607 are met.
    County means the political subdivisions recognized as a county by a 
state or commonwealth or which is an equivalent political subdivision 
such as a parish, borough, independent city, or municipio, where such 
subdivisions are not subdivisions within counties.
    County unemployment rate is the rate of unemployment for a county 
based on the most recent data available from the United States 
Department of Labor, Bureau of Labor Statistics. The appropriate data 
may be found in the DOL/BLS publication titled ``Supplement 2, 
Unemployment in States and Local Areas.'' This publication is available 
for public inspection at the Department of Labor, Bureau of Labor 
Statistics, Division of Local Area Unemployment Statistics located at 2 
Massachusetts Ave., NE, Room 4675, Washington D.C. 20212. A copy is 
also available at SBA, Office of AA/HUB, 409 3rd Street, SW, Washington 
D.C. 20416.
    De-certify means the process by which SBA determines that a concern 
is no longer a qualified HUBZone SBC and removes that concern from its 
List.
    Employee means a person (or persons) employed by a HUBZone SBC on a 
full-time (or full-time equivalent), permanent basis. Full-time 
equivalent includes employees who work 30 hours per week or more. Full-
time equivalent also includes the aggregate of employees who work less 
than 30 hours a week, where the work hours of such employees add up to 
at least a 40 hour work week. The totality of the circumstances, 
including factors relevant for tax purposes, will determine whether 
persons are employees of a concern. Temporary employees, independent 
contractors or leased employees are not employees for these purposes.

    Example 1: 4 employees each work 20 hours per week; SBA will 
regard that circumstance as 2 full-time equivalent employees.
    Example 2: 1 employee works 20 hours per week and 1 employee 
works 15 hours per week; SBA will regard that circumstance as not a 
full-time equivalent.
    Example 3: 1 employee works 15 hours per week, 1 employee works 
10 hours per week, and 1 employee works 20 hours per week; SBA will 
regard that circumstance as 1 full-time equivalent employee.
    Example 4: 1 employee works 30 hours per week and 2 employees 
each work 15 hours per week; SBA will regard that circumstance as 1 
full-time equivalent employee.

    HUBZone means a historically underutilized business zone, which is 
an area located within one or more qualified census tracts, qualified 
non-metropolitan counties, or lands within the external boundaries of 
an Indian reservation. See other definitions in this section for 
further details.
    HUBZone small business concern (HUBZone SBC) means a concern that 
is small as defined by Sec. 126.203, is exclusively owned and 
controlled by persons who are United States citizens, and has its 
principal office located in a HUBZone.
    HUBZone 8(a) concern means a concern that is certified as an 8(a) 
program participant and which is also a qualified HUBZone SBC.
    Indian reservation has the meaning used by the Bureau of Indian 
Affairs in 25 CFR 151.2(f). This definition refers

[[Page 31910]]

generally to land over which a ``tribe'' has jurisdiction, and 
``tribe'' includes Alaska Native entities under 25 CFR 81.1(w).
    Interested party means any concern that submits an offer for a 
specific HUBZone sole source or set-aside contract, any concern that 
submitted an offer in full and open competition and its opportunity for 
award will be affected by a price evaluation preference given a 
qualified HUBZone SBC, the contracting activity's contracting officer, 
or SBA.
    Lands within the external boundaries of an Indian reservation 
includes all lands within the outside perimeter of an Indian 
reservation, whether tribally owned and governed or not. For example, 
land that is individually owned and located within the outside 
perimeter of an Indian reservation is ``lands within the external 
boundaries of an Indian reservation.'' By contrast, an Indian-owned 
parcel of land that is located outside the perimeter of an Indian 
reservation is not ``lands within the external boundaries of an Indian 
reservation.''
    List refers to the database of qualified HUBZone SBCs that SBA has 
certified.
    Median household income has the meaning used by the Bureau of the 
Census, United States Department of Commerce, in its publication 
titled, ``1990 Census of Population, Social and Economic 
Characteristics,'' Report Number CP-2, pages B-14 and B-17. This 
publication is available for inspection at any local Federal Depository 
Library. For the location of a Federal Depository library, call toll-
free (888) 293-6498 or contact the Bureau of the Census, Income 
Statistics Branch, Housing and Economic Statistics Division, Washington 
D.C. 20233-8500.
    Metropolitan statistical area means an area as defined in section 
143(k)(2)(B) of the Internal Revenue Code of 1986, (Title 26 of the 
United States Code).
    Non-metropolitan has the meaning used by the Bureau of the Census, 
United States Department of Commerce, in its publication titled, ``1990 
Census of Population, Social and Economic Characteristics,'' Report 
Number CP-2, page A-9. This publication is available for inspection at 
any local Federal Depository Library. For the location of a Federal 
Depository Library, call toll-free (888) 293-6498 or contact the Bureau 
of the Census, Population Distribution Branch, Population Division, 
Washington D.C. 20233-8800.
    Person means a natural person. Pursuant to the Alaska Native Claims 
Settlement Act, 43 U.S.C. 1626(e), Alaska Native Corporations and any 
direct or indirect subsidiary corporations, joint ventures, and 
partnerships of a Native Corporation are deemed to be owned and 
controlled by Natives, and are thus persons.
    Principal office means the location where the greatest number of 
the concern's employees at any one location perform their work.
    Qualified census tract has the meaning given that term in section 
42(d)(5)(C)(ii)(I) of the Internal Revenue Code (Title 26 of the United 
States Code).
    Qualified HUBZone SBC means a HUBZone SBC that SBA certifies as 
qualified for federal contracting assistance under the HUBZone program.
    Qualified non-metropolitan county means any county that:
    (1) Based on the most recent data available from the Bureau of the 
Census of the Department of Commerce--
    (i) Is not located in a metropolitan statistical area; and
    (ii) In which the median household income is less than 80 percent 
of the non-metropolitan State median household income; or
    (2) Based on the most recent data available from the Secretary of 
Labor, has an unemployment rate that is not less than 140 percent of 
the statewide average unemployment rate for the State in which the 
county is located.
    Reside means to live in a primary residence at a place for at least 
180 days, or as a currently registered voter, and with intent to live 
there indefinitely.
    Small disadvantaged business (SDB) means a concern that is small 
pursuant to part 121 of this title, and is owned and controlled by 
socially and economically disadvantaged individuals, tribes, Alaska 
Native Corporations, Native Hawaiian Organizations, or Community 
Development Corporations.
    Statewide average unemployment rate is the rate based on the most 
recent data available from the Bureau of Labor Statistics, United 
States Department of Labor, Division of Local Area Unemployment 
Statistics, 2 Massachusetts Ave., NE., Room 4675, Washington, D.C. 
20212. A copy is also available at SBA, Office of AA/HUB, 409 3rd 
Street, SW., Washington DC 20416.
    Women-owned business (WOB) means a concern that is small pursuant 
to part 121 of this title, and is at least 51 percent owned and 
controlled by women.

Subpart B--Requirements to be a Qualified HUBZone SBC


Sec. 126.200  What requirements must a concern meet to receive SBA 
certification as a qualified HUBZone SBC?

    (a) The concern must be a HUBZone SBC as defined in Sec. 126.103; 
and
    (b) At least 35 percent of the concern's employees must reside in a 
HUBZone, and the HUBZone SBC must certify that it will attempt to 
maintain this percentage during the performance of any HUBZone contract 
it receives. When determining the percentage of employees that reside 
in a HUBZone, if the percentage results in a fraction round up to the 
nearest whole number,

    Example 1: A concern has 25 employees, 35 percent or 8.75 
employees must reside in a HUBZone. Thus, 9 employees must reside in 
a HUBZone.
    Example 2: A concern has 95 employees, 35 percent or 33.25 
employees must reside in a HUBZone. Thus, 34 employees must reside 
in a HUBZone.

and

    (c) The HUBZone SBC must certify that it will ensure that it will 
comply with certain contract performance requirements in connection 
with contracts awarded to it as a qualified HUBZone SBC, as set forth 
in Sec. 126.700.


Sec. 126.201  For this purpose, who does SBA consider to own a HUBZone 
SBC?

    An owner of a HUBZone SBC is a person who owns any legal or 
equitable interest in such HUBZone SBC. More specifically:
    (a) Corporations. SBA will consider any person who owns stock, 
whether voting or non-voting, to be an owner. SBA will consider options 
to purchase stock to have been exercised. SBA will consider the right 
to convert debentures into voting stock to have been exercised.
    (b) Partnerships. SBA will consider a partner, whether general or 
limited, to be an owner if that partner owns an equitable interest in 
the partnership.
    (c) Sole proprietorships. The proprietor is the owner.
    (d) Limited liability companies. SBA will consider each member to 
be an owner of a limited liability company.

    Example 1: All stock of a corporation is owned by U.S. citizens. 
The president of the corporation, a non-U.S. citizen, owns no stock 
in the corporation, but owns options to purchase stock in the 
corporation. SBA will consider the option exercised, and the 
corporation is not eligible to be a qualified HUBZone SBC.
    Example 2: A partnership is owned 99.9 percent by persons who 
are U.S. citizens, and 0.1 percent by someone who is not. The 
partnership is not eligible because it is not 100 percent owned by 
U.S. citizens.

[[Page 31911]]

Sec. 126.202  Who does SBA consider to control a HUBZone SBC?

    Control means both the day-to-day management and long-term 
decisionmaking authority for the HUBZone SBC. Many persons share 
control of a concern, including each of those occupying the following 
positions: officer, director, general partner, managing partner, and 
manager. In addition, key employees who possess critical licenses, 
expertise or responsibilities related to the concern's primary economic 
activity may share significant control of the concern. SBA will 
consider the control potential of such key employees on a case by case 
basis.


Sec. 126.203  What size standards apply to HUBZone SBCs?

    (a) At time of application for certification. A HUBZone SBC must 
meet SBA's size standards for its primary industry classification as 
defined in Sec. 121.201 of this title. If SBA is unable to verify that 
a concern is small, SBA may deny the concern status as a qualified 
HUBZone SBC, or SBA may request a formal size determination from the 
responsible Government Contracting Area Director or designee.
    (b) At time of contract offer. A HUBZone SBC must be small within 
the size standard corresponding to the SIC code assigned to the 
contract.


Sec. 126.204  May a qualified HUBZone SBC have affiliates?

    Yes. A qualified HUBZone SBC may have affiliates so long as the 
affiliates are also qualified HUBZone SBCs, 8(a) participants, or WOBs.


Sec. 126.205  May WOBs, 8(a) participants or SDBs be qualified HUBZone 
SBCs?

    Yes. WOBs, 8(a) participants, and SDBs can qualify as HUBZone SBCs 
if they meet the additional requirements in this part.


Sec. 126.206  May non-manufacturers be qualified HUBZone SBCs?

    Yes. Non-manufacturers (referred to in the HUBZone Act of 1997 as 
``regular dealers'') may be certified as qualified HUBZone SBCs if they 
meet all the requirements set forth in Sec. 126.200 and they can 
demonstrate that they can provide the product or products manufactured 
by qualified HUBZone SBCs. ``Non-manufacturer'' is defined in 
Sec. 121.406(b)(1) of this title.


Sec. 126.207  May a qualified HUBZone SBC have offices or facilities in 
another HUBZone or outside a HUBZone?

    Yes. A qualified HUBZone SBC may have offices or facilities in 
another HUBZone or even outside a HUBZone and still be a qualified 
HUBZone SBC. However, in order to qualify, the concern's principal 
office must be located in a HUBZone.

Subpart C--Certification


Sec. 126.300  How may a concern be certified as a qualified HUBZone 
SBC?

    A concern must apply to SBA for certification. The application must 
include a representation that it meets the eligibility requirements 
described in Sec. 126.200 and must submit relevant supporting 
information. SBA will consider the information provided by the concern 
in order to determine whether the concern qualifies. SBA, in its sole 
discretion, may rely solely upon the information submitted to establish 
eligibility, or may request additional information, or may verify the 
information before making a determination. If SBA determines that the 
concern is a qualified HUBZone SBC, it will issue a certification to 
that effect and add the concern to the List.


Sec. 126.301  Is there any other way for a concern to obtain 
certification?

    No. SBA certification is the only way to qualify for HUBZone 
program status.


Sec. 126.302  When may a concern apply for certification?

    A concern may apply to SBA and submit the required information 
whenever it can represent that it meets the eligibility requirements, 
subject to Sec. 126.309. All representations and supporting information 
contained in the application must be complete and accurate as of the 
date of submission. The application must be signed by an officer of the 
concern who is authorized to represent the concern.


Sec. 126.303  Where must a concern file its certification?

    The concern must file its certification with the AA/HUB, U.S. Small 
Business Administration, 409 Third Street, SW, Washington, DC 20416.


Sec. 126.304  What must a concern submit to SBA?

    (a) To be certified by SBA as a qualified HUBZone SBC, a concern 
must represent to SBA that under the definitions set forth in 
Sec. 126.103:
    (1) It is a small business concern that is both owned only by 
United States citizens and controlled only by United States citizens;
    (2) Its principal office is located in a HUBZone;
    (3) Not less than 35 percent of its employees reside in a HUBZone;
    (4) It will use good faith efforts to ensure that a minimum 
percentage of 35 percent of its employees continue to reside in a 
HUBZone so long as SBA certifies it as qualified and during the 
performance of any contract awarded to it on the basis of its status as 
a qualified HUBZone SBC; and
    (5) It will ensure that, where it enters into subcontracts to aid 
in performance of any prime contracts awarded to it because of its 
status as a qualified HUBZone SBC, it will incur not less than a 
certain minimum percentage of certain contract costs as set forth in 
Sec. 126.700.
    (b) If the concern is applying for HUBZone status based on a 
location within the external boundaries of an Indian reservation, the 
concern must submit with its application for certification official 
documentation from the appropriate Bureau of Indian Affairs (BIA) Land 
Titles and Records Office with jurisdiction over the concern's area, 
confirming that it is located within the external boundaries of an 
Indian reservation. BIA lists the Land Titles and Records Offices and 
their jurisdiction in 25 CFR 150.4 and 150.5. In cases where BIA is 
unable to verify whether the business is located within the external 
boundaries of an Indian reservation, applicants should contact the AA/
HUB and SBA will assist them.
    (c) In addition to these representations, the concern must submit 
the forms, attachments, and any additional information required by SBA.


Sec. 126.305  What format must the certification to SBA take?

    A concern must submit the required information in either a written 
or electronic application form provided by SBA. An electronic 
application must be sufficiently authenticated for enforcement 
purposes.


Sec. 126.306  How will SBA process the certification?

    (a) The AA/HUB is authorized to approve or decline certifications. 
SBA will receive and review all certifications, but SBA will not 
process incomplete packages. SBA will make its determination within 30 
calendar days after receipt of a complete package whenever practicable. 
The decision of the AA/HUB is the final agency decision.
    (b) SBA will base its certification on facts existing on the date 
of submission. SBA, in its sole discretion, may request additional 
information or clarification of information contained in the submission 
at any time.
    (c) If SBA approves the application, SBA will send a written notice 
to the

[[Page 31912]]

concern and automatically enter it on the List described in 
Sec. 126.307.
    (d) A decision to deny eligibility must be in writing and state the 
specific reasons for denial.


Sec. 126.307  Where will SBA maintain the List of qualified HUBZone 
SBCs?

    SBA maintains the List at its Internet website at <a href="http://
www.sba.gov/HUB">http://
www.sba.gov/HUB</a>. Requesters also may obtain a copy of the List by 
writing to the AA/HUB at U.S. Small Business Administration, 409 Third 
Street, SW, Washington, DC 20416 or via e-mail at <a href="/cdn-cgi/l/email-protection#1a7b7b726f785a69787b347d756c"><span class="__cf_email__" data-cfemail="b8d9d9d0cddaf8cbdad996dfd7ce">[email protected]</span></a>.


Sec. 126.308  What happens if SBA inadvertently omits a qualified 
HUBZone SBC from the List?

    A HUBZone SBC that has received SBA's notice of certification, but 
is not on the List within 10 business days thereafter should 
immediately notify the AA/HUB in writing at U.S. Small Business 
Administration, 409 Third Street, SW, Washington, DC 20416 or via e-
mail at <a href="/cdn-cgi/l/email-protection#8feeeee7faedcffcedeea1e8e0f9"><span class="__cf_email__" data-cfemail="7514141d0017350617145b121a03">[email protected]</span></a>. The concern must appear on the List to be 
eligible for HUBZone contracts.


Sec. 126.309  How may a declined or de-certified concern seek 
certification at a later date?

    A concern that SBA has declined or de-certified may seek 
certification no sooner than one year from the date of decline or de-
certification if it believes that it has overcome all reasons for 
decline through changed circumstances, and is currently eligible.

Subpart D--Program Examinations


Sec. 126.400  Who will conduct program examinations?

    SBA field staff or others designated by the AA/HUB will conduct 
program examinations.


Sec. 126.401  What will SBA examine?

    (a) Eligibility. Examiners will verify that the qualified HUBZone 
SBC met the requirements set forth in Sec. 126.200 at the time of its 
application for certification and at the time of examination.
    (b) Scope of review. Examiners may review any information related 
to the HUBZone SBC qualifying requirements, including documentation 
related to the location and ownership of the concern, the employee 
percentage requirements, and the concern's attempt to maintain this 
percentage. The qualified HUBZone SBC must document each employee's 
residence address through employment records. The examiner also may 
review property tax, public utility or postal records, and other 
relevant documents. The concern must retain documentation demonstrating 
satisfaction of the employee residence and other qualifying 
requirements for 6 years from date of submission to SBA.


Sec. 126.402  When may SBA conduct program examinations?

    SBA may conduct a program examination at the time the concern 
certifies to SBA that it meets the requirements of the program or at 
any other time while the concern is on the List or subsequent to 
receipt of HUBZone contract benefits. For example, SBA may conduct a 
program examination to verify eligibility upon notification of a 
material change under Sec. 126.501. Additionally, SBA, in its sole 
discretion, may perform random program examinations to determine 
continuing compliance with program requirements, or it may conduct a 
program examination in response to credible information calling into 
question the HUBZone status of a small business concern. For protests 
to the HUBZone status of a small business concern in regard to a 
particular procurement, see Sec. 126.800.


Sec. 126.403  May SBA require additional information from a HUBZone 
SBC?

    Yes. At the discretion of the AA/HUB, SBA has the right to require 
that a HUBZone SBC submit additional information as part of the 
certification process, or at any time thereafter. If SBA finds a 
HUBZone SBC is not qualified, SBA will de-certify the concern and 
delete its name from the List. SBA may choose to pursue penalties 
against any concern that has made material misrepresentations in its 
submissions to SBA in accordance with Sec. 126.900.


Sec. 126.404  What happens if SBA is unable to verify a qualified 
HUBZone SBC's eligibility?

    (a) Authorized SBA headquarters personnel will first notify the 
concern in writing of the reasons why it is no longer eligible.
    (b) The concern will have 10 business days from the date that it 
receives notification to respond.
    (c) The AA/HUB will consider the reasons for proposed de-
certification and the concern's response before making a decision 
whether to de-certify. The AA/HUB's decision is the final agency 
decision.


Sec. 126.405  What happens if SBA verifies eligibility?

    If SBA verifies that the concern is eligible, it will amend the 
date of certification on the List to reflect the date of verification.

Subpart E--Maintaining Hubzone Status


Sec. 126.500  How does a qualified HUBZone SBC maintain HUBZone status?

    (a) Any qualified HUBZone SBC wishing to remain on the List must 
self-certify annually to SBA that it remains a qualified HUBZone SBC.
    (b) Concerns wishing to remain in the program without any 
interruption must self-certify their continued eligibility to SBA 
within 30 calendar days after each annual anniversary of their date of 
certification. Failure to do so will result in SBA de-certifying the 
concern. The concern then would have to submit a new application for 
certification under Secs. 126.300 through 126.306.
    (c) The self-certification to SBA must be in writing and must 
represent that the circumstances relative to eligibility which existed 
on the date of certification showing on the List have not materially 
changed.


Sec. 126.501  What are a qualified HUBZone SBC's ongoing obligations to 
SBA?

    The concern must immediately notify SBA of any material change 
which could affect its eligibility. The notification must be in 
writing, and must be sent or delivered to the AA/HUB to comply with 
this requirement. Failure of a qualified HUBZone SBC to notify SBA of 
such a material change will result in immediate de-certification and 
removal from the List, and SBA may seek the imposition of penalties 
under Sec. 126.900. If the concern later becomes eligible for the 
program, the concern must apply for certification pursuant to 
Secs. 126.300 through 126.309 and must include with its application for 
certification a full explanation of why it failed to notify SBA of the 
material change. If SBA is not satisfied with the explanation provided, 
SBA may decline to certify the concern pursuant to Sec. 126.306.


Sec. 126.502  Is there a limit to the length of time a qualified 
HUBZone SBC may be on the List?

    There is no limit to the length of time a qualified HUBZone SBC may 
remain on the List so long as it continues to follow the provisions of 
Secs. 126.200, 126.500, and 126.501.


Sec. 126.503  When is a concern removed from the List?

    If SBA determines at any time that a HUBZone SBC is not qualified, 
SBA may de-certify the HUBZone SBC, remove the concern from the List, 
and seek imposition of penalties pursuant to Sec. 126.900. An adverse 
finding in the resolution of a protest also may result in de-
certification and removal from the

[[Page 31913]]

List, and the imposition of penalties pursuant to Sec. 126.900. Failure 
to notify SBA of a material change which could affect a concern's 
eligibility will result in immediate de-certification, removal from the 
List, and SBA may seek the imposition of penalties under Sec. 126.900.

Subpart F--Contractual Assistance


Sec. 126.600  What are HUBZone contracts?

    HUBZone contracts are contracts awarded to a qualified HUBZone SBC 
through any of the following procurement methods:
    (a) Sole source awards to qualified HUBZone SBCs;
    (b) Set-aside awards based on competition restricted to qualified 
HUBZone SBCs; or
    (c) Awards to qualified HUBZone SBCs through full and open 
competition after a price evaluation preference in favor of qualified 
HUBZone SBCs.


Sec. 126.601  What additional requirements must a qualified HUBZone SBC 
meet to bid on a contract?

    (a) In order to submit an offer on a specific HUBZone contract, a 
concern must be small under the size standard corresponding to the SIC 
code assigned to the contract.
    (b) At the time a qualified HUBZone SBC submits its offer on a 
specific contract, it must certify to the contracting officer that
    (1) It is a qualified HUBZone SBC which appears on SBA's List;
    (2) There has been no material change in its circumstances since 
the date of certification shown on the List which could affect its 
HUBZone eligibility; and
    (3) It is small under the SIC code assigned to the procurement.
    (c) If bidding as a joint venture, each qualified HUBZone SBC must 
make the certifications in paragraphs (b)(1), (2), and (3) of this 
section separately under its own name.
    (d) A qualified HUBZone SBC which is a non-manufacturer may submit 
an offer on a contract for supplies if it meets the requirements under 
the non-manufacturer rule as defined in Sec. 121.406(b) of this title 
and if the small manufacturer is also a qualified HUBZone SBC.


Sec. 126.602  Must a qualified HUBZone SBC maintain the employee 
residency percentage during contract performance?

    The qualified HUBZone SBC must attempt to maintain the required 
percentage of employees who reside in a HUBZone during the performance 
of any contract awarded to the concern on the basis of HUBZone status. 
``Attempt to maintain'' means making substantive and documented efforts 
to maintain that percentage such as written offers of employment, 
published advertisements seeking employees, and attendance at job 
fairs. HUBZone contracts are described more fully in Sec. 126.600. 
Enforcement of this paragraph will be the responsibility of SBA, which 
will monitor the requirement in accordance with Secs. 126.400 through 
126.405.


Sec. 126.603  Does HUBZone certification guarantee receipt of HUBZone 
contracts?

    No. Qualified HUBZone SBCs should market their capabilities to 
appropriate procuring agencies in order to increase their prospects of 
having a requirement set aside for HUBZone contract award.


Sec. 126.604  Who decides if a contract opportunity for HUBZone set-
aside competition exists?

    The contracting officer for the contracting activity makes this 
decision.


Sec. 126.605  What requirements are not available for HUBZone 
contracts?

    A contracting activity may not make a requirement available for a 
HUBZone contract if:
    (a) The contracting activity otherwise would fulfill that 
requirement through award to Federal Prison Industries, Inc. under 18 
U.S.C. 4124 or 4125, or to Javits-Wagner-O'Day Act participating non-
profit agencies for the blind and severely disabled, under 41 U.S.C. 46 
et seq., as amended; or
    (b) An 8(a) participant currently is performing that requirement or 
SBA has accepted that requirement for performance under the authority 
of the section 8(a) program, unless SBA has consented to release of the 
requirement from the section 8(a) program; or
    (c) The requirement is at or below the micropurchase threshold.


Sec. 126.606  May a contracting officer request that SBA release an 
8(a) requirement for award as a HUBZone contract?

    Yes. However, SBA will grant its consent only where neither the 
incumbent nor any other 8(a) participant(s) can perform the 
requirement, and where the section 8(a) program will not be adversely 
affected. The SBA official authorized to grant such consent is the AA/
8(a)BD.


Sec. 126.607  When must a contracting officer set aside a requirement 
for qualified HUBZone SBCs?

    (a) The contracting officer first must review a requirement to 
determine whether it is excluded from HUBZone contracting pursuant to 
Sec. 126.605.
    (b) The contracting officer must identify qualified HUBZone 8(a) 
concerns and other 8(a) concerns. The contracting officer must give 
first priority to qualified HUBZone 8(a) concerns.
    (c) After determining that neither paragraph (a) or (b) of this 
section apply, the contracting officer must set aside the requirement 
for competition restricted to qualified HUBZone SBCs if the contracting 
officer:
    (1) Has a reasonable expectation, after reviewing SBA's list of 
qualified HUBZone SBCs that at least two responsible qualified HUBZone 
SBCs will submit offers; and
    (2) Determines that award can be made at fair market price.


Sec. 126.608  Are there HUBZone contracting opportunities below the 
simplified acquisition threshold?

    Yes. If the requirement is below the simplified acquisition 
threshold, the contracting officer should set-aside the requirement for 
consideration among qualified HUBZone SBCs using simplified acquisition 
procedures.


Sec. 126.609  What must the contracting officer do if a contracting 
opportunity does not exist for competition among qualified HUBZone 
SBCs?

    If a contract opportunity for competition among qualified SBCs does 
not exist under the provisions of Sec. 126.607, the contracting officer 
must first consider the possibility of making an award to a qualified 
HUBZone SBC on a sole source basis, and then to a small business under 
small business set-aside procedures, in that order of precedence. If 
the criteria are not met for any of these special contracting 
authorities, then the contracting officer may solicit the procurement 
through another appropriate contracting method.


Sec. 126.610  May SBA appeal a contracting officer's decision not to 
reserve a procurement for award as a HUBZone contract?

    The Administrator may appeal a contracting officer's decision not 
to make a particular requirement available for award as a HUBZone sole 
source or a HUBZone set-aside contract.


Sec. 126.611  What is the process for such an appeal?

    (a) Notice of appeal. When the contracting officer rejects a 
recommendation by SBA's Procurement Center Representative to make a 
requirement available for award as a HUBZone contract, he or she must 
notify the Procurement Center Representative as soon as practicable. If 
the Administrator intends to appeal the decision, SBA must notify the 
contracting officer no later than five business days after receiving 
notice of the contracting officer's decision.

[[Page 31914]]

    (b) Suspension of action. Upon receipt of notice of SBA's intent to 
appeal, the contracting officer must suspend further action regarding 
the procurement until the head of the contracting activity issues a 
written decision on the appeal, unless the head of the contracting 
activity makes a written determination that urgent and compelling 
circumstances which significantly affect the interests of the United 
States compel award of the contract.
    (c) Deadline for appeal. Within 15 business days of SBA's 
notification to the contracting officer, SBA must file its formal 
appeal with the head of the contracting activity or that agency may 
consider the appeal withdrawn.
    (d) Decision. The contracting activity must specify in writing the 
reasons for a denial of an appeal brought under this section.


Sec. 126.612  When may a contracting officer award sole source 
contracts to a qualified HUBZone SBC?

    A contracting officer may award a sole source contract to a 
qualified HUBZone SBC only when the contracting officer determines 
that:
    (a) None of the provisions of Secs. 126.605 or 126.607 apply;
    (b) The anticipated award price of the contract, including options, 
will not exceed:
    (1) $5,000,000 for a requirement within the SIC codes for 
manufacturing; or
    (2) $3,000,000 for a requirement within all other SIC codes;
    (c) Two or more qualified HUBZone SBCs are not likely to submit 
offers;
    (d) A qualified HUBZone SBC is a responsible contractor able to 
perform the contract; and
    (e) Contract award can be made at a fair and reasonable price.


Sec. 126.613  How does a price evaluation preference affect the bid of 
a qualified HUBZone SBC in full and open competition?

    Where a contracting officer will award a contract on the basis of 
full and open competition, the contracting officer must deem the price 
offered by a qualified HUBZone SBC to be lower than the price offered 
by another offeror (other than another small business concern) if the 
price offered by the qualified HUBZone SBC is not more than 10 percent 
higher than the price offered by the otherwise lowest, responsive, and 
responsible offeror.

    Example: In a full and open competition, a qualified HUBZone SBC 
submits an offer of $98; another small business concern submits an 
offer of $100; and a large business submits an offer of $93. The 
lowest, responsive, responsible offeror would be the large business. 
However, the contracting officer must apply the HUBZone price 
evaluation preference. If the qualified HUBZone SBC's offer is not 
more than 10 percent higher than the large business's offer, the 
contracting officer must deem the qualified HUBZone SBC's price as 
lower than the price of the large business. In this example, the 
qualified HUBZone SBC's price is not more than 10 percent higher 
than the large business's price and, consequently, the qualified 
HUBZone SBC displaces the large business as the lowest, responsive, 
and responsible offeror. If the HUBZone SBC offer were $101, the 
award would go to the large business at $93. If the HUBZone SBC will 
not benefit from the preference, the preference is not applied to 
change an offer.


Sec. 126.614  How does a contracting officer treat a concern that is 
both a qualified HUBZone SBC and an SDB in a full and open competition?

    A concern that is both a qualified HUBZone SBC and an SDB must 
receive the benefit of both the HUBZone price evaluation preference 
described in Sec. 126.614 and the SDB price evaluation preference 
described in 10 U.S.C. 2323 and the Federal Acquisition Streamlining 
Act, section 7102(a)(1)(B), Public Law 103-355, in a full and open 
competition.


Sec. 126.615  May a large business participate on a HUBZone contract?

    A large business may not participate as a prime contractor on a 
HUBZone award but may participate as a subcontractor to an otherwise 
qualified HUBZone SBC, subject to the contract performance requirements 
set forth in Sec. 126.700.


Sec. 126.616  What requirements must a joint venture satisfy to bid on 
a HUBZone contract?

    A joint venture may bid on a HUBZone contract if the joint venture 
meets all of the following requirements:
    (a) HUBZone joint venture. A qualified HUBZone SBC may enter into a 
joint venture with one or more other qualified HUBZone SBCs, 8(a) 
participants, or WOBs for the purpose of performing a specific HUBZone 
contract.
    (b) Size of concerns. A joint venture of at least one qualified 
HUBZone SBC and an 8(a) participant or a woman-owned small business 
concern may submit an offer for a HUBZone contract so long as each 
concern is small under the size standard corresponding to the SIC code 
assigned to the contract, provided:
    (1) 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; and
    (2) For a procurement having an employee-based size standard, the 
procurement exceeds $10 million.
    (c) Performance of work. The aggregate of the qualified HUBZone 
SBCs to the joint venture, not each concern separately, must perform 
the applicable percentage of work required by Sec. 126.700.

Subpart G--Contract Performance Requirements


Sec. 126.700  What are the subcontracting percentages requirements 
under this program?

    (a) Subcontracting percentage requirements. A qualified HUBZone SBC 
prime contractor can subcontract part of a HUBZone contract provided:
    (1) In the case of a contract for services (except construction), 
the qualified HUBZone SBC spends at least 50 percent of the cost of the 
contract performance incurred for personnel on the concern's employees 
or on the employees of other qualified HUBZone SBCs;
    (2) In the case of a contract for general construction, the 
qualified HUBZone SBC spends at least 15 percent of the cost of 
contract performance incurred for personnel on the concern's employees 
or the employees of other qualified HUBZone SBCs;
    (3) In the case of a contract for construction by special trade 
contractors, the qualified HUBZone SBC spends at least 25 percent of 
the cost of contract performance incurred for personnel on the 
concerns' employees or the employees of other qualified HUBZone SBCs; 
and
    (4) In the case of a contract for procurement of supplies (other 
than a procurement from a regular dealer in such supplies) the 
qualified HUBZone SBC spends at least 50 percent of the manufacturing 
cost (excluding the cost of materials) on performing the contract in a 
HUBZone. One or more qualified HUBZone SBCs may combine to meet this 
subcontracting percentage requirement.
    (b) Definitions. Many definitions applicable to this section can be 
found in Sec. 125.6 of this title.


Sec. 126.701   Can these subcontracting percentages requirements 
change?

    Yes. The Administrator may change the subcontracting percentage 
requirements if the Administrator determines that such action is 
necessary to reflect conventional industry practices.

[[Page 31915]]

Sec. 126.702  How can the subcontracting percentage requirements be 
changed?

    Representatives of a national trade or industry group (as defined 
by two-digit Major Group industry codes) may request a change in 
subcontracting percentage requirements for that industry. Changes in 
subcontracting percentage requirements may be requested only for 
categories defined by two-digit Major Group industry codes in the 
Standard Industry Classification (SIC) Code system. SBA will not 
consider requests from anyone other than a representative of a national 
trade or industry group or requests for changes for four-digit SIC Code 
categories.


Sec. 126.703  What are the procedures for requesting changes in 
subcontracting percentages?

    (a) Format of request. There is no prescribed format, but the 
requester should try to demonstrate to the Administrator that a change 
in percentage is necessary to reflect conventional industry practices, 
and should support its request with information including, but not 
limited to:
    (1) Information relative to the economic conditions and structure 
of the entire national industry;
    (2) Market data, technical changes in the industry and industry 
trends;
    (3) Specific reasons and justifications for the change in the 
subcontracting percentage;
    (4) The effect such a change would have on the federal procurement 
process; and
    (5) Information demonstrating how the proposed change would promote 
the purposes of the HUBZone Program.
    (b) Notice to public. Upon an adequate preliminary showing to SBA, 
SBA will publish in the Federal Register a notice of its receipt of a 
request that it consider a change in the subcontracting percentage 
requirements for a particular industry for HUBZone contracts. The 
notice will identify the group making the request, and give the public 
an opportunity to submit to the Administrator information and arguments 
in both support and opposition.
    (c) Comments. Once SBA has published a notice in the Federal 
Register, it will afford a period of not less than 60 days for public 
comment.
    (d) Decision. SBA will render its decision after the close of the 
comment period. If it decides against a change, it will publish notice 
of its decision in the Federal Register. Concurrent with the notice, 
SBA will advise the requester of its decision in writing. If it decides 
in favor of a change, SBA will propose an appropriate change to this 
part in accordance with proper rulemaking procedures.

Subpart H--Protests


Sec. 126.800  Who may protest the status of a qualified HUBZone SBC?

    (a) For sole source procurements. SBA or the contracting officer 
may protest the proposed awardee's qualified HUBZone SBC status.
    (b) For all other procurements. Any interested party may protest 
the apparent successful offeror's qualified HUBZone SBC status.


Sec. 126.801  How does one file a HUBZone status protest?

    (a) General. The protest procedures described in this part are 
separate from those governing size protests and appeals. All protests 
relating to whether a qualified HUBZone SBC is a ``small'' business for 
purposes of any Federal program are subject to part 121 of this title 
and must be filed in accordance with that part. If a protester protests 
both the size of the HUBZone SBC and whether the concern meets the 
HUBZone qualifying requirements set forth in Sec. 126.200, SBA will 
process each protest concurrently, under the procedures set forth in 
part 121 of this title and this part.
    (b) Format. Protests must be in writing and state all specific 
grounds for the protest. A protest merely asserting that the protested 
concern is not a qualified HUBZone SBC, without setting forth specific 
facts or allegations, is insufficient.
    (c) Filing. (1) An interested party other than a contracting 
officer or SBA must submit its written protest to the contracting 
officer.
    (2) A contracting officer and SBA must submit their protest to the 
AA/HUB.
    (3) Protestors may deliver their protests in person, by facsimile, 
by express delivery service, or by U.S. mail (postmarked within the 
applicable time period).
    (d) Timeliness. (1) An interested party must submit its protest by 
close of business on the fifth business day after bid opening (in 
sealed bid acquisitions) or by close of business on the fifth business 
day after notification by the contracting officer of the apparent 
successful offeror (in negotiated acquisitions).
    (2) Any protest received after the time limits is untimely.
    (3) Any protest received prior to bid opening or notification of 
intended award, whichever applies, is premature.
    (e) Referral to SBA. The contracting officer must forward to SBA 
any non-premature protest received, notwithstanding whether he or she 
believes it is sufficiently specific or timely. The contracting officer 
must send protests to AA/HUB, U.S. Small Business Administration, 409 
3rd Street, SW, Washington, DC 20416.


Sec. 126.802  Who decides a HUBZone status protest?

    The AA/HUB or designee will determine whether the concern has 
qualified HUBZone status.


Sec. 126.803  How will SBA process a HUBZone status protest?

    (a) Notice of receipt of protest. (1) SBA immediately will notify 
the contracting officer and the protestor of the date SBA receives a 
protest and whether SBA will process the protest or dismiss it in 
accordance with Sec. 126.804.
    (2) If SBA determines the protest is timely and sufficiently 
specific, SBA will notify the protested HUBZone SBC of the protest and 
the identity of the protestor. The protested HUBZone SBC may submit 
information responsive to the protest within 5 business days.
    (b) Time period for determination. (1) SBA will determine the 
HUBZone status of the protested HUBZone SBC within 15 business days 
after receipt of a protest.
    (2) If SBA does not contact the contracting officer within 15 
business days, the contracting officer may award the contract, unless 
the contracting officer has granted SBA an extension.
    (3) The contracting officer may award the contract after receipt of 
a protest if the contracting officer determines in writing that an 
award must be made to protect the public interest.
    (c) Notice of determination. SBA will notify the contracting 
officer, the protestor, and the protested concern of its determination.
    (d) Effect of determination. The determination is effective 
immediately and is final unless overturned on appeal by the ADA/
GC&8(a)BD, pursuant to Sec. 126.805. If SBA upholds the protest, SBA 
will de-certify the concern as a qualified HUBZone SBC. If SBA denies 
the protest, after considering the merits of the protest, SBA will 
amend the date of certification on the List to reflect the date of 
protest decision.


Sec. 126.804  Will SBA decide all HUBZone status protests?

    SBA will decide all protests not dismissed as premature, untimely 
or non-specific.

[[Page 31916]]

Sec. 126.805  What are the procedures for appeals of HUBZone status 
determinations?

    (a) Who may appeal. The protested HUBZone SBC, the protestor, or 
the contracting officer may file appeals of protest determinations with 
SBA's ADA/GC&8(a)BD.
    (b) Timeliness of appeal. SBA's ADA/GC&8(a)BD must receive the 
appeal no later than 5 business days after the date of receipt of the 
protest determination. SBA will dismiss any appeal received after the 
five-day period.
    (c) Method of Submission. The party appealing the decision may 
deliver its appeal in person, by facsimile, by express delivery 
service, or by U.S. mail (postmarked within the applicable time 
period).
    (d) Notice of appeal. The party bringing an appeal must provide 
notice of the appeal to the contracting activity contracting officer 
and either the protested HUBZone SBC or original protestor, as 
appropriate.
    (e) Grounds for appeal. (1) SBA will re-examine a protest 
determination only if there was a clear and significant error in the 
processing of the protest or if the AA/HUB failed completely to 
consider a significant fact contained within the information supplied 
by the protestor or the protested HUBZone SBC.
    (2) SBA will not consider additional information or changed 
circumstances that were not disclosed at the time of the AA/HUB's 
decision or that are based on disagreement with the findings and 
conclusions contained in the determination.
    (f) Contents of appeal. The appeal must be in writing. The appeal 
must identify the protest determination being appealed and set forth a 
full and specific statement as to why the decision is erroneous or what 
significant fact the AA/HUB failed to consider.
    (g) Completion of appeal after award. An appeal may proceed to 
completion even after award of the contract that prompted the protest, 
if so desired by the protested HUBZone SBC, or where SBA determines 
that a decision on appeal is meaningful.
    (h) Decision. The ADA/GC&8(a)BD will make its decision within 5 
business days of its receipt, if practicable, and will base its 
decision 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 
HUBZone SBC, consistent with law. The ADA/GC&8(a)BD's decision is the 
final agency decision.

Subpart I--Penalties


Sec. 126.900  What penalties may be imposed under this part?

    (a) Suspension or debarment. The Agency debarring official may 
suspend or debar a person or concern pursuant to the procedures set 
forth in part 145 of this title. The contracting agency debarring 
official may debar or suspend a person or concern under the Federal 
Acquisition Regulation, 48 CFR Part 9, subpart 9.4.
    (b) Civil penalties. Persons or concerns are subject to civil 
remedies under the False Claims Act, 31 U.S.C. 3729-3733, and under the 
Program Fraud Civil Remedies Act, 31 U.S.C. 3801-3812, and any other 
applicable laws.
    (c) Criminal penalties. Persons or concerns are subject to severe 
criminal penalties for knowingly misrepresenting the HUBZone status of 
a small business concern in connection with procurement programs 
pursuant to section 16(d) of the Small Business Act, 15 U.S.C. 645(d), 
as amended; 18 U.S.C. 1001; and 31 U.S.C. 3729-3733. Persons or 
concerns also are subject to criminal penalties for knowingly making 
false statements or misrepresentations to SBA for the purpose of 
influencing any actions of SBA pursuant to section 16(a) of the Small 
Business Act, 15 U.S.C. 645(a), as amended, including failure to 
correct ``continuing representations'' that are no longer true.

    Dated: June 5, 1998.
Aida Alvarez,
Administrator.
[FR Doc. 98-15581 Filed 6-10-98; 8:45 am]
BILLING CODE 8025-01-P


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