102448 Federal Register / Vol. 89, No. 242 / Tuesday, December 17, 2024 / Rules and Regulations 

SMALL BUSINESS ADMINISTRATION 

13 CFR Parts 121, 124, 125, 126, 127, 

128, 134 

[Docket ID SBA–2024–0007] 

RIN 3245–AH68 

HUBZone Program Updates and 

Clarifications, and Clarifications to 

Other Small Business Programs 

AGENCY: U.S. Small Business 

Administration. 

ACTION: Final rule. 

SUMMARY: The U.S. Small Business 

Administration (SBA or Agency) 

amends its regulations governing the 

Historically Underutilized Business 

Zone (HUBZone) Program to clarify 

certain policies. In 2019, SBA published 

a comprehensive revision to the 

HUBZone Program regulations, which 

implemented changes intended to make 

the HUBZone Program more efficient 

and effective. This rule clarifies and 

improves policies surrounding some of 

those changes. In particular, the rule 

requires any certified HUBZone small 

business to be eligible as of the date of 

offer for any HUBZone contract. The 

rule also makes several changes to 

SBA’s size and 8(a) Business 

Development (BD) regulations, as well 

as some technical changes to the 

Women-Owned Small Business (WOSB) 

and Veteran Small Business 

Certification (VetCert) programs. Of 

note, the rule deletes the program 

specific recertification requirements 

contained separately in SBA’s size, 8(a) 

BD, HUBZone, WOSB, and VetCert and 

moves them to a new section that covers 

all size and status recertification 

requirements. This should ensure that 

the size and status requirements will be 

uniformly applied. 

DATES: This rule is effective on January 

16, 2025. 

FOR FURTHER INFORMATION CONTACT: 

Alison Amann, Chief HUBZone 

Counsel, Office of General Counsel, 

(202) 205–6841, alison.amann@sba.gov. 

SUPPLEMENTARY INFORMATION: 

I. Background 

On August 23, 2024, SBA published 

in the Federal Register a proposed rule 

that primarily sought to amend the 

regulations relating to SBA’s HUBZone 

program, but also proposed changes to 

SBA’s size regulations and SBA’s other 

small business contracting programs. 89 

FR 68274. 

The proposed rule first intended to 

clarify and amend several HUBZone 

regulations that were implemented in 

the November 26, 2019, final rule that 

was the first comprehensive revision of 

the HUBZone Program regulations since 

the program’s implementation more 

than 20 years ago. See 87 FR 68274. In 

the time since SBA published the 

comprehensive revision, the Office of 

the HUBZone Program has received 

questions and information that 

prompted refinement and clarification 

of policies contained in that revision, 

which SBA published in ‘‘Frequently 

Asked Questions’’ in February 2020 and 

in subsequent updates. The proposed 

rule sought to incorporate some of those 

clarifications and make other 

refinements in the HUBZone 

regulations. This rule finalizes revisions 

to the HUBZone regulations, including 

requiring HUBZone firms to be eligible 

on the date of offer for a HUBZone 

contract and relieving the burden of 

annual recertification by moving to a 

triennial recertification requirement. In 

addition, this rule clarifies policies 

related to ‘‘Governor-designated covered 

areas,’’ which were authorized by the 

NDAA 2018 and implemented through 

a direct final rule published by SBA on 

November 15, 2019 (84 FR 62447), and 

makes several changes to definitions 

pertinent to the HUBZone program. 

This final rule also makes several 

changes to SBA’s size and 8(a) business 

development (BD) regulations, as well 

as some technical changes to the 

women-owned small business (WOSB) 

and the Veteran Small Business 

Certification (VetCert) programs. Of 

note, the rule deletes the program 

specific recertification requirements 

contained separately in SBA’s size, 8(a) 

BD, HUBZone, WOSB, and VetCert and 

moves them to a new section that covers 

all size and status recertification 

requirements. Currently, there is some 

language contained in the program 

specific recertification rules that is not 

identical in each of the programs. This 

has caused some confusion as to 

whether SBA intended the rules to be 

different in certain cases. That was not 

SBA’s intent. Moving all size and 

recertification to new § 125.12 should 

alleviate any confusion between the 

different programs and ensure that the 

size and status requirements will be 

uniformly applied. 

During the proposed rule’s 45-day 

comment period, SBA timely received 

over 650 comments from 261 

commenters, with a high percentage of 

commenters favoring the proposed 

changes. A substantial number of 

commenters applauded SBA’s effort to 

clarify and address ambiguities 

contained in the current rules. For the 

most part, the comments supported the 

substantive changes proposed by SBA. 

II. Section-by-Section Analysis 

Sections 121.103(a)(3), 124.106(h), 

127.202(h) and 128.203(j)(6) 

SBA proposed to amend its rules on 

affiliation in the size regulations and 

control in the 8(a) BD, WOSB and 

VetCert program regulations regarding 

negative control. Specifically, the 

proposed rule made the negative-control 

rules consistent across SBA’s various 

programs. The negative control 

provision states that a concern may be 

deemed controlled by, and therefore 

affiliated with, a minority shareholder 

that has the ability to prevent a quorum 

or otherwise block action by the board 

of directors or shareholders. The rule 

does not include any specific 

exceptions, though some have 

developed through caselaw at SBA’s 

Office of Hearings and Appeals (OHA). 

See, e.g., Southern Contracting 

Solutions III, LLC, SBA No. SIZ–5956 

(Aug. 30, 2018). 

The proposed rule amended 

§ 121.103(a)(3) (for affiliation relating to 

size), § 124.106(h) (for control in the 8(a) 

BD program) and § 127.202(h) (for 

control in the WOSB program) by 

adding language currently contained in 

the VetCert rules that developed from 

OHA case law to clarify that there are 

certain ‘‘extraordinary circumstances’’ 

under which a minority shareholder 

may have some decision-making 

authority without a finding of negative 

control. Specifically, SBA will not find 

that a lack of control exists where a 

qualifying individual or business does 

not have the unilateral power and 

authority to make decisions regarding: 

(1) adding a new equity stakeholder; (2) 

dissolution of the company; (3) sale of 

the company or all assets of the 

company; (4) the merger of the 

company; (5) the company declaring 

bankruptcy; and (6) amendment of the 

company’s governance documents to 

remove the shareholder’s authority to 

block any of (1) through (5). These 

exceptions to negative control are being 

implemented to promote consistency 

with other SBA contracting programs. 

Finally, since the current VetCert 

regulations have only the first five 

exceptions for control and the proposed 

rule also added six to the size, 8(a) BD 

and WOSB regulations, the proposed 

rule added that same sixth exception to 

the VetCert regulations in a new 

§ 128.203(j)(6). 

SBA received ten comments in 

response to the proposed changes 

regarding extraordinary circumstances. 

All of the commenters agreed with 

identifying ‘‘extraordinary 

circumstances’’ under which a minority 

shareholder may have some decisionVerDate Sep<11>2014 21:58 Dec 16, 2024 Jkt 265001 PO 00000 Frm 00002 Fmt 4701 Sfmt 4700 E:\FR\FM\17DER6.SGM 17DER6

ddrumheller on DSK120RN23PROD with RULES6
Federal Register / Vol. 89, No. 242 / Tuesday, December 17, 2024 / Rules and Regulations 102449 

making authority without a finding of 

affiliation or negative control. Several 

commenters, however, believed that 

there should also be some sort of a 

catch-all to allow similar treatment for 

another extraordinary circumstance not 

specifically identified. One commenter 

recommended that SBA adopt language 

stated in OHA size appeal cases that 

super majority provisions crafted to 

protect the investment of the minority 

shareholders, and not to impede the 

majority’s ability to control the 

concern’s operations or to conduct the 

concern’s business as it chooses should 

be permitted. See Size Appeal of S. 

Contracting Sols. III, LLC, SBA No. SIZ– 

5956 (2018) (citing Size Appeal of EA 

Eng’g., Sci. & Tech., Inc., SBA No. SIZ– 

4973 (2008), Size Appeal of CarntribeClement 8AJV #1, LLC, SBA No. SIZ– 

5357 (2012)). SBA agrees and has 

adopted this catch all language in this 

final rule. 

One commenter recommended that 

the extraordinary circumstance 

identified as adding ‘‘a new equity 

stakeholder’’ should be broadened to 

also allow increasing the investment 

amount of an equity stakeholder. 

Similarly, another commenter 

recommended that SBA add a separate 

extraordinary circumstance allowing 

issuing additional capital stock. SBA 

adopts the first recommendation in this 

final rule, but believes the second is 

unnecessary since that should be 

covered in a provision which allows 

adding a new equity stakeholder or 

increasing the investment amount of an 

equity stakeholder. 

Section 121.103(h) 

Section 121.103(h)(3) sets forth SBA’s 

‘‘ostensible subcontractor’’ rule, which 

may find a prime contractor ineligible 

for the award of any small business 

contract or order where a subcontractor 

that is not similarly situated (as that 

term is defined in § 125.1) performs 

primary and vital requirements of a 

contract, order, or agreement, or where 

the prime contractor is unusually reliant 

on such a subcontractor. Prior to this 

change, the regulatory text provided that 

a contractor and its ostensible 

subcontractor are treated as joint 

venturers for size determination 

purposes, and as long as each concern 

is small under the size standard 

corresponding to the relevant North 

American Industry Classification 

System (NAICS) code or the prime 

contractor is small and the 

subcontractor is its SBA-approved 

mentor, the arrangement will qualify as 

a small business. The proposed rule 

sought to clarify SBA’s intent, 

specifically in the context of a 

subcontractor that is an SBA-approved 

mentor of the prime contractor. There 

was some confusion that because a 

prime-subcontractor relationship was 

treated ‘‘as a joint venture’’, then that 

relationship would automatically be 

acceptable if the subcontractor were the 

mentor of the prime contractor. That 

was not what SBA intended. SBA 

intended to allow the relationship to 

qualify as a small business only if all the 

joint venture requirements were met. 

That would mean that the prote ́ge ́ and 

mentor must have an underlying joint 

venture agreement that meets the 

requirements of § 125.8(b), the prote ́ge ́

will direct and have ultimate 

responsibility for the contract, and the 

performance of work requirements set 

forth in § 125.8(c) will be met. In a 

prime-subcontractor relationship, those 

requirements are not present and SBA 

would aggregate the revenues/ 

employees of such ‘‘joint ventures’’ in 

determining size. The proposed rule 

simplified § 121.103(h) by eliminating 

the reference to a joint venture and 

instead specified that an offeror is 

ineligible as a small business concern, 

an 8(a) small business concern, a 

certified HUBZone small business 

concern, a WOSB/EDWOSB, or a VO/ 

SDVO small business concern where 

SBA determines there to be an 

ostensible subcontractor relationship. 

The proposed rule also added a new 

§ 121.103(h)(3)(v) that provided that a 

joint venture offeror is ineligible as a 

small business concern, an 8(a) small 

business concern, a certified HUBZone 

small business concern, a WOSB/ 

EDWOSB concern, or a VO/SDVO small 

business concern where SBA 

determines that the managing joint 

venture partner will not perform 40% of 

the work to be performed by the joint 

venture, where a joint venture partner 

that is not similarly situated to the 

managing venturer performs primary 

and vital requirements of a contract, or 

of an order, or where the managing 

venturer is unusually reliant on such a 

joint venture partner. 

SBA received 14 comments in 

response to proposed § 121.103(h). 

Twelve commenters supported deleting 

the joint venture language from the 

introductory language of § 121.103(h)(3). 

Two commenters opposed the language 

in proposed § 121.103(h)(3)(v) that 

would find a joint venture to be 

ineligible where a joint venture partner 

that is not similarly situated to the 

managing venturer performs primary 

and vital requirements of a contract, or 

where the managing venturer is 

unusually reliant on such a joint 

venture partner. These commenters 

noted that a primary reason why 

companies joint venture is because the 

managing member is not able to perform 

the contract by itself and may not be 

able to perform a significant amount of 

the primary and vital work to be done 

under the contract. They believed that 

finding a joint venture to be ineligible 

merely because a non-similarly situated 

partner was performing primary and 

vital work is contrary to the entire 

purpose of a joint venture. SBA agrees 

and has amended the regulatory text in 

this final rule to eliminate the language 

finding a joint venture to be ineligible 

where a joint venture partner that is not 

similarly situated to the managing 

venturer performs primary and vital 

requirements of a contract, or of an 

order, or where the managing venturer 

is unusually reliant on such a joint 

venture partner. 

A joint venture is not only 

permissible but encouraged where a 

concern lacks the necessary capacity to 

perform a contract on its own. It would 

be contradictory to say that a joint 

venture is permissible where the 

managing member cannot perform the 

contract by itself but then say it is 

ineligible if a non-managing member 

partner was performing primary and 

vital work. 

The proposed rule also made a 

corresponding change to § 121.702(c)(7) 

for the SBIR program. That change 

provided that a concern with an other 

than small ostensible subcontractor 

cannot be considered a small business 

concern for SBIR and STTR awards. 

SBA received one comment regarding 

proposed § 121.702(c)(7). The 

commenter recommended that SBA add 

language to § 121.702(c)(7) to safeguard 

the SBIR and STTR programs from 

foreign capture. SBA believes that the 

language of proposed § 121.702(c)(7)(iii) 

provides the necessary safeguards. The 

commenter references an OHA size 

appeal where an ostensible 

subcontractor was a foreign company. 

See Size Appeal of NFRL LLC, SBA No. 

SIZ–6174 (28 September 2022). In that 

case, OHA found the prime ineligible 

because the ostensible subcontractor did 

not also meet the ownership and control 

requirements of § 121.702(a) and (b). 

Specifically, because the ostensible 

subcontractor was not more than 50% 

directly owned and controlled by one or 

more individuals who are citizens or 

permanent resident aliens of the United 

States the relationship, treated as a joint 

venture under the regulations in place at 

that time, was ineligible. In eliminating 

the joint venture verbiage from the 

ostensible subcontractor SBIR rule, SBA 

replaced it with language specifically 

stating that the prime and any small 


ddrumheller on DSK120RN23PROD with RULES6
102450 Federal Register / Vol. 89, No. 242 / Tuesday, December 17, 2024 / Rules and Regulations 

business ostensible subcontractor both 

must comply individually with the 

ownership and control requirements. As 

such, SBA adopts the proposed 

language without revision in this final 

rule. 

Section 121.104 

Section 121.104 defines the term 

annual receipts to mean all revenue in 

whatever form received or accrued from 

whatever source, including from the 

sales of products or services, interest, 

dividends, rents, royalties, fees, or 

commissions, reduced by returns and 

allowances. It goes on to state that 

generally, receipts are considered ‘‘total 

income’’ plus ‘‘cost of goods sold’’ as 

these terms are defined and reported on 

Internal Revenue Service (IRS) tax 

return forms. The section also provides 

that Federal income tax must be used to 

determine the size status of a concern. 

There has been some confusion as to 

whether SBA is restricted in all 

circumstances to examining only a 

concern’s tax returns or whether SBA 

may look at other information if it 

appears or there is other information 

suggesting that the tax returns do not 

adequately capture a concern’s total 

revenue. The proposed rule provided 

that SBA will always consider a 

concern’s tax returns, but may also 

consider other relevant information in 

appropriate circumstances in 

determining whether the concern 

qualifies as small. 

SBA received seven comments 

regarding proposed § 121.104, five of 

which opposed the proposed language. 

Commenters believed that the proposed 

language afforded SBA limitless 

discretion to go outside of a firm’s tax 

returns and was overly vague. One 

commenter noted that financial 

statements may not reflect revenue the 

same way that it is reported for tax 

purposes. The commenter believed that 

it would be unfair to include revenue 

identified on financial statements that 

were legally excluded on the firm’s tax 

returns. SBA agrees. The final rule 

clarifies that SBA will consider a firm’s 

tax returns in every case and that SBA 

will generally rely solely on those tax 

returns. The final rule also specifies that 

where a concern may legally exclude 

certain revenue for tax purposes, SBA 

will not include that revenue in its size 

determination analysis. However, the 

final rule specifies that SBA may 

consider other relevant information 

beyond the submitted tax returns where 

there is reasonable basis to believe the 

tax filings are false. 

Section 121.404 

SBA proposed to simplify and 

reorganize § 121.404, which addresses 

the date used to determine size for size 

certifications and determinations. The 

proposed changes sought to clarify the 

current rules and make them easier to 

understand and apply. In addition to 

these clarifications, SBA proposed 

substantive changes to the rules 

regarding size recertification and 

proposed to remove paragraph (g) on 

size recertification and relocate that 

paragraph to new section 125.12, which 

addresses size and small business 

program status recertification. 

Generally, a concern (including its 

affiliates) must qualify as small under 

the NAICS code assigned to a contract 

as of the date the concern submits a selfcertification that it is small to the 

procuring activity as part of its initial 

offer or response which includes price. 

Once awarded a contract as a small 

business, a concern is generally 

considered to be a small business 

throughout the life of that contract. For 

orders and agreements issued under 

multiple award contracts, the date that 

size is determined depends on whether 

the underlying multiple award contract 

was awarded on an unrestricted basis or 

whether it was set aside or reserved for 

small business (i.e., small business setaside, 8(a) small business, servicedisabled veteran-owned small business, 

HUBZone small business, or womenowned/economically disadvantaged 

women-owned small business). 

Where an order or agreement is to be 

set aside for small business under an 

unrestricted multiple award contract, 

size is determined as of the date of 

initial offer (or other formal response to 

a solicitation), including price, for each 

order or agreement placed against the 

multiple award contract. In that 

scenario, the order or agreement is the 

first time that size status is important to 

eligibility. That is the first time that 

only some contract holders will be 

eligible to compete for the order or 

agreement while others will be excluded 

from competition because of their size 

status. SBA never intended to allow a 

firm’s self-certification for the 

underlying unrestricted multiple award 

contract to control whether a firm is 

small at the time an order or agreement 

is set-aside for small business years after 

the multiple award contract was 

awarded. 

Where the underlying multiple award 

contract was set aside or reserved for 

small business, size status will generally 

flow down from the underlying contract 

to the order or agreement, unless 

recertification is requested by a 

contracting officer with respect to an 

agreement or order. As such, size status 

for an order or agreement under a 

multiple award contract that itself was 

set aside or reserved for small business 

is determined as of the date of initial 

offer, including price, for the multiple 

award contract, unless size 

recertification is requested by the 

contracting officer in connection with a 

specific order or agreement. 

SBA also proposed to clarify that 

where a contracting officer requests size 

and/or status recertification with respect 

to a specific order or agreement, size/ 

status will be determined as of the date 

of initial offer (or other formal response 

to a solicitation), including price, for 

that specific order or agreement only. 

The requirement to recertify applies 

only to the order or agreement for which 

a contracting officer requested 

recertification. The recertification does 

not apply to the underlying contract. 

Where an initially-small contract holder 

has naturally grown to be other than 

small and could not recertify as small 

for a specific order or agreement for 

which a contracting officer requested 

recertification, it may continue to 

qualify as small for other orders or 

agreements where a contracting officer 

does not request recertification. 

Similarly, where an initially-eligible 

8(a), HUBZone, WOSB or SDVOSB 

contract holder on an 8(a), HUBZone, 

WOSB or SDVOSB set-aside or reserve 

cannot recertify its status for a specific 

order or agreement for which a 

contracting officer requested 

recertification, it may continue to 

qualify as eligible for other 

competitively awarded orders or 

agreements where a contracting officer 

does not request recertification. 

If size recertification is triggered by a 

merger, sale, or acquisition, or because 

it is a long-term contract in the fifth year 

of performance, size will be determined 

as of the date of the merger, sale, or 

acquisition, or the date of the size 

recertification in the case of a 

recertification in the fifth year of a longterm contract. The impact of a 

disqualifying recertification, the events 

that require recertification, and the 

timing of recertification, are discussed 

in detail in 125.12, which is a new 

proposed section of SBA’s regulations. 

SBA received 25 comments in 

response to the proposed changes to 

§ 121.404. Most of the comments 

responded to the effect of a 

disqualifying recertification. As noted 

above, the proposed rule moved 

regulatory provisions regarding 

recertification from § 121.404(g) to a 

new § 125.12. The effect of disqualifying 

recertifications is addressed in new 


ddrumheller on DSK120RN23PROD with RULES6
Federal Register / Vol. 89, No. 242 / Tuesday, December 17, 2024 / Rules and Regulations 102451 

§ 125.12. As such, the comments to 

§ 121.404 pertaining to the effect of a 

disqualifying recertification will be 

addressed with other comments to 

§ 125.12. Several commenters supported 

SBA’s efforts to simplify and clarify 

when size status is determined. Three 

commenters also supported SBA’s 

clarification that where a contracting 

officer requests size recertification with 

respect to a specific order, size is 

determined only with respect to that 

order. This clarification allows a 

contract holder that has grown to be 

other than small and cannot recertify as 

small for a specific order for which a 

contracting officer requested 

recertification to continue to qualify as 

small for other orders issued under the 

contract where a contracting officer does 

not request recertification. SBA adopts 

those provisions as final in this rule. 

Three commenters disagreed with the 

exception set forth in proposed 

§ 121.404(c)(4)(i) stating that for orders 

or BPAs to be placed against the Federal 

Supply Schedule (FSS), size is 

determined as of the date the business 

concern submits its initial offer, which 

includes price, for the FSS contract and 

not with respect to each order set aside 

for small business under the FSS. The 

commenters noted that the FSS is an 

unrestricted contract and size is not 

relevant to the award of the underlying 

contract. 

They recommended that the general 

rule applicable to set-aside orders under 

an unrestricted multiple award contract 

(i.e., that size status for each such order 

placed against the multiple award 

contract be determined as of the date a 

business concern submits its initial offer 

which includes price for the order) 

should apply similarly to the FSS. The 

commenters believe that this exception 

does not adequately serve the interests 

of the small business community. SBA 

notes that GSA has the statutory 

authority to establish FSS contracts and 

the procedures used to order under 

them. As such, this rule adopts the 

proposed language as final. 

Section 121.1001 

Section 121.1001 identifies who may 

initiate a size protest or request a formal 

size determination in different 

instances. Paragraph 121.1001(b)(2)(ii) 

identifies who may request a formal size 

determination where SBA cannot verify 

that an 8(a) Participant is small for a 

specific sole source or competitive 8(a) 

contract. There have been a few cases 

where SBA initially determined that a 

Participant qualified as small for a sole 

source 8(a) contract, but later received 

information that questioned that 

determination. Under a strict reading of 

§ 121.1001(b)(2)(ii), SBA could not then 

request a formal size determination 

because the wording of 

§ 121.1001(b)(2)(ii) authorized such a 

request only where SBA ‘‘cannot verify 

the eligibility of the apparent successful 

offeror because SBA finds the concern 

to be other than small.’’ Since 

verification, albeit initial verification 

only, had already occurred, some have 

questioned whether SBA could request 

a formal size determination at all in that 

context. SBA notes that it was never 

SBA’s intent to prohibit further analysis 

of an 8(a) Participant’s size eligibility 

when new information becomes 

available to SBA that questions the 

firm’s eligibility at any point prior to 

award. SBA seeks to ensure that only 

firms that qualify as small receive 8(a) 

contracts. The proposed rule added a 

new § 121.1001(b)(2)(iii) to specifically 

authorize SBA to request a formal size 

determination where SBA initially 

verified the eligibility of an 8(a) 

Participant for the award of an 8(a) 

contract but then subsequently receives 

specific information that the Participant 

may be other than small and 

consequently ineligible. SBA received 

two comments on this proposal, both 

supporting this clarification. One 

commenter recommended that SBA 

clarify that the request for a formal size 

determination contemplated here by 

SBA occurs prior to the award of the 

8(a) contract at issue. SBA agrees and 

has made minor wording changes to 

clarify its intent in this rule. 

SBA also proposed to add a new 

§ 121.1001(b)(12) to specifically 

authorize requests for formal size 

determinations relating to size 

recertifications required by § 125.12. 

Section 125.12 requires a concern to 

recertify its size when there is a merger, 

acquisition, or sale and prior to the sixth 

year and every option thereafter of a 

long-term contract. Although SBA and 

the relevant contracting officer may file 

a size protest before or after the award 

of a contract (see § 121.1004(b)), the 

regulations do not currently specifically 

authorize a protest or a request for a 

formal size determination in connection 

with a size recertification. More 

importantly, there currently is no 

mechanism to allow a protest or request 

for a formal size determination from 

another interested small business 

concern who believes that a size 

recertification is incorrect. For example, 

on a multiple award contract, if after a 

merger or acquisition a concern recertifies itself to be small, another 

contract holder on that multiple award 

contract could not currently challenge 

that recertification. Because this rule 

will render a concern ineligible for 

orders set aside for small business or set 

aside for a specific type of small 

business under a multiple award 

contract where the concern submits a 

disqualifying recertification (see 

§ 125.12 below), SBA believes that other 

contract holders should have the ability 

to question a size recertification. The 

proposed rule specifically authorized 

the contracting officer, the relevant SBA 

program manager, or the Associate 

General Counsel for Procurement Law to 

request a formal size determination. The 

relevant SBA program manager is that 

individual overseeing the program 

relating to the contract at issue. For an 

8(a) contract, that would be the 

Associate Administrator for Business 

Development; for a HUBZone contract, 

that would be the Director of HUBZone; 

and for a small business set-aside, 

WOSB/EDWOSB or SDVOSB contract, 

that would be the Director of 

Government Contracting. The proposed 

rule also specified that in connection 

with a size recertification relating to a 

multiple award contract, any contract 

holder on that multiple award contract 

could request a formal size 

determination in addition to the 

contracting officer, the relevant SBA 

program manager, or the Associate 

General Counsel for Procurement Law. 

As with a size protest, a request for a 

formal size determination questioning 

the size of a concern after its size 

recertification must be sufficiently 

specific to provide reasonable notice as 

to the grounds upon which the 

recertifying concern’s size is questioned. 

SBA received five comments in 

response to proposed § 121.1001(b)(12). 

All five commenters supported the 

SBA’s proposal to allow a mechanism to 

challenge a size recertification. One 

commenter, however, recommended 

that the challenge be a size protest in 

§ 121.1001(a) as opposed to a request for 

a formal size determination in 

§ 121.1001(b). The commenter believed 

that without this clarification, it is 

unclear if/whether the protest time 

limits apply. The final rule adopts this 

recommendation and moves proposed 

§§ 121.1001(b)(12) and (13) to a new 

§ 121.1001(a)(11). In moving the 

proposed authority from a request from 

a formal size determination to a protest, 

the final rule eliminates the specific 

language contained in proposed 

§ 121.1001(b)(13) requiring a challenge 

to a recertification to be specific. The 

requirement for specificity applies to all 

size protests currently. There is no need 

to repeat that requirement in new 

§ 121.1001(a)(11). 


ddrumheller on DSK120RN23PROD with RULES6
102452 Federal Register / Vol. 89, No. 242 / Tuesday, December 17, 2024 / Rules and Regulations 

The proposed rule also noted that 

SBA was considering allowing a size 

protest in connection with the award of 

an order issued under a multi-agency 

multiple award contract where the 

protest relates to the ostensible 

subcontractor rule. Whether a large 

business subcontractor will perform 

primary and vital requirements or 

whether a small business prime 

contractor will be unduly reliant on a 

large business subcontractor will not be 

an issue at the time of award of an 

underlying small business multiple 

award contract. It is at the order level 

where undue reliance may become an 

issue. SBA requested comments on this 

issue. Three commenters supported the 

inclusion of such a protest, while two 

opposed. Two commenters supported 

the addition of such a provision 

generally. One commenter noted that 

§ 121.1001(a)(1) already authorized a 

size protest ‘‘in connection with a 

particular . . . order.’’ The commenter 

noted that if a protest is currently 

authorized for an order, then it can 

relate to any protest ground in SBA’s 

regulations, including one based on the 

ostensible subcontractor rule. Although 

the commenter believed it was 

unnecessary to add language regarding 

the ostensible subcontractor rule to 

protests regarding orders, the 

commenter did not object to such 

inclusion if SBA thought it was 

necessary. The commenter also 

recommended that the language in 

§ 121.1001(a)(1) authorizing a size 

protest in connection with a particular 

order be more clearly apparent in a 

separate paragraph. In response, SBA 

believes that it is not necessary to add 

specific language authorizing a protest 

of an order based on the ostensible 

subcontractor rule. SBA agrees that the 

language in § 121.1001(a)(1) authorizing 

a size protest in connection with a 

particular order generally allows a 

protest based on the ostensible 

subcontractor rule. SBA also agrees that 

this authority should be identified in a 

separate paragraph for clarity purposes, 

and adds a new § 121.1001(a)(10) to do 

so. 

One commenter opposing such a 

provision believed that it would be 

difficult for competitors to know 

whether a contractor intends to use a 

subcontractor for a particular order 

since this information is not public or 

consistently reported, and that this 

would lead to speculative size protests. 

As with any size protest, the protest 

must be specific. If a competitor cannot 

identify a subcontractor that will 

perform primary and vital requirements 

or upon which the protested concern is 

alleged to be unduly reliant upon, the 

protest will be dismissed for lack of 

specific. The other commenter opposing 

adding specific language authorizing a 

size protest relating to the ostensible 

subcontractor rule with respect to an 

order believed that it would create 

significant additional work for 

contracting officers, small business 

specialists, and small businesses. As 

noted above, size protests relating to 

specific orders is already authorized by 

SBA’s regulations and identifying or not 

identifying a specific ground upon 

which a protest could be made will not 

cause any additional burden on 

contracting officers, SBA or small 

businesses. 

Section 121.1010 

Section 121.1010 explains how a 

concern can become recertified as a 

small business after receiving an 

adverse size determination. The 

proposed rule made slight wording 

changes to § 121.1010(b) to make clear 

that size recertification is not required 

and the prohibition against future selfcertification does not apply if the 

adverse SBA size determination is based 

solely on a finding of affiliation limited 

to a particular Government procurement 

or property sale, such as an ostensible 

subcontracting relationship or noncompliance with the nonmanufacturer 

rule. SBA received two comments 

supporting this provision and no 

comments opposing it. SBA adopts the 

proposed language as final in this rule. 

Section 124.3 

Section 124.3 sets forth the 

definitions that are important in the 8(a) 

BD program. Included within this 

section is the definition of the term 

Community Development Corporation 

or CDC. In 1981, Congress enacted the 

Omnibus Reconciliation Act. Included 

within Title VI of this Act was 

§ 626(a)(2), codified at 42 U.S.C. 

9815(a)(2), which required SBA to 

‘‘promulgate regulations to ensure the 

availability to community development 

corporations of such programs as shall 

further the purposes of this subchapter, 

including programs under section 8(a) 

of the Small Business Act.’’ Pursuant to 

42 U.S.C. 9802, a CDC is defined as a 

non-profit organization responsible to 

the residents of the area it serves which 

is receiving financial assistance under 

42 U.S.C. 9805, et seq. Under 42 U.S.C. 

9806 the Secretary of Health and Human 

Services (HHS) has the authority to 

provide financial assistance in the form 

of grants to nonprofit and for-profit 

community development corporations. 

The program authorized by 42 U.S.C. 

9805, et seq. is the Department of Health 

and Human Services (HHS) Urban and 

Rural Special Impact Program. In 1998, 

as part of Community Opportunities, 

Accountability, and Training and 

Educational Act of 1998, Public Law 

105–285, 202(b)(1), 112 Stat. 2702, 2755 

(1998), Congress moved HHS’ funding 

authority for the Urban and Rural 

Special Impact Program from 42 U.S.C. 

9803 to 42 U.S.C. 9921. Thus, after that 

date CDCs could not receive funding 

under 42 U.S.C. 9805, et seq. CDCs that 

have been in existence for a long time 

may still be able to demonstrate that 

they have received funding under 42 

U.S.C. 9805, et seq. However, those 

forming after 1998 could not do so. In 

order for such a CDC seeking to 

participate in the 8(a) BD program after 

that date, SBA has required the CDC to 

obtain a letter from HHS confirming that 

the CDC has received funding through 

the successor program to that authorized 

by 42 U.S.C. 9805, et seq. However, 

SBA’s regulations have not been 

changed to acknowledge eligibility for a 

CDC-owned firm through that process. 

The proposed rule recognized that 

process. 

The proposed rule also made the same 

change to the definition of the term 

Community Development Corporation 

or CDC contained in § 126.103 for the 

HUBZone program. 

SBA received two comments 

supporting the clarifications for CDC 

8(a) and HUBZone eligibility. SBA 

adopts the proposed language as final in 

this rule. 

Sections 124.105(b), 127.202(d) and 

128.202(c) 

Sections 124.105(b) (for the 8(a) BD 

program), 127.202(d) (for the WOSB 

program), and 128.202(c) (for VetCert 

program) set forth ownership 

requirements pertaining to partnerships. 

The language of the three sections is not 

consistent. The proposed rule sought to 

harmonize the provisions so that a firm 

simultaneously applying to be certified 

in more than one program must meet 

the same requirements. SBA does not 

want possible contradictory 

determinations based on the same facts. 

In other words, SBA believes that it 

would be inappropriate to find that a 

qualifying individual controls a 

partnership firm for purposes of one 

certification program but not to control 

the same partnership firm for purposes 

of another certification program. This 

rule would revise the ownership 

requirements for partnership to be 

identical for the 8(a) BD, WOSB and 

VetCert programs. The final rule 

provides that in the case of a concern 

which is a partnership, one or more 

individuals determined by SBA to be 


ddrumheller on DSK120RN23PROD with RULES6
Federal Register / Vol. 89, No. 242 / Tuesday, December 17, 2024 / Rules and Regulations 102453 

socially and economically 

disadvantaged must serve as general 

partners, with control over all 

partnership decisions. In addition, at 

least 51 percent of every class of 

partnership interest must be 

unconditionally owned by one or more 

individuals determined by SBA to be 

socially and economically 

disadvantaged; and the ownership must 

be reflected in the concern’s partnership 

agreement. 

SBA received four comments 

supporting the proposed clarifications 

to create consistency between SBA’s 

various programs, and no comments 

opposing the changes. SBA adopts the 

proposed language as final in this rule. 

Section 124.105 

Section 124.105 sets forth the 

ownership requirements that an 

applicant to or Participant in the 8(a) BD 

program must meet in order to be and 

remain eligible for the program. 

Paragraph 124.105(h) provides certain 

ownership restrictions that are 

applicable to non-disadvantaged 

individuals and concerns that seek to 

have an ownership interest in an 

applicant or Participant. The proposed 

rule increased the allowable ownership 

percentages for certain nondisadvantaged individuals and business 

concerns (those owning more at least 

ten percent in other 8(a) Participant and 

those in the same or similar line of 

business) from 10 percent to 20 percent 

in the developmental stage of program 

participation and from to 20 percent to 

30 percent in the transitional stage of 

program participation. 

SBA received five comments 

supporting the increases in nondisadvantage ownership. Commenters 

believed that these changes could help 

8(a) Participants attract additional 

partners, offering greater opportunities 

for growth and development. One 

commenter supported the increase to 

30% in the transitional stage saying that 

it will facilitate access to capital for 8(a) 

firms preparing to graduate, enhancing 

their ability to compete in the open 

market. That commenter also 

recommended, however, that SBA 

increase the percentage to 35% in the 

transitional stage. SBA does not adopt 

this recommendation. SBA does not 

want any one non-disadvantage 

individual or business entity to unduly 

benefit from the program. The higher 

the percentage that SBA allows a nondisadvantaged individual or business to 

own in multiple 8(a) Participants, the 

more it appears that non-disadvantaged 

individuals are benefitting from the 

program instead of disadvantaged 

individuals. Similarly, the restriction on 

ownership by an individual or business 

in the same or similar line of work as 

the 8(a) firm is intended to ensure that 

the disadvantaged individual(s) upon 

whom 8(a) eligibility was based control 

the 8(a) Participant. The higher the 

percentage that SBA allows a nondisadvantaged individual or business in 

the same or similar line of business to 

own in an 8(a) firm, the more it appears 

that the non-disadvantaged individual 

or business concern is controlling the 

8(a) firm. SBA adopts the proposed 

language as final in this rule. 

The proposed rule also aligned the 

language in § 124.105(f)(1) (for the 8(a) 

BD program) with that appearing in 

§ 128.202(g) (for the VetCert program) 

regarding the distribution of profits. 

There was a slight wording difference in 

the 8(a) BD and VetCert regulations and 

the proposed rule made the wording 

consistent. The proposed rule also 

added the same language to § 127.201(g) 

for the WOSB program. SBA received 

three comments all supporting these 

proposed changes. Commenters noted 

that the revision more clearly states how 

profits should be distributed for the 

various for-profit entities instead of only 

referencing corporations, which is the 

case in the current regulations. SBA 

adopts the proposed language as final in 

this rule. 

Paragraph (i) sets forth the 

requirements relating to changes of 

ownership. Generally, a Participant may 

change its ownership or business 

structure so long as one or more 

disadvantaged individuals own and 

control it after the change and SBA 

approves the transaction in writing prior 

to the change. Section 124.105(i)(2) 

authorizes three exceptions as to when 

prior SBA approval of a change of 

ownership is not needed and provides 

four examples implementing the change 

of ownership requirements, one 

showing when prior SBA approval is 

required and three showing when it is 

not. Prior SBA approval is not needed 

where all non-disadvantaged individual 

(or entity) owners involved in the 

change of ownership own no more than 

a 20 percent interest in the concern both 

before and after the transaction. To be 

consistent with the change to 

§ 124.105(h) above, the proposed rule 

required prior approval only where a 

non-disadvantaged individual owns 

more than a 30 percent interest in the 

8(a) Participant either before or after the 

transaction. The proposed rule also 

added a fourth exception as to when 

prior SBA approval is not required. 

Specifically, the proposed rule provided 

that prior SBA approval is not required 

where the 8(a) Participant has never 

received an 8(a) contract. The proposed 

rule then clarified that where prior 

approval is not required, the Participant 

must notify SBA within 60 days of such 

a change in ownership, or before it 

submits an offer for an 8(a) contract, 

whichever occurs first. SBA must be 

able to determine the continued 

eligibility of the Participant before it 

accepts a sole source 8(a) procurement 

on behalf of or authorizes the award of 

a competitive 8(a) award to the 

Participant. Finally, the proposed rule 

made changes to the examples set forth 

in § 124.105(i)(2) to reflect the change 

from 20 percent to 30 percent and added 

a fifth example highlighting that prior 

SBA approval is not required where a 

Participant has never received an 8(a) 

contract. 

SBA received 11 comments regarding 

the proposed revisions to the change of 

ownership requirements. The 

commenters generally supported the 

proposed revisions. One commenter 

believed that the exception to prior 

approval when the Participant has never 

received an 8(a) contract is an 

improvement because it reduces the 

regulatory burden of obtaining prior 

approval of an ownership change when 

the 8(a) Participant has not yet received 

benefits from the program. That 

commenter also believed that the 

notification requirement at 

§ 124.105(i)(2)(i)(D)(iii) that requires a 

Participant to provide notice of the 

ownership change within 60 days of 

such a change, or before it submits an 

offer for an 8(a) contract, whichever 

occurs first, will serve as a sufficient 

safeguard to ensure that SBA has the 

opportunity to analyze ownership 

changes before a contract award. Two 

commenters recommended that SBA 

clarify § 124.105(i)(2)(i)(C) to make clear 

that an increase of any percentage of 

ownership by the disadvantaged 

individual obviates the need for SBA’s 

prior approval, even if it is a small 

amount. The final rule makes that 

clarification. One commenter disagreed 

with allowing a change of ownership 

without SBA approval where the 8(a) 

firm has not received an 8(a) contract in 

all instances. Specifically, the 

commenter objected to allowing such a 

change of ownership where the 

individual(s) or entity upon whom 

eligibility would no longer own more 

than 50 percent of the Participant. The 

commenter noted that if the change in 

ownership were permitted to take effect 

without SBA’s approval, the Participant 

could continue to market itself as an 

eligible 8(a) Participant. Although the 

proposed rule requires SBA approval 

before an 8(a) contract award, the 

commenter thought that the 


ddrumheller on DSK120RN23PROD with RULES6
102454 Federal Register / Vol. 89, No. 242 / Tuesday, December 17, 2024 / Rules and Regulations 

Participant’s self-marketing efforts could 

allow the Participant to advance far 

towards an award before contacting SBA 

and that either the Participant would 

receive an expedited eligibility review 

allowing the award to occur or an 

agency could be left without an eligible 

Participant and be forced to start the 

process over again. Particularly in the 

entity context, the commenter believed 

that this could allow a newly 

established NHO or Tribe that has not 

previously participated in the 8(a) 

program to acquire a Participant that has 

not yet received an 8(a) contract and 

obtain accelerated review of its 8(a) 

application, and that that review may 

not be as comprehensive as it would 

have been in the normal process. In 

order to alleviate any concern about 

possible expedited application 

processing, the final rule amends this 

provision to allow a change of 

ownership without SBA approval where 

the Participant has never received an 

8(a) contract and the individual(s) or 

entity upon whom initial eligibility was 

based continues to own more than 50% 

of the Participant. 

In order to align the 8(a) BD 

ownership requirements with those 

applicable in the WOSB and VetCert 

programs, SBA proposed to eliminate 

the requirement contained in 

§ 124.105(k) that SBA consider State 

community property laws in 

determining ownership interests when 

an owner resides in a community 

property State. SBA received six 

comments in response to the proposal to 

eliminate current § 124.105(k). All six 

comments supported the proposal. Two 

commenters specifically addressed the 

statutory requirement that one or more 

disadvantaged individuals must 

unconditionally own an 8(a) applicant 

or Participant. Both believed that 

eliminating the requirement to consider 

community property laws would not in 

any way contradict the unconditional 

ownership requirement. One commenter 

also questioned SBA’s authority to 

require transmutation agreements (i.e., 

agreements between spouses 

relinquishing some percentage of his or 

her community property ownership 

rights in an applicant or Participant), 

and believed that even if that could be 

done it is a better policy not to require 

them since the commenter believed 

there was no specific statutory 

requirement for transmutation 

agreements. SBA adopts the proposed 

language as final in this rule. 

The proposed rule added a new 

§ 124.105(k) to allow a right of first 

refusal granting a non-disadvantaged 

individual the contractual right to 

purchase the ownership interests of a 

disadvantaged individual without 

affecting the unconditional nature of 

ownership, if the terms follow normal 

commercial practices. This aligns 8(a) 

ownership requirements with those set 

forth in the VetCert program. Of course, 

if those rights are exercised by a nondisadvantaged individual after 

certification that result in disadvantaged 

individuals owning less than 51% of the 

concern, SBA will initiate termination 

proceedings. The proposed rule added 

the same provision to § 127.201(b) to 

conform the WOSB unconditional 

ownership requirements as well. SBA 

received four comments supporting this 

provision. One commenter requested 

that SBA define what it believes normal 

commercial practices to be. SBA 

believes that any definition might 

inadvertently disallow a practice that 

could be deemed a normal commercial 

practice, and that it is better to allow an 

applicant or Participant to demonstrate 

to SBA that it has in fact followed 

normal commercial practices. Another 

commenter was concerned that a right 

of first refusal could be tied to allowing 

a non-disadvantaged individual to 

unduly benefit from the program. 

Specifically, the commenter posed a 

hypothetical where a non-disadvantaged 

individual owns a business concern and 

agrees to ‘‘sell’’ 51 percent of the 

business concern to a disadvantaged 

individual with the proviso that in nine 

years the disadvantaged individual 

would sell the 51 percent back to the 

non-disadvantaged individual through a 

right of first refusal provision in the 

corporate documents. SBA believes that 

such an arrangement would not be a 

right of first refusal that followed 

normal commercial practices, but rather 

a scheme to deceive SBA and allow 

greater participation in the program by 

a non-disadvantaged individual than 

would otherwise be permitted. If SBA 

were aware of such a right of first 

refusal provision, it would not approve 

the application for 8(a) certification. 

SBA adopts the proposed language as 

final. 

Sections 124.106(e), 127.202(g) and 

128.203(h) 

Sections 124.106(e) (for the 8(a) BD 

program), 127.202(g) (for the WOSB 

program), and 128.203(h) (for VetCert 

program) address limitations on the 

involvement of non-qualifying 

individuals that can affect a business 

concern’s eligibility for participation in 

the 8(a) BD, WOSB, and VetCert 

programs based on a qualifying 

individual’s lack of control. Basically, 

each of these provisions generally 

prohibit a non-qualifying individual 

from unduly influencing the day-to-day 

management and control of qualifying 

individuals. The language of the three 

provisions, however, is not entirely 

consistent. This has led to questions as 

to whether SBA intended different 

application of the control requirements 

for different programs. In order to clear 

up any confusion, the proposed rule 

changed the wording of the three 

provisions to bring them more in line 

with each other to ensure that the 

control requirement is consistently 

applied. For example, the WOSB 

regulations did not previously contain a 

provision that generally required a 

qualifying woman to be the highest 

compensated individual in the business 

concern unless the concern 

demonstrates that the compensation to 

be received by a non-qualifying woman 

is commercially reasonable or that the 

qualifying woman has elected to take 

lower compensation to benefit the 

concern. Such a provision was 

contained previously in both the 8(a) BD 

and VetCert regulations, and the 

proposed rule added a similar provision 

for the WOSB program. In connection 

with the 8(a) BD program, SBA 

proposed to change the requirement that 

an 8(a) Participant must obtain the prior 

written consent of SBA before changing 

the compensation paid to the highestranking officer to be below that paid to 

a non-disadvantaged individual to a 

requirement that the Participant must 

notify SBA within 30 calendar days of 

such an occurrence. SBA believes that 

notification is preferable to prior 

approval because SBA does not want a 

Participant to lose an individual with a 

particular expertise where the approval 

process is lengthy. SBA would then 

have to determine that the 

compensation to be received by the nondisadvantaged individual is 

commercially reasonable or that the 

highest-ranking officer has elected to 

take lower compensation to benefit the 

Participant before SBA may determine 

that the Participant is eligible for an 8(a) 

award. SBA received six comments 

regarding the proposed changes relating 

to the involvement of non-qualifying 

individuals. Three commenters noted 

that the proposed provisions for the 8(a) 

program required an 8(a) Participant to 

notify SBA where the compensation 

paid to the highest-ranking officer fell 

below that paid to a non-disadvantaged 

individual and recommended that the 

same should apply to the WOSB and 

VetCert programs also. The final rule 

adds that same notification requirement 

to WOSBs/EDWOSBs and SDVOSBs. 

Section 124.107 

Section 124.107(a) currently provides 

that an applicant’s income tax returns 


ddrumheller on DSK120RN23PROD with RULES6
Federal Register / Vol. 89, No. 242 / Tuesday, December 17, 2024 / Rules and Regulations 102455 

for each of the two previous tax years 

must show operating revenues in the 

primary industry in which the applicant 

is seeking 8(a) BD certification. The 

proposed rule revised this provision to 

require merely that an applicant’s 

income tax returns for each of the two 

previous tax years must show operating 

revenues. Revenue on an income tax 

return may not be aligned by industry 

or NAICS code and SBA does not seek 

to deny entry to the 8(a) program to a 

firm that has performed work in its 

projected primary industry but that 

work may not have been properly 

captured on its tax return. SBA received 

five comments on this provision, with 

all of them supporting the change. The 

commenters believed that the change 

will make the 8(a) BD program more 

accessible and remove an unnecessary 

barrier to entry. One commenter 

supporting the change noted that it is 

burdensome for 8(a) applicants to 

demonstrate ‘‘operating revenues in the 

primary industry’’ on income tax 

returns, as IRS business activity codes 

often do not align with NAICS codes. 

Where NAICS codes and IRS business 

codes do not align, the commenter 

stated that applicants have been asked 

to obtain a letter from their tax preparers 

to clarify code discrepancies, which 

adds an unnecessary burden to 

applicants. SBA adopts the proposed 

language as final in this rule. 

Section 124.107(e) requires that, as a 

condition to show an 8(a) applicant’s 

potential for success, the applicant or 

individuals employed by the applicant 

must hold all requisite licenses if the 

concern is engaged in an industry 

requiring professional licensing (e.g., 

public accountancy, law, professional 

engineering). Generally, the potentialfor-success requirements carry out the 

requirement in section 8(a)(7)(A) of the 

Small Business Act, 15 U.S.C. 

637(a)(7)(A), that SBA determine that an 

8(a) applicant have reasonable prospects 

for success in competing in the private 

sector. That same statutory provision, 

however, requires SBA to determine 

that with contract, financial, technical, 

and management support the applicant 

will be able to perform contracts which 

may be awarded to it. As such, SBA 

believes that issues of current 

responsibility should not prevent an 

applicant from being eligible for the 8(a) 

BD program where SBA believes that 

the business concern will be able to 

perform contracts awarded to it with 

certain contract, financial, technical, or 

management support. Although a 

business concern applying to the 8(a) 

BD program that does not have a 

required professional license may not 

currently be responsible to be awarded 

certain 8(a) contracts, as long as SBA 

determines that the concern would be 

able to perform such contracts with 

appropriate support, SBA believes that 

the concern should be eligible for 

participation in the 8(a) BD program. 

SBA proposed to remove the 

professional-licensing requirement. It is 

not only inapplicable to most 

applicants, it also can be overcome 

before any 8(a) contract opportunity is 

sought by those concerns to which it 

applies. SBA received six comments on 

the proposal to eliminate the license 

requirement at the time of application. 

Four commenters supported the 

removal of the license requirement as it 

will streamline the application process. 

Two commenters opposed the proposal, 

with one believing that eliminating the 

license requirement will encourage 

unprepared firms to apply to the 8(a) 

program and waste limited time in the 

program. SBA notes that an applicant 

must generally demonstrate that it has 

been in business and received revenue 

for at least two years. In addition, once 

admitted to the program, a Participant 

can seek and be awarded any 8(a) 

contract that a procuring agency 

believes that it is responsible to 

perform. SBA believes that applicants 

know the industry or type of business 

activity they hope to receive contracts in 

when they apply to the 8(a) BD program, 

so eliminating the license requirement 

will not adversely impact them or the 

program. Two commenters also 

recommended requiring an applicant to 

certify that it will obtain a necessary 

license in an industry requiring such a 

license where it does not possess a 

license at the time of application. SBA 

dos not believe such a requirement 

would add anything substantive to the 

process. Whether the firm certifies that 

it will obtain a license or not, it must 

in fact have a license in order for a 

contracting officer to determine the firm 

responsible to perform a contract in that 

industry. The firm could not be awarded 

a contract without an affirmative finding 

of responsibility. SBA also notes that 

there have been times where applicants 

have disagreed with SBA as to whether 

a license was required for the type of 

work the firm sought to perform. 

Removing the license requirement at the 

time of application eliminates those 

disagreements, which may 

unnecessarily delay the application 

process and impose a burden on the 

applicant in demonstrating that a 

license in fact is not needed in the work 

that the firm does. SBA adopts the 

proposed language as final in this rule. 

Section 124.108 

Section 124.108 sets forth other 

eligibility requirements that apply to 

8(a) applicants and Participants. One of 

those requirements is that SBA must 

determine that an applicant or 

Participant and all of its principals 

possess good character. The 8(a) BD 

program is one of several certification 

programs to help small businesses win 

Federal contracting awards, but the 

scope of the 8(a) BD program is 

different. For the WOSB and VetCert 

programs, SBA only determines whether 

a small business applicant is owned and 

controlled by one or more qualifying 

individuals. SBA does not look at 

character or business integrity in 

determining whether a small business is 

owned and controlled by qualifying 

individuals. Similarly, for the HUBZone 

program, SBA only determines whether 

the small business applicant is located 

in and employs residents of a 

historically underutilized business 

zone. SBA certification of these 

qualifications allows the certified small 

businesses to compete for certain 

Federal contracts. These are not 

business development programs. 

Although SBA determines whether an 

8(a) small business applicant is owned 

and controlled by one or more 

qualifying individuals, the program is 

not limited to this certification. Its scope 

is broader and includes a multi-year 

business development program with 

eligibility for specific management and 

technical assistance from SBA to 

support the business’s successful 

competition in the marketplace. SBA 

requires ‘‘good character’’ to be 

admitted to this development program. 

SBA proposed to limit the grounds 

that would serve as an automatic, 

mandatory bar from participation in the 

8(a) BD program based on good 

character (i.e., either an application 

denied or possible termination action 

commenced against a current 

Participant). The proposed rule 

amended the lack of business integrity 

bar to a lack of business integrity as 

demonstrated by conduct that could be 

grounds for suspension or debarment. 

SBA received six comments to this 

proposal, with three favoring the change 

and three opposing the change as 

written. Those favoring the change 

generally agreed with removing 

‘‘possible criminal conduct’’ as grounds 

for declining based on character. The 

comments opposing the change as 

written believed that lack of business 

integrity based solely on conduct that 

could be grounds for suspension or 

debarment did not go far enough. They 

noted that suspension and debarment 


ddrumheller on DSK120RN23PROD with RULES6
102456 Federal Register / Vol. 89, No. 242 / Tuesday, December 17, 2024 / Rules and Regulations 

should be imposed only in the public 

interest for the Government’s protection 

and not for purposes of punishment and 

that mitigating factors or remedial 

measures could affect a suspension or 

debarment decision despite a lack of 

business integrity. They believed that 

some of the language currently in the 

regulation should be retained. These 

comments misunderstand the proposed 

change. The proposal does not limit the 

lack of good character requirement to 

suspension or debarment. When the 

regulations state that a lack of business 

integrity that could be grounds for 

suspension or debarment is needed to 

find a lack of good character for 8(a) BD 

purposes, it does not mean to imply that 

suspension or debarment needs to be 

imposed before SBA could find a lack 

of good character. The underlying 

conduct alone which demonstrates 

grounds for suspension or debarment is 

sufficient for SBA to find a lack of good 

character. In addition, SBA does not 

believe that adding back language 

providing that a lack of business 

integrity can be demonstrated by 

information related to an indictment or 

guilty plea, conviction, civil judgment, 

or settlement would be useful. A 

demonstrated lack of business integrity 

in an indictment, guilty plea, 

conviction, civil judgment, or settlement 

are all conduct that can be a cause for 

suspension or debarment actions. 

Moreover, there are instances in which 

an indictment, guilty plea, conviction, 

civil judgment, or settlement has no 

bearing on business integrity. Given the 

lack of connection to business integrity, 

they should not serve as a barrier to 

program entry. As such, SBA does not 

believe that the language as proposed 

needs to be amended and adopts it as 

final. 

SBA will continue to conduct internal 

checks related to an applicant’s business 

integrity that includes the applicant’s 

criminal history, and consider all factors 

in evaluating whether an applicant 

would be a good candidate to 

participate in the 8(a) BD program. SBA 

will consider each application 

individually. This rule does not change 

business integrity requirements of 

procuring agency contracting officers or 

any business integrity evaluations done 

by them. Procuring agency contracting 

officers evaluate offerors’ responsibility 

to perform Federal contracts prior to 

award, a process that can include an 

evaluation of business integrity. 

Sections 124.108(e), 126.200(h), 

127.200(h), and 128.201(b) 

Sections 124.108(e) (for the 8(a) BD 

program) and 128.201(b) (for the VetCert 

program) provide generally that a small 

business concern is ineligible for 

certification if the concern or any of its 

principals has failed to pay significant 

financial obligations owed to the 

Federal Government. A similar 

provision is not currently contained in 

the WOSB or HUBZone eligibility 

requirements. SBA proposed to apply 

that restriction to the WOSB and 

HUBZone programs as well. To ensure 

consistency among the programs, SBA 

also proposed to revise the language in 

§§ 124.108(e) and 128.201(b) so that the 

regulatory language applying to all four 

programs is the same. SBA received two 

comments supporting these revisions 

and no comments opposing them. SBA 

adopts the proposed language in this 

final rule. 

Sections 124.204(d), 126.306(d), 

127.304(d), and 128.302 

Sections 124.204(d) (for the 8(a) BD 

program), 126.306(d) (for the HUBZone 

program), 127.304(d) (for the WOSB 

program), and 128.302 (for the VetCert 

program) set forth the date at which at 

applicant must be eligible for each 

certification program. The wording of 

the regulations is not consistent. Section 

124.204(d) specifies that an applicant 

must be eligible as of the date SBA 

issues a decision. Section 126.306(d) 

specifies that an applicant must be 

eligible as of the date it submitted its 

application and at the time SBA issues 

a decision. Section 127.304(d) specifies 

that an applicant must be eligible as of 

the date it submitted its application and 

up until the time SBA issues a decision. 

Section 128.302 details how SBA 

processes applications for VOSB and 

SDVOSB certification, but does not 

specifically address the point at which 

eligibility is determined. SBA is in the 

process of establishing a uniform 

application processing system. That 

system will allow a firm to 

simultaneously apply for multiple 

certifications for which it believes it is 

eligible. SBA believes that it is critical 

that eligibility be determined at the 

same point in time for all certification 

programs. If, for example, a firm amends 

a corporate document to come into 

compliance with a specific control 

requirement after initially submitting its 

application for the 8(a) BD program and 

the WOSB program, the current 

regulations would support a finding that 

a qualifying individual did control the 

applicant for 8(a) BD purposes but did 

not control the applicant for WOSB 

purposes. SBA believes that would be 

an inappropriate result. Therefore, the 

proposed rule amended each of these 

sections to require consistent wording 

that an applicant must be eligible as of 

the date SBA issues a decision. 

Although the proposed rule specified 

that an applicant must be eligible as of 

the date SBA issues a decision, 

implicitly a small business must believe 

that it is eligible at the time it applies 

for certification for any program. For 

purposes of applying for HUBZone 

certification, an applicant must submit 

payroll records for the four-week period 

immediately prior to its application 

date. It would be impossible to require 

payroll records for some unknown 

future date. After submitting an 

application for any program, a concern 

must immediately notify SBA of any 

changes that could affect its eligibility 

and provide information and documents 

to verify the changes. Four commenters 

supported these changes without 

substantive comment. SBA adopts the 

proposed language as final in this rule. 

Section 124.207 

Section 124.207 provides that a 

concern which has been declined for 

8(a) BD program participation may 

submit a new application for admission 

to the program at any time after 90 days 

from the date of the Agency’s final 

decision to decline. It also provides that 

a concern that has been declined three 

times within 18 months of the date of 

the first final Agency decision finding 

the concern ineligible cannot submit a 

new application for admission to the 

program until 12 months from the date 

of the third final Agency decision to 

decline. SBA proposed to remove that 

second provision. SBA believes it is 

unnecessary and does not seek to thwart 

firms who have made legitimate 

attempts to overcome deficiencies from 

again applying to the 8(a) BD program. 

Five comments supported the 

elimination of that provision, and no 

comments opposed it. One commenter, 

however, also recommended that SBA 

should eliminate the 90-day waiting 

period to reapply to the 8(a) program 

after being declined because it may 

cause firms to miss contracting 

opportunities. SBA first notes that prior 

to 2020, a business concern was 

required to wait 12 months from the 

date of SBA’s final agency decision to 

reapply to the 8(a) BD program. SBA 

changed the waiting period to 90 days 

in a rulemaking published in the 

Federal Register on October 16, 2020. 

85 FR 66146, 66185. The change to 90 

days has been enthusiastically 

supported and has worked well in 

practice. SBA also notes that SBA works 

with business concerns during the 

application process to address 

deficiencies and allow those concerns to 

supplement and/or clarify their 

applications in order to attempt to meet 

SBA’s requirements. As such, SBA does 


ddrumheller on DSK120RN23PROD with RULES6
Federal Register / Vol. 89, No. 242 / Tuesday, December 17, 2024 / Rules and Regulations 102457 

not believe that further change is 

necessary and adopts the proposed 

language as final in this rule. 

Sections 124.303(c), 126.503(c), 

127.405(f), and 128.310(g) 

SBA proposed to add a new provision 

to § 124.303(c) (for the 8(a) BD program), 

to § 126.503 (for the HUBZone program), 

to § 127.405(f) (for the WOSB program), 

and to § 128.310(g) (for the VetCert 

program) providing that a firm that is 

decertified or terminated from one SBA 

certification program due to the 

submission of false or misleading 

information may be removed from 

SBA’s other small business contracting 

programs. In addition, SBA proposed to 

authorize SBA to require a firm to enter 

into an administrative agreement as a 

condition of admission or re-admission 

to one of the SBA certification 

programs. SBA believes that a firm that 

submits false information to obtain a 

certification in one program is more 

likely to submit false information to 

other SBA programs, and SBA needs a 

mechanism by which to investigate 

whether this has occurred and remove 

non-responsible firms from its programs 

expeditiously. SBA received 14 

comments regarding these proposed 

changes. Commenters generally 

supported the provisions, but believed 

there were inconsistencies in some of 

the regulatory text. Commenters 

specifically pointed to the word 

‘‘knowingly’’ submitting false or 

misleading information in § 126.900 and 

stating that the submission of 

‘‘inconsistent’’ information 126.503(c) 

would be cause for decertification. SBA 

agrees that inconsistent or incorrect 

information that was provided in error 

should not warrant decertification or 

termination. SBA is concerned about the 

knowing submission of false or 

misleading information. As such, SBA 

has amended the regulatory text to 

provide that a firm may be decertified 

from the HUBZone, WOSB, or VetCert 

programs where SBA discovers that the 

firm or its representative knowingly 

submitted false or misleading 

information, and a firm that is 

decertified or terminated from the one 

SBA program due to the submission of 

false or misleading information may be 

decertified from another SBA program. 

The final rule amends § 127.405(d) (for 

the WOSB program) instead of adding a 

new § 127.405(f), and amends to 

§ 128.310(d) (for the VetCert program) 

instead of adding a new § 128.310(g). 

Section 124.503 

Section 124.503 addresses how SBA 

will accept a procurement offered for 

award through the 8(a) BD program. An 

agency may offer a sole source 

procurement to SBA nominating a 

particular 8(a) Participant for 

performance based on the firm’s selfmarketing efforts, or may offer it as an 

open requirement (i.e., an offering to the 

program generally, but not in support of 

a particular 8(a) Participant). SBA’s 

acceptance policies for such offerings 

are contained in §§ 124.503(c) and (d), 

respectively. SBA has long recognized 

the importance of self-marketing in a 

Participant’s business development and 

continued viability. Thus, where an 

agency offers a sole source 8(a) 

procurement in support of a particular 

Participant as a result of self-marketing 

and SBA deems it suitable for the 

program, SBA will normally accept it on 

behalf of the Participant recommended 

by the agency as long as specified 

eligibility criteria are met. This policy 

was first incorporated in SBA 

regulations in 1986, 51 FR 36132 at 

36149, but had been previously part of 

the standard operating procedure for the 

8(a) BD program. 

Section 303 of the Business 

Opportunity Development Reform Act 

of 1988 (BODRA), Public Law No. 100– 

656, tit. III, sec. 303, 102 Stat. 3865 

(1988), adopted and expanded SBA’s 

sole source contract acceptance 

procedures, mandating that SBA shall 

award a sole source 8(a) contract to the 

8(a) firm nominated by the offering 

agency, provided the following three 

statutory criteria are met: (i) the Program 

Participant is determined to be a 

responsible contractor with respect to 

performance of such contract 

opportunity; (ii) the award of such 

contract would be consistent with the 

Program Participant’s business plan; 

and (iii) the award of the contract would 

not result in the Program Participant 

exceeding its 8(a) competitive business 

mix. This mandate is codified in Section 

8(a)(16)(A) of the Small Business Act, 15 

U.S.C. 637(a)(16)(A). BODRA also 

directed SBA to promote—to the 

maximum extent practicable—the 

equitable geographic distribution of sole 

source 8(a) contracts. In response to 

BODRA, SBA promulgated a rule stating 

that it would consider, among other 

things, equitable geographic distribution 

for open 8(a) sole source contracts 

offered to the 8(a) BD program. This 

policy is currently set forth in paragraph 

124.503(d)(3). 

There has been some confusion as to 

whether SBA considers equitable 

contract distribution for a follow-on to 

an 8(a) procurement offered to SBA on 

behalf of a specific 8(a) Participant. In 

SBA’s view, the imperative statutory 

command of Section 8(a)(16)(A) restricts 

its authority to affirmatively deny a 

contract offering made on behalf of a 

specific Participant based on 

considerations related to the equitable 

distribution of sole source 8(a) 

contracts, irrespective of whether the 

procurement is a ‘‘new’’ or repetitive 

8(a) requirement. The proposed rules 

sought to clarify this position by 

providing that § 124.503(g)(1)(iii) 

applies only to open sole source 8(a) 

offerings. SBA received four comments 

on this proposal, all of which were 

supportive. As such, the final rule 

adopts this clarification as proposed. 

Sections 124.504(a) 

Section 124.504 identifies several 

reasons why SBA will not accept a 

particular requirement for award 

through the 8(a) BD program. One of 

those reasons is where the procuring 

activity issued a solicitation for or 

otherwise expressed publicly a clear 

intent to award a contract as a small 

business set-aside, or to use the 

HUBZone, VetCert, or WOSB programs 

prior to offering the requirement to SBA 

for award as an 8(a) contract. SBA 

proposed to authorize SBA to accept a 

requirement for the 8(a) program where 

the AA/BD determines that there is a 

reasonable basis to cancel the initial 

solicitation or, if a solicitation had not 

yet been issued, a reasonable basis for 

the procuring agency to change its 

initial clear expression of intent to 

procure outside the 8(a) BD program. 

This could happen, for example, where 

the procuring agency’s needs have 

changed since the initial solicitation 

was issued such that the solicitation no 

longer represents its current need, or 

where appropriations are no longer 

available for the requirement as 

anticipated, and the solicitation must be 

cancelled until a following fiscal year 

where funds are available. A change in 

strategy only (i.e., an agency seeks to 

solicit through the 8(a) BD program 

instead of through another previously 

identified program) would never 

constitute a reasonable basis for SBA to 

accept the requirement into the 8(a) BD 

program. 

SBA received six comments in 

response to this clarification, and all six 

supported the proposal. One commenter 

recommended that the Associate 

Administrator for Business 

Development should consult with the 

head of the Government Contracting 

Office before accepting a requirement to 

ensure that another SBA program is not 

adversely affected. SBA believes that 

such coordination should not be 

required in all instances (i.e., there will 

be clear instances where the Director of 

Government Contracting’s involvement 

is not needed), and that coordination 


ddrumheller on DSK120RN23PROD with RULES6
102458 Federal Register / Vol. 89, No. 242 / Tuesday, December 17, 2024 / Rules and Regulations 

between SBA offices routinely happens 

when necessary. Nevertheless, in 

response to the comment, the final rule 

adds a provision specifying that AA/BD 

may coordinate with the D/GC, where 

appropriate, before accepting a 

requirement into the 8(a) BD program to 

ensure that another SBA program is not 

adversely affected. 

Section 124.509 

Section 124.509 establishes non-8(a) 

business activity targets (BATs) to 

ensure that Participants do not develop 

an unreasonable reliance on 8(a) 

awards. The reason for requiring a 

certain percentage of non-8(a) revenue 

during a Participant’s last five years in 

the 8(a) BD program is to strengthen the 

Participant’s ability to prosper once it 

exits the program. Congress believed 

that firms that were totally reliant on the 

8(a) BD program for their revenues 

would be ill prepared to survive as ongoing business concerns after leaving 

the program. As such, Congress required 

a certain percentage of non-8(a) revenue 

during the transitional stage of program 

participation to bolster Participants’ 

continued viability. SBA amended 

§ 124.509 as part of a comprehensive 

final rule in October 2020. See 85 FR 

66146, 66189 (Oct. 16, 2020). In that 

final rule, SBA recognized that a strict 

prohibition on a Participant receiving 

new sole source 8(a) contracts should be 

imposed only where the Participant has 

not made good faith efforts to meet its 

applicable non-8(a) business activity 

target. SBA sought to provide guidance 

regarding what SBA considers to be 

good faith efforts in a final rule 

published in April 2023. See 88 FR 

26164, 26208 (April 27, 2023). The 

proposed rule incorporated additional 

guidance on how SBA considers 

unsuccessful offers in determining 

whether good faith efforts have been 

made. Specifically, in determining the 

projected revenue that SBA will 

consider in determining whether one or 

more unsuccessful offers submitted by a 

Participant would have given the 

Participant sufficient revenues to 

achieve the applicable non-8(a) business 

activity target, the proposed rule 

provided that SBA will consider only 

procurements for which the Participant 

had reasonable prospects of success. 

The proposed regulatory text included 

an example showing how revenue for an 

unsuccessful offer would be considered 

in this context. The example explained 

that where a Participant has never 

received a contract in excess of a 

relatively small amount (the example 

cites $5M), SBA would not count any 

revenue from an unsuccessful offer for 

a contract that greatly exceeds what the 

Participant has previously performed 

(the example points to a $100M 

contract). In such a case, the Participant 

would not have a reasonable prospect of 

success in submitting an offer for a 

contract that was substantially higher 

than anything it had performed in the 

past. The proposed rule also clarified 

that only the value of the base year of 

the contract for which the Participant’s 

offer was unsuccessful would be 

considered in determining whether the 

Participant made good faith efforts to 

achieve its non-8(a) BAT. In this regard, 

there had been some confusion as to 

whether the value of the entire contract 

or only the value of the base year should 

be considered in determining whether 

the revenues from that contract, if 

received, would have brought the 

Participant back into compliance with 

its BAT. As explained in the proposed 

rule, had the Participant been successful 

and received that contract, pursuant to 

§ 124.509(b)(3) SBA would measure the 

Participant’s compliance with the 

applicable BAT by comparing the 

Participant’s non-8(a) revenue to its 

total revenue during the program year 

just completed. This analysis considers 

only the non-8(a) revenues received, not 

the total value of the non-8(a) contract 

that a Participant is performing. The 

proposed rule noted SBA’s belief that 

same analysis should occur when 

considering whether a Participant has 

made good faith efforts to meet its BAT. 

In other words, it would not be 

appropriate for SBA to consider 

projected revenue under a contract for 

which the Participant’s offer was 

unsuccessful beyond the contract’s base 

year of performance. 

SBA received 17 comments in 

response to the proposed changes to 

§ 124.509. Commenters were generally 

supportive of SBA’s proposal to 

consider only projected revenue under 

procurements for which the Participant 

had reasonable prospects of success in 

the good faith efforts evaluation. 

However, the majority of these 

comments urged SBA to provide 

additional clarity as to how SBA will 

determine whether a Participant had 

reasonable prospects of winning a 

particular contract. According to the 

commenters, the value of a Participant’s 

prior contracts is one of several relevant 

factors SBA should consider in 

determining whether a Participant had 

reasonable prospects of winning a 

contract. SBA agrees and notes that the 

business development assistance 

provided through the 8(a) BD program is 

intended to improve a Participant’s 

capabilities and ability to pursue larger, 

more complex contracts. In proposing 

this amendment to the BAT regulations, 

SBA sought to discourage Participants 

from disingenuously submitting offers, 

particularly for large dollar-value 

procurements, for the clear purpose of 

circumventing the BAT policies; it 

certainly was not intended to suggest 

that SBA would consider only projected 

revenues from lost contract 

opportunities at or below its current 

capacity in determining whether a 

Participant made good faith efforts to 

obtain work outside the 8(a) BD 

program. Several commenters 

recommended that for an entity owned 

Participant, SBA should consider the 

past performance and experience of 

sister subsidiary companies. SBA 

disagrees. SBA would consider the past 

performance and experience of affiliated 

companies, but, under applicable statute 

and regulations, individual business 

concerns owned by a Tribe, ANC, NHO 

or CDC are not affiliated with each 

other. As SBA has stated previously, 

SBA believes that the past performance 

of a sister company can be considered 

only where that sister company is 

involved in the procurement under 

consideration (i.e., as a subcontractor or 

joint venture partner). In response to the 

comments, the final rule restructures 

§ 124.509(d)(1)(ii) and adds language 

clarifying that SBA will consider all 

relevant factors, to include contract 

magnitude, and past performance and 

experience of a joint venture partner 

and/or subcontractor. 

Most commenters agreed with SBA’s 

clarification that only the value of the 

base year of the contract for which the 

Participant’s offer was unsuccessful 

would be considered in determining 

whether the Participant made good faith 

efforts to achieve its non-8(a) BAT. Two 

commenters, however, urged SBA to 

consider the projected revenue under 

subsequent periods of performance in 

determining whether the Participant 

made good faith efforts during the 

appropriate compliance period. For 

example, where a Participant made a 

good faith, but unsuccessful, effort to 

capture a contract in the first year of its 

transitional stage of program 

participation (i.e., program year five), 

SBA would consider the projected 

revenue under the base year of the 

contract when evaluating the 

Participant’s compliance with its non8(a) BAT for program year five. 

According to the above commenters, 

SBA should also consider the projected 

revenue of the first option period of 

performance when evaluating the 

Participant’s compliance with its non8(a) BAT for program year six (and 

continue doing so for the contract’s 


ddrumheller on DSK120RN23PROD with RULES6
Federal Register / Vol. 89, No. 242 / Tuesday, December 17, 2024 / Rules and Regulations 102459 

entire period of performance). SBA 

disagrees with this approach. As SBA 

has previously explained, the non-8(a) 

BAT requirement ensures that 8(a) 

Participants do not become 

unreasonably reliant on 8(a) contract 

support and are prepared to compete in 

the open marketplace after exiting the 

8(a) BD program. Recognizing a 

Participant’s ‘‘good faith efforts’’ to 

obtain non-8(a) work furthers this 

purpose while also promoting the firm’s 

business development through ongoing 

access to sole source contract support. 

However, SBA is concerned that 

considering projected non-8(a) revenues 

from a missed contract opportunity over 

the total period of performance contract 

could inadvertently incentivize 

Participants to submit fewer offers for 

non-8(a) procurements, especially in 

years where their non-8(a) BAT 

threshold is relatively higher. As 

previously explained, the BAT 

requirement reflects legislative intent to 

prepare 8(a) Participants for competition 

outside the 8(a) BD program. In the 

agency’s best judgment, limiting 

consideration to the value of the base 

year of performance and only for the 

period of compliance in which the offer 

was submitted strikes the right balance 

between this goal and continued 

business development through sole 

source contract support. In addition, 

options are not a guarantee of future 

revenue. If a firm received a non-8(a) 

contract in year five, SBA would count 

the revenue received as non-8(a) 

revenue in determining compliance 

with its applicable BAT. If the relevant 

procuring agency did not exercise the 

first option after the base year, SBA 

would not count the anticipated, but not 

received, revenue in year six as non-8(a) 

revenue for BAT purposes. SBA adopts 

the proposed clarification in the final 

rule. 

Section 124.514(a)(1) 

Section 124.514 provides guidance 

regarding the exercise of 8(a) options 

and modifications. Paragraph 

124.514(a)(1) currently states that if a 

concern has graduated or been 

terminated from the 8(a) BD program or 

is no longer small under the size 

standard corresponding to the NAICS 

code for the requirement, negotiations to 

price the option cannot be entered into 

and the option cannot be exercised. 

Because the regulatory language 

specifies graduation and termination 

from the program, SBA has received a 

few inquiries as to whether this 

provision applies to firms that have 

voluntarily exited the program. SBA has 

always intended this provision to apply 

to all firms that are no longer active 

Participants in the program. The 

proposed rule merely made that intent 

clear by specifically providing that this 

provision applies to all firms whose 

term of participation in the 8(a) BD 

program has ended or who have 

otherwise exited the program through 

any means. Three commenters 

supported the clarification without 

substantive comment. As such, SBA 

adopts the proposed language as final in 

this rule. 

Section 124.518 

Section 124.518(c) provides that SBA 

may authorize another Participant to 

complete performance of an 8(a) 

contract and, in conjunction with the 

procuring activity, permit novation of 

that contract without invoking the 

termination for convenience or waiver 

provisions of § 124.515 where SBA 

determines that substitution would 

serve the business development needs 

of both 8(a) Participants. SBA has seen 

several instances where a joint venture 

between an 8(a) Participant and a non8(a) business concern was awarded an 

8(a) contract and for whatever reason 

the two firms seek to terminate the joint 

venture and novate the 8(a) contract 

individually to the 8(a) Participant that 

was the lead partner of the joint venture. 

If novation would occur, performance of 

the 8(a) contract would remain with an 

8(a) Participant (i.e., the 8(a) Participant 

that was the lead partner of the joint 

venture). As such the intent of the 

program would be furthered. It could be 

argued that the current § 124.518(c) 

authority could be used to novate the 

8(a) contract in this instance; 

substitution would serve the business 

development needs of both the initial 

8(a) awardee (the joint venture) and the 

substituting 8(a) Participant (the former 

lead 8(a) partner to the joint venture). 

The proposed rule added a new 

§ 124.518(d) to specifically authorize 

such a substitution. SBA also requested 

comments on whether it should further 

define how substitution ‘‘would serve 

the business development needs of both 

8(a) Participants.’’ For example, where a 

Participant was not in compliance with 

its applicable business activity target, 

sought to transfer an 8(a) contract to 

another eligible 8(a) Participant through 

the substitution process and then sought 

to perform a significant portion of that 

contract as a subcontractor to the new 

8(a) Participant (to then count the 

revenue from the subcontract as non8(a) revenue), SBA explained that it 

would not determine that such a 

transfer was in the best interests of the 

program or serve the business 

development needs of both 8(a) 

Participants. 

SBA received six comments on the 

proposed additional of new 

§ 124.518(d), all of which were 

supportive. SBA therefore adopts this 

language as proposed. SBA notes, 

however, that this substitution authority 

should not be construed as giving the 

managing 8(a) venturer the option to 

request a substitution without the 

consent of the other joint venture 

partners. While the 8(a) BD program 

regulations require that an 8(a) 

Participant, among other things, own at 

least 51% of the joint venture and serve 

as the managing venturer responsible for 

controlling the day-to-day management 

of the joint venture’s contractual 

performance, nothing in SBA 

regulations or policy authorizes or gives 

to the managing 8(a) venturer the 

unilateral authority to transfer the joint 

venture’s contracts to itself. SBA will 

consider these principles when 

reviewing a substitution request under 

§ 124.518(d). Three commenters 

recommended that SBA provide 

examples or guidance on what SBA 

would consider when determining 

whether a proposed substitution ‘‘would 

serve the business development needs 

of both 8(a) Participants.’’ As explained 

in the proposed rule, SBA is concerned 

that some Participants could use the 

substitution authority to circumvent 

important program policies, such as the 

BAT requirement and the sole source 

follow-on contracting restriction 

applicable to sister subsidiaries owned 

by the same Tribe/ANC/NHO/CDC. In 

addition, SBA never intended for this 

substitution authority to allow 

Participants to sell or otherwise transfer 

prime 8(a) contracts when doing so 

would frustrate the program’s interests 

or potentially violate other applicable 

Federal procurement rules. To this end, 

SBA has already received several 

substitution requests from contract 

holders on 8(a) multiple award 

contracts, such as the 8(a) Streamlined 

Technology Acquistion Resource for 

Services (STARS) III multiple award 

contract. The contract holders 

requesting a substitution have typically 

graduated from the 8(a) BD program or 

have exceeded the applicable size 

standard and are therefore no longer 

eligible to receive sole source orders 

under the 8(a) STARS III vehicle. Such 

firms have stated that a substitution 

would serve their business development 

needs by raising capital from the sale of 

STARS III contracting assets, and by 

eliminating the cost and burden of 

administering the contract. SBA does 

not believe a transfer under these and 

similar circumstances serves the 

programmatic business development 


ddrumheller on DSK120RN23PROD with RULES6
102460 Federal Register / Vol. 89, No. 242 / Tuesday, December 17, 2024 / Rules and Regulations 

needs of the contract holder requesting 

a substitution. Participation in the 

competitive 8(a) procurement process 

has been and remains one of the most 

valuable forms of business development 

assistance available through the 8(a) BD 

program. Establishing and 

implementing a capture strategy, 

critically evaluating a Request for 

Proposals, and technical proposal 

writing are just some of the necessary 

skills for submitting a successful offer in 

the Federal marketplace. In SBA’s view, 

losing the opportunity to acquire or 

hone these skills in the competitive 8(a) 

context would be antithetical to a firm’s 

business development even where the 

transfer might provide other legitimate 

benefits. Additionally, SBA notes that 

41 U.S.C. 6305, as implemented at 

Federal Acquisition Regulation (FAR) 

Subpart 42.1204, prohibits contractors 

from selling or transferring a prime 

Government contract to a third-party. 

The Government may novate a contract 

to recognize a third-party as a successor 

in interest to a Government contract 

where that interest arises out of the 

transfer of (1) all the contractor’s assets; 

or (2) the entire portion of assets 

involved in performing the contract. 

Where a contract holder seeks to 

transfer an Indefinite Delivery, 

Indefinite Quantity 8(a) contract 

without any task order awards, this may 

not comply with the requirements of 

FAR Subpart 42.1204. SBA has and will 

continue to consider all these factors in 

determining whether to authorize a 

substitution on the grounds that doing 

so would serve the business 

development needs of both 8(a) 

Participants. The final rule adds 

clarifying language and examples to 

§ 124.518(c) to better explain SBA’s 

intent. 

Sections 124.602 and 124.604 

Section 124.602 sets forth the kind of 

annual financial statement an 8(a) BD 

Participant submits to SBA, depending 

upon its gross annual receipts. Prior to 

this rule, Participants with gross annual 

receipts of more than $10 million were 

required to submit to SBA audited 

annual financial statements prepared by 

a licensed independent public 

accountant; Participants with gross 

annual receipts between $2 million and 

$10 million were required to submit to 

SBA reviewed annual financial 

statements prepared by a licensed 

independent public accountant; and 

Participants with gross annual receipts 

of less than $2 million were required to 

submit to SBA an annual statement 

prepared in-house or a compilation 

statement prepared by a licensed 

independent public accountant. SBA 

believes that with the value of Federal 

contracts greatly increasing over the last 

few years, the top dollar threshold of 

$10 million is being met by most 

Participants far more frequently. 

Recognizing that requiring an audited 

financial statement can be a significant 

cost to many small businesses, SBA 

proposed to require audited financial 

statements for those Participants 

exceeding $20 million, reviewed 

financial statements for those 

Participants with gross annual receipts 

between $5 million and $20 million, 

and in-house financial statements for 

those Participants with less than $5 

million in annual receipts. SBA 

received 11 comments responding to the 

proposed increases to the thresholds for 

the annual financial statement 

requirements for 8(a) Participants. 

Commenters overwhelmingly supported 

the increased thresholds. One 

commenter appreciated SBA’s 

acknowledgment of the substantial 

expenses involved in obtaining audited 

and reviewed financial statements, 

especially since compliance costs can be 

a significant barrier for small 

businesses, particularly in the Federal 

contracting industry. One commenter 

recommended that SBA require only 

internal prepared financial statements. 

Two commenters supported the 

increases generally but requested that 

the threshold to require reviewed 

financial statements be raised so that the 

Participants with lower revenues do not 

have to incur the added cost of a 

reviewed financial statement. SBA does 

not believe that only internal prepared 

financial statements should be required 

regardless of a Participant’s revenues. 

More sophisticated business concerns 

should have audited financial 

statements, which may be required for 

certain types of contracts as well. In 

response to the comments, the final rule 

increases the threshold at which 

reviewed financial statements are 

required from $5 million to $7.5 

million. 

In response to SBA’s proposed 

changes to the financial statement 

reporting requirement, one commenter 

suggested that SBA also amend 

§ 124.604, which provides that a 

Participant owned by a Tribe, ANC, 

NHO, or CDC must include with its 

annual financial statement submission 

information showing how the Tribe/ 

ANC/NHO/CDC has provided benefits 

to its Native or underserved community 

through the Tribe’s/ANC’s/NHO’s/ 

CDC’s participation in the 8(a) BD 

program. § 124.602 allows a Tribe/ANC/ 

NHO/CDC to submit consolidated 

financial statements prepared by the 

parent entity with schedules for each 

8(a) Participant instead of separate 

audited financial statements for each 

individual 8(a) Participant. According to 

this commenter, it would make sense to 

provide a similar consolidated reporting 

option for community benefits under 

§ 124.604. While SBA did not 

specifically propose any changes to 

§ 124.604, we note SBA has long 

permitted Tribes/ANCs/NHOs/CDCs to 

annually report consolidated 

community benefits. Because this 

commenter’s suggested revision merely 

recognizes current program policy and 

the entity’s discretion to consolidate 

benefits reporting but does not require 

such consolidation, the final rule adds 

language to § 124.604 to clarify that 

Tribes/ANCs/NHOs/CDCs may elect to 

submit a consolidated report showing 

how the applicable Native or 

underserved community has benefitted 

through the Tribe’s/ANC’s/NHO’s/ 

CDC’s participation in the 8(a) BD 

program. Of course, as noted above, 

consolidated community benefits 

reporting is optional; Tribes, ANCs, 

NHOs, and CDCs may continue to 

submit separate annual community 

benefits reports through each 8(a) 

Participant. 

Section 125.2 

SBA’s regulations currently make 

clear that a contracting activity cannot 

conduct a competition requiring 

multiple socioeconomic certifications. 

In this regard, § 124.501(b) prohibits a 

contracting activity from restricting an 

8(a) competition to Participants that are 

also certified HUBZone small 

businesses, certified WOSBs or certified 

SDVO small businesses. There is a 

similar restriction for the HUBZone 

program in § 126.609, for the WOSB 

program in § 127.503(e), and for the 

VetCert program in § 128.404(d). 

However, there is no similar specific 

restriction for small business set-asides 

and reserves. Where a contracting 

activity seeks to require 8(a), HUBZone, 

WOSB or SDVO certification in addition 

to status as a small business, in essence 

the contracting activity would be 

soliciting as an 8(a), HUBZone, WOSB 

or SDVO small business contract. That 

is permissible. Similarly, current 

§ 125.2(e)(6) specifies that a contracting 

officer may set aside orders for eligible 

8(a) Participants, certified HUBZone 

small business concerns, SDVO small 

business concerns, WOSBs, and 

EDWOSBs against total small business 

set-aside multiple award contracts. As 

such, there should be no doubt that 

there can be an order or agreement setaside or reserved for a specific type of 

small business (i.e., 8(a), HUBZone, 


ddrumheller on DSK120RN23PROD with RULES6
Federal Register / Vol. 89, No. 242 / Tuesday, December 17, 2024 / Rules and Regulations 102461 

WOSB/EDWOSB, or SDVO) under a 

multiple award contract that itself was 

set aside for small business. SBA has 

been asked whether a contracting 

activity could require multiple 

certifications through ‘‘a small business 

set aside’’. SBA believes that the current 

program specific regulations identified 

above would prohibit that. In order to 

eliminate any misinterpretation, the 

proposed rule added a new § 125.2(c)(6) 

that would clarify that a procuring 

activity cannot restrict a small business 

set-aside or reserve (for either a contract 

or order) to require multiple 

socioeconomic program certifications in 

addition to a size certification. 

SBA received eight comments 

supporting this clarification. One 

commenter recommended that the 

regulatory text say ‘‘multiple’’ or 

‘‘various’’ instead of ‘‘one or more,’’ 

since requiring size and one 

socioeconomic status (8(a), HUBZone, 

WOSB, or SDVO) is permitted. SBA 

agrees and has replaced the words one 

or more with the word multiple. Two 

commenters also questioned whether 

there can be a partial set-aside and a 

reserve on the same requirement. The 

commenters believe that it makes sense 

that both should be allowed and that it 

is currently permitted, but that the 

regulatory text should be clarified. SBA 

agrees that both can occur with respect 

to one procurement requirement. A 

partial set-side can be done for one or 

more CLINs that must be set-aside for 

small business and a reserve could also 

be done on the same procurement for 

other items or services where a 

contracting officer would have 

discretion to utilize the small business 

reserve or not. The final rule clarifies 

the regulatory text to eliminate any 

confusion as to whether there can be 

both a partial set-aside and a reserve on 

the same procurement requirement. 

Section 125.3 

Section 125.3 governs subcontracting 

plans and reporting of subcontracting 

achievements. SBA proposed to extend 

the due dates for subcontracting reports 

by 15 days, from 30 days to 45 days. 

SBA also proposed to extend the time 

period for reviewing such reports by 15 

days, from 60 days to 75 days. These 

extended time periods recognize that 

prime contractors are under increased 

reporting burdens because of order-level 

subcontract reporting. SBA received 

three comments supporting these 

changes without substantive comment. 

SBA adopts the proposed language as 

final in this rule. 

Section 125.6(d) 

Section 125.6 sets forth the 

limitations on subcontracting that apply 

to a small business prime contractor. A 

small business prime contractor, 

together with any similarly situated 

entity, must perform a certain specified 

amount of a small business contract and 

cannot subcontract more than that 

amount to another business concern that 

is not similarly situated. Paragraph 

125.6(d) provides that for a multiagency set aside contract where more 

than one agency can issue orders under 

the contract, the ordering agency must 

use the period of performance for each 

order to determine compliance. A 

question has arisen as to who should 

monitor compliance with such an order, 

the contracting officer for the 

underlying multi-agency contract or the 

contracting officer for the ordering 

agency. SBA believes that the 

contracting officer for the ordering 

agency is in the best position to monitor 

compliance with the limitations on 

subcontracting for a specific order. As 

such, the ordering contracting officer 

should monitor compliance throughout 

performance. At the end of performance 

of the order, the ordering contracting 

officer should inform the contracting 

officer for the underlying multi-agency 

contract if the ordering contracting 

officer knows that the contractor has 

failed to meet the applicable limitations 

on subcontracting requirement. 

Additionally, there has been some 

confusion as to how work performed by 

leased employees is considered in 

determining compliance with the 

applicable limitation on subcontracting. 

Paragraph 125.6(d)(3) explains that 

work performed by an independent 

contractor shall be considered a 

subcontract and will therefore count 

against the prime contractor’s limitation 

on subcontracting unless the 

independent contractor qualifies as a 

similarly situated entity. Unlike 

independent contractors, employees 

obtained from a temporary employee 

agency, professional employee 

organization, or leasing concern perform 

work under the primary direction and 

control of the recipient concern. For this 

reason, such individuals are treated as 

employees of the recipient concern for 

purposes of determining that concern’s 

employee count under Section 

121.106(a). SBA believes the same logic 

should apply when determining a 

recipient prime contractor’s compliance 

with the limitations on subcontracting. 

Work performed by employees leased to 

the small business prime contractor 

shall be considered the prime 

contractor’s self-performance, and 

therefore will not count against the 

prime contractor’s limitation on 

subcontracting. The proposed rule 

clarified this position in § 125.6(d)(3). 

The final rule recognizes an exception 

where a contract is a staffing contract. 

SBA believes that it does not make 

sense to treat leased employees as 

employees of the prime contractor 

where the prime contractor and the firm 

it is leasing from are basically in the 

same business—staffing. 

SBA received 12 comments in 

response to the two proposed changes to 

§ 125.6. Eight comments agreed that, for 

a multi-agency set-aside contract where 

multiple agencies can issue orders, the 

contracting officer of the ordering 

agency should be responsible for 

monitoring compliance with the 

limitations on subcontracting for a 

specific order. The commenters believed 

that the ordering agency contracting 

officer is in the best position to monitor 

compliance with the limitations on 

subcontracting and noted that this 

approach allows the ordering agency’s 

contracting officer to more effectively 

oversee contract performance, rather 

than the contracting officer of the 

overarching multi-agency contract. One 

commenter recommended that the 

ordering agency contracting officer 

should report a perceived violation only 

where a concern exceeds the applicable 

limitation on subcontracting 

requirement by more than a certain 

percentage. SBA disagrees. SBA believes 

that the contracting officer for the 

underlying multi-agency contract 

should be made aware of all instances 

of a contractor’s failure to comply with 

regulatory requirements, including here 

the limitation on subcontracting 

requirements. If there are mitigating 

reasons for a contractor’s failure to 

comply with the applicable limitation 

on subcontracting (e.g., the ordering 

changed made changes to the 

procurement that required more 

subcontracting than anticipated), the 

ordering agency contracting officer 

should identify those reasons to the 

contracting officer for the underlying 

multi-agency contract. SBA received six 

comments on the proposed language 

regarding leased employees. All six 

supported the proposal. One commenter 

requested clarification for an entityowned Participant as to how leased 

employees from a holding company or 

another company owned by the entity 

will be treated, especially if assigned on 

an as needed basis. SBA does not 

believe that further clarification is 

needed in the regulatory text. If the 

other entity-owned company is a 

temporary employee agency, 


ddrumheller on DSK120RN23PROD with RULES6
102462 Federal Register / Vol. 89, No. 242 / Tuesday, December 17, 2024 / Rules and Regulations 

professional employer organization, or 

leasing concern, then the work done by 

those individuals will be considered the 

prime contractor’s self-performance, and 

therefore not count against the prime 

contractor’s limitation on 

subcontracting. If not, the work done by 

those individuals would count as 

subcontracted work. 

Section 125.8 

Section 125.8(e) covers how agencies 

evaluate the capabilities, past 

performance, and experience of joint 

ventures, including SBA mentor-prote ́ge ́

joint ventures. For SBA mentor-prote ́ge ́

joint ventures, section 125.8(e) provides 

that a procuring activity may not require 

the prote ́ge ́ firm to individually meet 

the same evaluation or responsibility 

criteria as that required of other offerors 

generally. This provision recognizes that 

prote ́ge ́s may be less experienced when 

submitting an offer but, if they win the 

award, will gain experience and 

capabilities while performing with the 

mentor. SBA does not require, however, 

that every contract competition include 

special evaluation criteria for prote ́ge ́s. 

A recent decision by the Court of 

Federal Claims has caused some 

confusion as to what past performance 

a procuring activity can require of a 

prote ́ge ́ joint venture partner and how 

that past performance should be 

evaluated. See SH Synergy, LLC v. 

United States, 165 Fed. Cl. 745 (2023). 

The SBA’s mentor-prote ́ge ́ program is 

designed to enhance the capabilities of 

prote ́ge ́ firms by requiring approved 

mentors to provide business 

development assistance to prote ́ge ́ firms 

and to improve the prote ́ge ́ firms’ ability 

to successfully compete for Federal 

contracts. The program recognizes that 

many small businesses may not have the 

necessary past performance and 

experience to individually compete 

successfully for certain larger contracts. 

Thus, it allows joint ventures between a 

prote ́ge ́ firm and a large business mentor 

to qualify as small to allow prote ́ge ́

firms to gain valuable experience 

overseeing and performing larger 

contracts. While the joint venture as a 

whole must meet the applicable 

limitation on subcontracting (or in other 

words perform a certain percentage of 

the contract), the prote ́ge ́ firm must 

perform at least 40% of all the work 

done by the joint venture partners in the 

aggregate. Because of that 40% 

requirement, some procuring activities 

require prote ́ge ́ joint venture partners to 

demonstrate some level of past 

performance as part of a joint venture’s 

offer. Although SBA’s current regulation 

provides that a procuring activity may 

not require the prote ́ge ́ firm to 

individually meet the same evaluation 

or responsibility criteria as that required 

of other offerors generally, it does not 

provide guidance on what a procuring 

activity could require. SBA proposed to 

provide such guidance. Specifically, 

SBA proposed to permit a procuring 

activity to require some past 

performance at a dollar level below 

what would be required of joint venture 

mentor partners or of individual 

offerors. The proposed rule provided an 

example of how this could work. In the 

example, where offerors must generally 

demonstrate successful performance on 

five contracts with a value of at least 

$20 million, a procuring activity could 

require a prote ́ge ́ joint venture partner to 

demonstrate one or two contracts valued 

at $10 million or $8 million. In addition, 

if a procuring activity requires a prote ́ge ́

joint venture partner to demonstrate 

successful performance on two contracts 

valued at $10 million or more, 

successful performance by the prote ́ge ́

firm on those $10 million contracts shall 

be rated equivalently to successful 

performance by the mentor partner to 

the joint venture or any other individual 

offeror on $20 million contracts. 

SBA received 26 comments in 

response to the proposed changes to 

§ 125.8(e). Sixteen comments supported 

the proposed changes and ten opposed 

them. Commenters supported giving 

less stringent requirements for protege 

firms’ past performance. Several 

commenters recommended that SBA 

should highlight that the change is 

intended to limit the type of past 

performance agencies can require of 

proteges rather than authorizing the 

imposition of greater or more complex 

past performance requirements. SBA 

agrees that the guidance provided is 

intended to ensure that procuring 

activities do not require the same full 

level of past performance and 

experience of prote ́ge ́ joint venture 

members as they do of other offerors 

generally. This logically means that if a 

procuring activity requires past 

performance of a prote ́ge ́ joint venture 

partner, it must be at a reduced level. 

The majority of the opposing comments 

objected to the ‘‘change’’ that allows the 

procuring activity discretion whether to 

require a protege ́ member of a joint 

venture to demonstrate some level of 

past performance and/or experience, 

although one commenter recommended 

that prote ́ge ́s should always be required 

to demonstrate some level of individual 

past performance. SBA notes that that is 

not a change from current policy. 

Procuring agencies currently have the 

discretion to require some level of past 

performance and experience of prote ́ge ́

joint venture partners. If that were not 

the case, there would not be GAO and 

Court of Claims cases considering if a 

procuring agency required too much 

past performance and experience of the 

prote ́ge ́ firm. The proposed rule merely 

provided guidance on what a procuring 

activity could require. In response to the 

comments, the final rule clarifies that a 

procuring activity contracting officer 

may rely solely on the past performance 

and experience of the mentor joint 

venture partner in its discretion. The 

final rule also adds a provision to the 

regulatory text providing that if a 

procuring activity requires a prote ́ge ́

joint venture partner to demonstrate 

some successful performance and/or 

experience on fewer previous contracts 

of lower values than that required of 

other offerors generally, successful 

performance by the prote ́ge ́ firm on the 

contracts it identifies shall be rated 

equivalently to successful performance 

by the mentor partner to the joint 

venture or any other individual offeror 

on the higher valued contracts they 

identify. Although this was clearly set 

forth in the example to paragraph (e), 

SBA believes that it should be specified 

in a separate regulatory provision as 

well. 

Where a joint venture is the apparent 

successful offeror for a contract set aside 

or reserved for small business, § 125.8(f) 

currently authorizes the procuring 

activity to execute a contract in the 

name of the joint venture entity or a 

small business partner to the joint 

venture. There has been some confusion 

as to whether a procuring activity can 

choose to either execute the contract in 

the name of the joint venture entity or 

to a small business partner to the joint 

venture. SBA did not intend such 

discretion. SBA’s joint venture rules set 

forth in § 121.103(h)(1) provide that a 

joint venture may be in the form of a 

formal or informal partnership or exist 

as a separate limited liability company 

or other separate legal entity. Where a 

joint venture exists as a separate legal 

entity, SBA intended a contract to be 

executed in the name of the joint 

venture. SBA intended to allow 

contracts successfully won by a joint 

venture to be awarded in the name of 

the small business partner only where 

the joint venture was not a separate 

legal entity, but rather an informal 

arrangement that had a written joint 

venture agreement that complied with 

SBA’s regulations. The proposed rule 

clarified SBA’s intent. Two commenters 

supported this clarification, with one 

specifying that although they 

acknowledge that it has always been the 

SBA’s intent, they support explicitly 


ddrumheller on DSK120RN23PROD with RULES6
Federal Register / Vol. 89, No. 242 / Tuesday, December 17, 2024 / Rules and Regulations 102463 

clarifying that a contract awarded to a 

joint venture shall be executed in the 

name of the joint venture if the joint 

venture is a separate legal entity. SBA 

adopts the proposed language as final in 

this rule. 

Section 125.9 

Section 125.9 sets forth the 

requirements relating to SBA’s mentorprote ́ge ́ program. Paragraph 125.9(b) 

specifies rules pertaining to firms 

seeking to become mentors and to firms 

which have been approved as mentors 

in the program. The introductory 

language to that paragraph provides that 

any concern that demonstrates a 

commitment and the ability to assist 

small business concerns may act as a 

mentor, including other than small 

businesses. There has been some 

confusion as to whether non-profit 

entities may act as mentors. The 

statutory authority for the mentorprote ́ge ́ program specifies that the term 

‘‘mentor’’ means a for-profit business 

concern, of any size, that has the ability 

to assist and commits to assisting a 

protege to compete for Federal prime 

contracts and subcontracts. 15 U.S.C. 

657r(d). Although § 125.9(b) does not 

specifically state that a mentor must be 

a for-profit entity, it requires a mentor 

to be a ‘‘concern’’, and that term is 

defined in SBA’s regulations as a 

business entity organized for profit 

under § 121.105(1)(1). To eliminate any 

confusion, the proposed rule clarified 

that only for-profit business concerns 

may be mentors. Two commenters 

supported the clarification, and SBA 

adopts the proposed language as final. 

Paragraph 125.9(b)(3)(ii)(B) authorizes 

a mentor to purchase another business 

entity that is also an SBA-approved 

mentor of one or more prote ́ge ́ small 

business concerns where the purchasing 

mentor commits to honoring the 

obligations under the seller’s mentorprote ́ge ́ agreement. Paragraph 

125.9(b)(3)(i) provides that a mentor that 

has more than one prote ́ge ́ cannot 

submit competing offers in response to 

a solicitation for a specific procurement 

through separate joint ventures with 

different prote ́ge ́s. However, it is 

possible that the initial or selling 

mentor may be a contract holder as a 

joint venture with a prote ́ge ́ on the same 

multiple award contract where the 

acquiring mentor is also a contract 

holder as a joint venture with its 

prote ́ge ́. In such a case, after the 

purchase and the purchasing mentor 

committing to fulfill the obligations of 

the selling mentor’s mentor-prote ́ge ́

agreement, the purchasing mentor could 

then have two different joint ventures as 

contract holders on the same multiple 

award contract. This could allow the 

mentor to dictate which joint venture 

could compete for any specific order 

under the multiple award contract. SBA 

does not believe that the mentor should 

be able to choose one prote ́ge ́ over 

another to compete for an order. In 

order to clarify SBA’s intent, the 

proposed rule provided that where a 

mentor purchases another business 

entity that is also an SBA-approved 

mentor that is a contract holder as a 

joint venture with a prote ́ge ́ small 

business and the mentor is also a 

contract holder with a prote ́ge ́ small 

business on that same multiple award 

contract, the mentor must exit one of 

those joint venture relationships. SBA 

understands that this could adversely 

affect one of the prote ́ge ́ firms involved 

in a joint venture. To alleviate harm to 

a prote ́ge ́, the proposed rule also 

permitted the prote ́ge ́ firm connected to 

the joint venture from which the mentor 

exits to seek to acquire the new mentor’s 

interest in the underlying multiple 

award contract or reserve and work with 

the contracting officer to determine 

whether novation of such contract or 

reserve to itself only may be 

appropriate. The prote ́ge ́ may also seek 

to continue performance under the 

contract by replacing the new mentor 

with another business in the joint 

venture such that the revised joint 

venture continues to qualify as small. 

Similarly, the proposed rule also added 

a new § 125.9(d)(1)(iv) to give a prote ́ge ́

firm a right of first refusal to purchase 

a mentor’s interest in a mentor-prote ́ge ́

joint venture where the mentor seeks to 

sell its interest in the joint venture. 

SBA received 14 comments on the 

proposed changes to § 125.9(b). Eight 

comments favored the proposed 

language, three questioned some of the 

language and three had comments 

outside the scope of this rulemaking. 

Those in favor believed that a prote ́ge ́

should be able to novate its joint 

venture contract to itself where its 

mentor is sold to another firm and that 

firm does not intend continue 

performance in that joint venture. They 

felt that to do otherwise would hurt the 

small business prote ́ge ́ and 

recommended that contracting officers 

should be encouraged to process such 

novation requests. One commenter 

supported prohibiting a mentor from 

having two different joint ventures as 

contract holders on the same multiple 

award contract since this situation 

could provide the mentor with an unfair 

advantage, create a conflict of interest, 

and potentially harm one or both 

prote ́ge ́s. One commenter questioned 

whether the proposed changes were 

intended to clarify existing guidance or 

introduce new restrictions. As noted in 

the proposed rule, SBA’s current 

regulations provide that a mentor that 

has more than one prote ́ge ́ cannot 

submit competing offers in response to 

a solicitation for a specific procurement 

through separate joint ventures with 

different prote ́ge ́s. Because of that 

regulatory provision, SBA believes that 

current regulations require a firm that 

becomes the mentor of two prote ́ge ́s on 

the same multiple award contract to end 

one of those mentor-prote ́ge ́

relationships. SBA views this change as 

a clarification of existing policy, not the 

imposition of a new requirement. 

Similarly, SBA’s current regulations 

provide that SBA may approve a second 

mentor for a particular prote ́ge ́ firm 

where the second relationship will not 

compete or otherwise conflict with the 

first mentor-prote ́ge ́ relationship. If a 

prote ́ge ́ firm enters joint venture 

relationships with each of its two 

mentors, those joint ventures cannot 

compete against each other. They 

cannot be contract holders on the same 

multiple award contract. Although that 

is currently policy, SBA has clarified 

that point in this final rule. One 

commenter recommended that SBA 

clarify that novation would not be 

necessary where there is merely a 

change in ownership of the joint venture 

(e.g., another business buys the minority 

interest of the new mentor in the joint 

venture). The commenter believed that 

as long as there was merely a change in 

the ownership of the joint venture 

entity, the joint venture could continue 

to perform the contract without the need 

for a novation. SBA agrees that where a 

joint venture continues to qualify as 

small and otherwise eligible after a 

change of ownership of the joint 

venture, the joint venture can continue 

to receive orders under the multiple 

award contract without requiring a 

novation. One commenter supported the 

changes but was concerned that SBA 

assumed that a prote ́ge ́ firm was 

financially positioned to buy out a 

mentor’s interest in an underlying 

multiple award contract or buy a 

mentor’s interest in a mentor-prote ́ge ́

joint venture. The commenter 

recommended that the SBA provide that 

any financing that the prote ́ge ́ receives 

from another entity in order to purchase 

the mentor’s interest in a multiple 

award contract or mentor-prote ́ge ́ joint 

venture shall not be grounds for a 

finding of affiliation. SBA agrees that as 

long as financing is on commercially 

standard terms affiliation will not be 

found and makes that clarification in 

this final rule. Finally, one commenter 


ddrumheller on DSK120RN23PROD with RULES6
102464 Federal Register / Vol. 89, No. 242 / Tuesday, December 17, 2024 / Rules and Regulations 

sought clarification as to whether the 

time needed to find a substitute mentor 

would be tacked on to the new mentorprote ́ge ́ agreement to give the protege its 

full six years. Under SBA’s regulations, 

a small business may generally have a 

total of two mentor-prote ́ge ́ agreements 

with different mentors. Each mentorprote ́ge ́ agreement may last for no more 

than six years. The current regulations 

also authorize the substitution of one 

mentor for another where the initial 

mentor-prote ́ge ́ relationship is 

terminated. SBA does not believe that 

the time it takes a prote ́ge ́ small 

business to find a new mentor should be 

subtracted from the six-year authorized 

mentor-prote ́ge ́ relationship. That is 

SBA’s current policy, but the final rule 

makes that clear in a revised paragraph 

(c)(4)(iii). 

The proposed rule also redesignated 

current § 125.9(e)(6) as § 125.9(c)(4). 

This provision relates to rules affecting 

prote ́ge ́ firms and SBA believes it 

should more appropriately be located in 

§ 125.9(c), which has a heading entitled 

‘‘Proteges.’’ The proposed rule added 

clarifying language to redesignated 

§ 125.9(c)(4)(iv) to make clear that a 

concern cannot be a prote ́ge ́ for a total 

of more than 12 years. There has been 

some confusion that if a prote ́ge ́ elects 

to extend its mentor-prote ́ge ́

relationship with the same mentor for 

an additional six-year period that the 

prote ́ge ́ could somehow be able to 

participate in the mentor-prote ́ge ́

program as a prote ́ge ́ for more than 12 

years. SBA believes that the current 

regulations clearly restrict such 

participation to a total of 12 years. 

Nevertheless, in order to dispel any 

possible contrary interpretation, the 

proposed rule specified that a firm 

could be a prote ́ge ́ for up to 12 years, 

whether the concern has a mentorprote ́ge ́ relationship with two different 

mentors or the same mentor for second 

six-year period. Two commenters 

supported this clarification without 

substantive comment. SBA adopts the 

proposed language as final in this rule. 

Finally, the proposed rule added a 

new § 125.9(c)(5). Within the provisions 

relating to mentors in § 125.9(b), the 

current regulations authorize a firm to 

purchase another firm that is currently 

an approved mentor in SBA’s mentorprote ́ge ́ program and to continue that 

mentor-prote ́ge ́ relationship if the 

purchasing firm commits to honoring 

the obligations under the seller’s 

mentor-prote ́ge ́ agreement. The 

regulations do not, however, currently 

address any rights a prote ́ge ́ may have 

where such a sale occurs. There are 

times that the former mentor-prote ́ge ́

agreement would not be a good fit with 

the purchasing business concern. The 

purchasing concern may have different 

capabilities than the selling concern and 

may not be the best business concern to 

carry out the previous mentor’s 

commitments. Where the purchasing 

concern is not able to fulfill the 

requirements of the existing mentorprote ́ge ́ agreements as written, SBA 

believes that the prote ́ge ́ firm should be 

able to either negotiate a revised 

mentor-prote ́ge ́ agreement with the 

buying concern or terminate the mentorprote ́ge ́ agreement if the prote ́ge ́

believes the buying concern is not a 

good fit for it. This right of the prote ́ge ́

is limited to where the new mentor 

would not fulfill the former mentorprote ́ge ́ agreement. SBA would have to 

approve any revised mentor-prote ́ge ́

agreement. If the mentor-prote ́ge ́

agreement is terminated, the prote ́ge ́

firm could seek another business 

concern to enter a mentor-prote ́ge ́

relationship for a duration not to exceed 

six years minus the length of the 

mentor-prote ́ge ́ relationship with the 

former mentor. 

SBA received four comments 

regarding this proposal. All four 

supported the language generally. Two 

commenters sought clarification that the 

prote ́ge ́ could terminate its mentorprote ́ge ́ relationship only where the 

purchasing business concern (i.e., the 

new mentor) and the prote ́ge ́ cannot 

agree on either continuing with the 

previous mentor-prote ́ge ́ agreement or 

negotiating a new mentor-prote ́ge ́

agreement that is acceptable to SBA. 

That was SBA’s intent and the final rule 

makes slight wording changes in order 

to clarify that intent. 

Sections 125.12, 126.619, 127.504(h), 

and 128.401(e) 

SBA proposed to relocate size 

recertification and small business 

program status recertification to new 

§ 125.12. Historically, size and status 

recertification have been separately 

addressed in parts 121 (for size), 124 

(for 8(a) BD), 126 (for HUBZone), 127 

(for WOSB), and 128 (for servicedisabled veteran-owned small business 

or SDVOSB) of SBA’s regulations. SBA 

sought to provide consistency among 

and clean up differences in the 

regulatory text in the programs. SBA 

believes that the rules regarding 

recertification should be the same for 

size and status, across all SBA small 

business government contracting and 

business development programs. The 

consolidation of the rules into one 

section that is cross-referenced in each 

small business program regulations will 

simplify the text and ensure easier, 

more consistent interpretation and 

application of the regulations. 

Size and status recertification is a 

complex area of SBA’s regulations that 

requires simplification and clarity, 

especially in the context of exceptions 

to recertification and the impact of 

recertification. The proposed rule made 

several clarifications to how SBA 

always intended recertification to 

operate, but which may be unclear from 

the existing regulatory text. First, a 

concern that recertifies as other than the 

size or status required for an award that 

it is currently performing may continue 

to perform the requirement for the 

remainder of that particular period of 

performance. Whether it can continue to 

receive future orders under an 

underlying contract or agreement after it 

submitted a disqualifying recertification 

depends upon whether the underlying 

contract or agreement is a single award 

or a multiple award vehicle. A concern 

that has recertified as other than small 

or other than a qualified program 

participant still may receive orders or 

agreements issued under a single award 

small business contract or agreement or 

unrestricted orders issued under an 

unrestricted multiple award contract. In 

either case, a procuring agency could 

not count the order as an award to small 

business or to the specific type of small 

business (i.e., 8(a), WOSB, SDVOSB, or 

HUBZone). For any multiple award 

contract or agreement, the concern 

would not be eligible for orders set aside 

for small business or set aside for a 

specific type of small business. 

Similarly, for a single award small 

business contract or any unrestricted 

contract, a concern that recertified as 

other than small or other than the 

required small business program status 

remains eligible to receive options. The 

procuring agency cannot count the 

option period as an award to a small 

business or small business program 

participant for goaling purposes. Such a 

concern may recertify as small or as the 

required small business program status 

for a subsequent option period if it 

meets the applicable size standard or 

becomes a certified small business 

program participant at that time. 

Conversely, for a multiple award small 

business set-aside or reserve, a concern 

that recertified as other than small or 

other than the required small business 

program would be ineligible to receive 

options. 

The proposed rule also clarified 

SBA’s intent as to the effect of a 

disqualifying recertification that occurs 

after an offer is submitted but prior to 

award. For an award set aside or 

reserved for small business, a concern 

must recertify its size and, where 


ddrumheller on DSK120RN23PROD with RULES6
Federal Register / Vol. 89, No. 242 / Tuesday, December 17, 2024 / Rules and Regulations 102465 

appropriate, status if a merger, sale or 

acquisition occurs after an offer is 

submitted but prior to award. If the 

concern submits a disqualifying 

recertification, it may or may not be 

eligible for the award depending on 

when the sale, merger or acquisition 

occurred. If the merger, sale, or 

acquisition occurs within 180 days of 

offer submission and before award, the 

concern is ineligible for the award. If the 

merger, sale, or acquisition occurs after 

180 days of its offer and before award, 

the concern would continue to be 

eligible for the award. 

Any disqualifying size or status 

recertification precipitated by 

§ 125.12(a) or § 125.12(b) (except for the 

180-day rule discussed above), renders 

a concern ineligible for future set-aside 

or reserved awards, including awards of 

set-aside or reserved orders against preexisting unrestricted or set-aside 

multiple award contracts. Additionally, 

in support of this interpretation, SBA 

proposed to allow requests for size 

determinations following any size 

recertification made in §§ 125.12(a) and 

(b) as well as those requested by a 

contracting officer as set forth in 

§ 125.12(c). 

SBA notes that the requirement for 

size recertification has always been 

interpreted by SBA to apply to Blanket 

Purchase Agreements in addition to all 

other small business set-aside or 

reserved awards, whether those awards 

are executed in the form of task orders, 

contracts, or any other type of 

procurement mechanism. Following a 

2022 bid protest decision from GAO, 

SBA explicitly added the word 

‘‘agreement’’ at 13 CFR 

121.404(g)(2)(iii). 

SBA received 31 comments 

responding to the proposed changes. 

Two commenters believed that 

recertifications should not be required 

in response to agreements in principle 

since those agreements may never be 

finalized or the ultimate sale or merger 

may take a long time, conceivably 

beyond one or more additional fiscal 

years (upon which size status is based). 

SBA agrees and has eliminated that 

language from § 125.12(a). 

There were strong opinions on both 

sides of the significant proposals. Many 

of the commenters were concerned that 

contract holders on multiple award 

contracts would not be eligible for 

orders set aside for small business or set 

aside for a specific type of small 

business after disqualifying 

recertifications. These commenters 

believed that it could diminish the 

acquisition value of small business 

concerns. Others supported the 

proposed change, stating that to allow a 

firm that was purchased by a very large 

business to remain an eligible contract 

holder on a small business multiple 

award contract would sanction an unfair 

competitive advantage in favor of such 

now large entities for individual orders. 

These commenters believed that would 

only encourage more purchases by large 

businesses, which would hurt 

individual small businesses. Regarding 

decertifying recertifications on longterm contracts, many comments also 

believed that this disincentives growth 

and penalizes mid-tier businesses that 

have naturally evolved beyond the small 

business size standards. Others stated 

that they did not believe that a firm that 

becomes other than large or other than 

an eligible, HUBZone, WOSB or SDVO 

small business should be able to be 

eligible for any options beyond five 

years. They believed that even though 

an agency could not count the options 

as awards to small business, the 

opportunities would not be available to 

legitimate small businesses. They posed 

that a firm that may have grown to be 

other than small in year one of a 10-year 

contract would be able to benefit as a 

small business for 9 years after it 

actually qualified as a small business. 

Several commenters recommended a 

phased or delayed implementation of 

these provisions to allow time to adapt. 

Commenters recommended one year, 

two years and five years for a grace 

period. 

SBA agrees that it makes sense to 

allow business concerns some time to 

adapt and plan how best to comply with 

the recertification provisions. The final 

rule adds a new § 125.9(g) that would 

delay the effective date of ineligibility 

for orders and options on underlying 

small business multiple award contracts 

due to disqualifying recertifications for 

one year after the effective date of this 

final rule. As such, a firm that has a 

disqualifying size or status 

recertification due to a merger, 

acquisition or sale that occurs prior to 

one year after the effective date of this 

final rule will remain eligible for orders 

issued under an underlying small 

business multiple award contract. 

Similarly, a firm that has a disqualifying 

size or status recertification prior to the 

end of the fifth year of a long-term 

contract will remain eligible for any 

options to be exercised prior to one year 

after the effective date of this final rule. 

However, in both cases, the procuring 

activity cannot count any new or 

pending orders issued pursuant to the 

contract or any such options exercised 

under the contact towards its small 

business and socioeconomic goals. This 

includes set-asides, partial set-asides, 

and reserves for 8(a) BD Participants, 

certified HUBZone small business 

concerns, SDVOSBs, and WOSBs/ 

EDWOSBs. 

In further response to comments, the 

final rule also amends which business 

concerns will be ineligible for orders 

and options after a disqualifying 

certification due to merger, acquisition 

or sale. Specifically, the final rule will 

make ineligible only those contract 

holders that have disqualifying 

recertifications involving a merger, 

acquisition or sale with a large business. 

Where two business concerns 

individually qualify as small before a 

merger, acquisition or sale but do not in 

the aggregate after such occurrence, the 

final rule allows the contract holder to 

remain eligible for orders issued under 

an underlying small business multiple 

award contract. Although the surviving 

entity may be eligible for orders after the 

merger, sale or acquisition, a procuring 

activity could no longer count orders 

issued to the entity as awards to small 

business. 

One commenter encouraged SBA to 

specify in its final rulemaking that the 

rule will become effective 30 days (or 

longer) after the date of final rule 

publication and wanted to make sure 

that the rule will not be applied 

retroactively. As noted in the Dates 

section of this final rule, the provisions 

set forth in the rule will not be effective 

for 30 days after the date of publication. 

In addition, SBA agrees that any final 

rule should not be retroactively applied. 

SBA asserts that this rule has no 

retroactive effect. Once in effect, the 

rule will apply to existing contracts, but 

the provisions making firms ineligible 

for orders or options after disqualifying 

recertifications will apply only to future 

disqualifying recertifications (i.e., ones 

that occur after one year from the 

effective date of this rule). Firms that 

have made or will continue to make 

disqualifying recertifications prior to 

one year after the effective date of this 

rule will continue to be eligible to 

receive orders and options after the 

effective date of this rule. 

Sections 125.13 and 124.4 

The proposed rule added a new 

§ 125.13 explaining the restrictions on 

fees for representatives of applicants to 

and participants in the 8(a) BD, 

HUBZone, WOSB, and VetCert 

programs. These restrictions are 

currently contained in § 124.4 for the 

8(a) BD program. The proposed rule 

took the language currently contained in 

§ 124.4 for the 8(a) BD program and 

adds it to a new § 125.13 that will be 

applicable to the 8(a) BD, HUBZone, 

WOSB, and VetCert programs. SBA 


ddrumheller on DSK120RN23PROD with RULES6
102466 Federal Register / Vol. 89, No. 242 / Tuesday, December 17, 2024 / Rules and Regulations 

considered making revisions to part 126, 

127 and 128 of this title adopting the 

same language contained in § 124.4 for 

the WOSB, HUBZone, and VetCert 

programs. Instead, SBA believes that it 

is more expedient to add a new § 125.13 

that would apply to all of SBA’s 

certification programs than it would be 

to repeat the same language in each of 

the specific program area’s regulations. 

SBA received three comments agreeing 

that the restrictions on fees for 

representatives should apply to all 

programs, not just 8(a). SBA adopts the 

proposed language as final in this rule. 

Section 126.103 

SBA proposed to revise, add, and 

eliminate certain definitions set forth in 

13 CFR 126.103, to clarify existing 

policies and to reduce the burden on 

small businesses. Except where 

otherwise noted in the discussion 

below, SBA implements these changes 

as proposed. 

SBA proposed to delete the definition 

for the term ‘‘AA/BD’’ because this term 

no longer appears in Part 126. SBA 

received no comments on this deletion. 

SBA proposed to revise the definition 

of ‘‘certify’’ (or ‘‘certification’’) to clarify 

that this means the process by which 

SBA determines that a concern is 

qualified for the HUBZone program and 

eligible to be designated by SBA as a 

certified HUBZone small business 

concern in DSBS. SBA received one 

comment supporting this clarification 

without substantive comment. 

As discussed above in the 

corresponding change to § 124.3 for the 

8(a) BD program, SBA proposed to 

revise the definition of ‘‘Community 

Development Corporation (CDC)’’ for 

HUBZone purposes to align this 

definition with current practices and 

that applying to the 8(a) BD program. 

SBA received two comments supporting 

this change without substantive 

comment. 

SBA proposed to revise the definition 

of ‘‘contracting officer’’ to correct an 

outdated citation. SBA received one 

comment in support of this update. 

SBA proposed to revise the definition 

of ‘‘decertify’’ to clarify that a firm may 

voluntarily withdraw from the program 

without SBA needing to approve such 

withdrawal. SBA received one comment 

in support of this change. 

SBA proposed to revise the definition 

of ‘‘Dynamic Small Business Search 

(DSBS)’’ to reference ‘‘SAM, as defined 

in this section’’ rather than ‘‘the System 

for Award Management (SAM)’’. In 

addition, SBA proposed to remove the 

words ‘‘the Dynamic Small Business 

Search (DSBS)’’ wherever they appear 

and add in their place the acronym 

‘‘DSBS’’. SBA received one comment in 

support of this change. 

SBA proposed to make several 

amendments to the definition of 

‘‘employee’’ to prevent abuse and 

strengthen the integrity of the program. 

First, SBA proposed to increase the 

number of hours that an individual 

must work to be considered an 

employee for HUBZone purposes to 80 

hours per month (up from 40 hours per 

month). The HUBZone program was 

intended to provide meaningful work 

experiences to individuals who reside 

in some of the nation’s most 

economically distressed communities to 

help them gain valuable skills, on-thejob experience, and upward mobility. 

See 143 Cong. Rec. S730 (Jan. 28, 1997); 

S. Rpt. 105–62 (1997). In 2021, SBA 

HUBZone analysts identified a pattern 

in which firms put HUBZone residents 

on their payroll but did not actually 

employ them or give them work to 

perform. Rather, these individuals were 

put on the payroll only to enable the 

firm to appear to be eligible for the 

HUBZone program. This has never been 

permitted under the HUBZone 

regulations because allowing this 

practice would undermine the purpose 

of the HUBZone program. In response to 

the discovery of this practice and to 

prevent further fraud and abuse in the 

program, SBA proposed to increase the 

threshold to 80 hours. 

As noted in the proposed rule, SBA 

was concerned that the minimum 40 

hours per month was not sufficient to 

promote the purpose of the HUBZone 

program. SBA also noted that an 80 

hour per month requirement would be 

consistent with how the 8(a) BD 

program treats employees establishing a 

bona fide place of business. In that 

context, § 124.3 defines the term bona 

fide place of business for 8(a) 

construction contracts to mean a 

location where an 8(a) BD Participant 

regularly maintains an office within the 

appropriate geographical boundary 

which employs at least one individual 

who works at least 20 hours per week 

at that location. The 80 hours per month 

requirement in the proposed rule would 

be in line with that 20 hours per week 

requirement. SBA requested comments 

on whether 80 hours per month was an 

appropriate threshold and whether there 

should be a minimum number of hours 

per week. SBA also sought comments on 

whether there should be an exception to 

the 80 hours per month threshold for a 

limited number (or percentage) of 

individuals where such individuals are 

working at least 40 hours per month. 

SBA received 83 comments on this 

proposed change to the definition of 

‘‘employee.’’ The majority of comments 

opposed the proposed increase in the 

minimum number of hours from 40 to 

80 per month to meet the definition of 

‘‘employee’’ for HUBZone purposes. 

These commenters argued that this 

change would disproportionately harm 

part-time employees, particularly 

students, retirees, people with 

disabilities, or individuals holding 

multiple jobs. The commenters noted 

that these groups often rely on the 

flexibility that the current 40-hour 

requirement allows. In addition, several 

commenters highlighted the potential 

for businesses to face increased 

operational costs, reduced hiring 

opportunities, and greater 

administrative burdens, which could 

ultimately lead to firms leaving the 

program or being less competitive. 

Many respondents also questioned the 

justification for this change, noting that 

it may not effectively address fraud or 

abuse as intended by the SBA. They 

suggested that the 80-hour threshold 

may simply create more paperwork 

without leading to meaningful 

improvements. Some commenters 

argued that the focus should be on 

addressing bad actors rather than 

imposing blanket requirements that 

penalize responsible businesses. Others 

proposed alternative solutions, such as 

requiring a certain number of hours per 

week (e.g., 15–20 hours) instead of 

instead of a specified number per 

month, or suggesting a phased 

implementation to allow businesses to 

adjust. A number of commenters 

expressed opposition to using driver’s 

licenses for residency verification and 

excessive documentation requirements 

for proving employee status. These 

commenters viewed these processes as 

burdensome, particularly for nondriving employees or those with 

disabilities. Several commenters urged 

SBA to focus on practical solutions that 

recognize the realities of running small 

businesses and supporting diverse 

workforces, including students, retirees, 

and individuals with disabilities. A few 

commenters expressed support for the 

increase to 80 hours, arguing that it 

would help boost economic impact in 

HUBZone areas and ensure that 

businesses are genuinely contributing to 

community development. However, 

even supporters recommended a 

phased-in approach to avoid 

overwhelming businesses and 

employees. Some suggested exceptions 

for certain types of workers, such as 

students or specialized professionals, or 

a more flexible workweek requirement 

to accommodate various needs. Overall, 

the feedback indicated a strong desire 

for SBA to reconsider the 80-hour rule 


ddrumheller on DSK120RN23PROD with RULES6
Federal Register / Vol. 89, No. 242 / Tuesday, December 17, 2024 / Rules and Regulations 102467 

or provide more nuanced alternatives 

that balance the goals of the HUBZone 

program with the practicalities of 

running small businesses and 

supporting diverse employees. 

SBA has considered the comments 

received and decided to maintain the 

40-hour threshold at this time. However, 

rather than requiring an aggregate of 40 

hours of work during the 4-week period 

preceding the date of review, this final 

rule generally requires an individual to 

work at least 10 hours per week during 

the 4-week period preceding the date of 

review in order to be considered an 

‘‘employee’’ for HUBZone purposes. 

The final rule permits a business 

concern to allow an employee less than 

10 hours per week, provided that the 

employee works at least 40 hours per 

month, if the business concern can 

demonstrate a legitimate business 

reason for doing so. For example, if a 

business concern demonstrates that 

there is seasonal work that requires 

more work in one or two weeks than in 

the rest of the month, SBA could find 

the individual to count as an employee 

for HUBZone purposes. SBA believes 

this decision is responsive to the public 

comments while also addressing some 

of the concerns outlined in the proposed 

rule. 

Second, SBA proposed to add a 

provision clarifying the obvious 

requirement that an individual must be 

performing work in order to be 

considered an employee for HUBZone 

purposes. The provision provides that 

SBA may request documentation 

demonstrating that an individual is 

performing work, including job 

descriptions, resumes, detailed 

timesheets, sample work product and 

other relevant documentation. SBA 

received 12 comments on this 

clarification. Some commenters 

believed it served the purposes of the 

program to pay HUBZone residents 

minimum wage without giving them 

any work to do. SBA strongly disagrees. 

Allowing such a practice would be akin 

to allowing companies to buy their way 

into the HUBZone program, which is far 

from the purpose of the HUBZone 

program. As noted above, the HUBZone 

program was created to provide 

employment opportunities to residents 

of economically distressed areas. 

Simply paying HUBZone residents, 

without giving them work to do, does 

not create real employment 

opportunities. 

In addition, some of the comments 

opposed the collection of employee 

resumes. A few commenters argued that 

instead of resumes, which could contain 

false information that HUBZone 

companies cannot verify, SBA should 

require specific work history from 

employees related to their time at the 

applicant company. Some commenters 

also expressed opposition to the 

proposed requirement for employees to 

perform work that is ‘‘commensurate’’ 

with the hours charged. These 

commenters argued that this expectation 

misrepresents the intent of the 

HUBZone program, which is primarily 

focused on increasing employment 

opportunities and economic 

development in underutilized areas, 

rather than mandating specific work 

contributions. They emphasized that 

HUBZone firms providing employment 

and wages are fulfilling the program’s 

goals, regardless of the nature of the 

work performed. Commenters 

highlighted the need for simplification 

in the requirements, advocating for 

limited proof related to hiring processes 

rather than extensive documentation 

like job descriptions and sample work 

products. They argued that such 

requirements complicate the 

certification process, especially for 

smaller businesses that may lack the 

resources to comply with such stringent 

documentation requirements. A few 

commenters suggested that SBA provide 

further clarity on what constitutes 

‘‘meaningful’’ work and offer templates 

and training to help businesses meet 

SBA’s expectations. In response to these 

comments, SBA reiterates its position 

that the HUBZone program was 

intended to create meaningful 

employment opportunities in 

underserved areas. SBA will continue to 

require individuals to perform some 

work in order to be considered 

employees for HUBZone purposes and 

may require relevant documentation to 

ensure this requirement is being met. 

Third, SBA proposed deleting the 

provision within the definition of 

‘‘employee’’ providing that individuals 

who receive in-kind compensation may 

be considered employees. The current 

regulations provide that an individual 

receiving in-kind compensation may be 

considered an employee, where the 

compensation is commensurate with the 

work performed by the individual and 

provides a demonstrable financial value 

to the individual, and where the 

arrangement is compliant with all 

relevant Federal and State laws, such as 

Federal tax laws. SBA proposed to 

eliminate this provision because SBA 

has found that little to no firms are able 

to meet these requirements. The process 

of requesting and reviewing 

documentation that is ultimately 

insufficient has only served to slow 

down application processing. SBA 

received five comments in response to 

this proposed change, the majority of 

which supported the deletion. 

Commenters agreed that removing this 

provision would improve the efficiency 

of the eligibility review process. One 

commenter recommended that SBA 

evaluate cases involving in-kind 

compensation individually. The 

commenter noted that permitting inkind compensation was originally 

aimed at helping smaller startups, 

particularly those with spouses or 

family members who contributed to the 

business but did not hold ownership. 

SBA has considered the comments and 

is adopting the proposal to delete the 

provision allowing in-kind 

compensation. Despite the original 

intent of this provision, SBA believes 

the significant delays in processing— 

including delays caused when firms do 

not understand the provision or the 

requirements for meeting it—outweigh 

its potential benefit. 

Fourth, SBA proposed adding 

language to clarify that individuals who 

are obtained ‘‘from a concern primarily 

engaged in leasing employees’’ are 

generally considered employees for 

HUBZone purposes. The current 

regulations provide that individuals 

obtained from a ‘‘leasing concern’’ are 

generally considered employees. 

However, it has been SBA’s policy for 

a number of years that leased employees 

will only be considered employees for 

HUBZone purposes where they are 

leased from a concern that is primarily 

engaged in leasing employees. This 

policy is consistent with SBA’s size 

regulations at § 121.103(b)(4), which 

provide: ‘‘Business concerns which 

lease employees from concerns 

primarily engaged in leasing employees 

to other businesses . . . are not 

affiliated with the leasing company . . . 

solely on the basis of a leasing 

agreement.’’ SBA received three 

comments in response to this proposal, 

all of which supported the change. The 

commenters noted that this proposal 

will provide greater clarity for the 

HUBZone program. One commenter 

noted that there is a need for clearer, 

more defined standards to differentiate 

between leasing companies and 

subcontractors, as the line between 

them is increasingly blurred, leading to 

confusion and compliance issues. The 

commenter believes that establishing 

specific criteria for what constitutes a 

leasing company will help ensure 

consistent application of the rule and 

prevent potential exploitation of this 

provision. SBA agrees with these 

comments and adopts the language 

related to leased employees as 

proposed. 


ddrumheller on DSK120RN23PROD with RULES6
102468 Federal Register / Vol. 89, No. 242 / Tuesday, December 17, 2024 / Rules and Regulations 

Finally, SBA requested comments on 

when reservists should be considered 

employees for HUBZone purposes. As 

SBA noted in the proposed rule, when 

reservists are called up for active duty, 

companies may be required to promptly 

reemploy them in an appropriate 

reemployment position (which may or 

may not be the pre-service position) 

upon their return from service. A 

company may list such individuals as 

employees, which may mean those 

individuals appear on the company’s 

payroll with zero hours listed. SBA 

received 12 comments in response to 

this request, 11 of which supported 

treating reservists as employees when 

they are called up for active duty. The 

comments emphasized the importance 

of recognizing reservists—as well as 

National Guard members—as employees 

even during their periods of active duty. 

They argued that this policy prevents 

penalties to HUBZone firms for 

complying with the Uniformed Services 

Employment and Reemployment Rights 

Act of 1994 (‘‘USERRA’’), 38 U.S.C. 

4301–4335. Commenters suggested that 

reservists should be counted as 

employees for the entire duration of 

their call-up, ensuring that firms are not 

disadvantaged when key personnel are 

deployed, particularly if they are critical 

for meeting HUBZone employment 

requirements. A few commenters 

suggested extending these protections to 

employees on long-term disability or 

maternity leave, ensuring that they 

retain their employee status as long as 

their positions are maintained. The 

comments also proposed including 

military spouses and dependents 

residing near HUBZone areas to 

promote employment opportunities for 

military families. Based on the 

comments received, the final rule 

provides that, in general, reservists and 

National Guard members will be treated 

as employees for HUBZone purposes 

during their periods of active duty, even 

if they do not receive compensation 

from the HUBZone company during this 

time. The final rule does not adopt the 

suggestion that this treatment be 

extended to military spouses or 

dependents, or to employees on longterm disability or those on maternity 

leave who are not currently on the 

company’s payroll. In other words, if an 

individual is on medical or maternity 

leave and is still being paid by the 

HUBZone concern (i.e., being paid on 

sick or maternity leave), the individual 

will count as an employee for HUBZone 

purposes. However, if the individual 

has exhausted her/his paid leave and is 

taking additional time off from 

employment, the individual would not 

count as an employee for HUBZone 

purposes. SBA believes that at that 

point in time there is no certainly that 

the individual would come back to be 

employed by the firm and allowing such 

individual to be considered an 

employee for HUBZone purposes would 

create a much larger exception to the 

rule and leave the program vulnerable to 

abuse. The final rule clarifies that 

individuals who are on sick or 

maternity leave and continue to be paid 

by the business concern are considered 

employees. 

SBA proposed to add a new definition 

for the term ‘‘HUBZone certification 

date’’ providing that this is the date on 

which SBA approves a concern’s 

application for HUBZone certification 

and is the date specified in the 

concern’s certification letter. The 

definition provides that if a concern 

leaves the HUBZone program and 

reapplies for certification, their 

HUBZone certification date is the date 

SBA approves the concern’s most recent 

application. 

SBA proposed to add a new definition 

for the term ‘‘HUBZone Map’’ providing 

that the HUBZone Map is a publicly 

accessible online tool that depicts 

HUBZones. 

SBA proposed to add a new definition 

for the term ‘‘HUBZone resident 

employee’’ providing that this means an 

individual who meets the definition of 

an employee and who SBA has 

determined resides in a HUBZone.’’ 

SBA proposed to amend the 

definition of the term ‘‘HUBZone small 

business concern’’ by deleting the last 

sentence, which provides: ‘‘A concern 

that was a certified HUBZone small 

business concern as of December 12, 

2017, and that had its principal office 

located in a Redesignated Area set to 

expire prior to January 1, 2020, shall 

remain a certified HUBZone small 

business concern until June 30, 2023, so 

long as all other HUBZone eligibility 

requirements are met.’’ This was a 

reference to the previous map freeze, 

and since the map freeze ended on June 

30, 2023, this language is no longer 

necessary. 

SBA proposed to revise the definition 

of ‘‘Indian Tribal Government’’ to make 

it consistent with the definition of the 

term ‘‘Indian tribe’’ in the 8(a) BD 

Program regulations at § 124.3 of this 

chapter. Specifically, SBA proposed to 

revise the definition to explicitly allow 

participation by State-recognized Tribes. 

SBA received one comment opposing 

this change, arguing that expanding 

eligibility would significantly increase 

the number of competing entities. The 

commenter argued that already, a large 

percentage of HUBZone dollars go to 

Tribal 8(a) companies, creating an 

imbalance in contract awards and urged 

SBA to explore this differentiation to 

foster a more level playing field. SBA 

disagrees. State-recognized Tribes are 

legitimate Tribes and Federal assistance 

programs should be equally available to 

them and, in this case, to business 

concerns that they own. SBA does not 

believe that it makes sense for a triballyowned small business concern to 

qualify as eligible for the 8(a) BD 

program and then, with the same 

ownership and control, fail to qualify 

for the HUBZone program as an eligible 

tribally-owned small business concern. 

One of the purposes of this final rule is 

to make the eligibility requirements for 

SBA’s various programs as consistent as 

possible. As such, SBA adopts the 

proposed language as final in this rule. 

SBA proposed to revise the definition 

of ‘‘interested party’’ to prevent nonHUBZone firms from filing a HUBZone 

protest on a HUBZone set-aside 

procurement. Currently, an interested 

party is defined as any concern that 

submits an offer for a specific HUBZone 

set-aside contract or order, or 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 small business 

concern. In the context of a HUBZone 

set-aside contract, SBA does not believe 

that a firm that is not itself a qualified 

HUBZone small business concern 

should be able to submit a protest. In 

other words, a large business or a small 

business which is not a qualified 

HUBZone small business should not be 

able to protest the HUBZone status of 

the apparent successful offeror on a 

HUBZone set aside contract merely 

because it submitted an offer for that 

contract or order. The large business or 

small business which is not a qualified 

HUBZone small business is not harmed 

by an award to the apparent successful 

offeror since it has no right itself to that 

award. It is ineligible for that award. 

Only firms that are capable of winning 

the HUBZone set-aside contract or order 

should be able to protest the HUBZone 

status of an apparent successful offeror. 

SBA has seen situations where a noneligible firm has submitted an offer and 

then protested the HUBZone status of 

the apparent successful offeror. SBA 

believes this is not the intent of the 

protest process and causes unnecessary 

delays. If such a ‘‘protest’’ raises a 

genuine concern, SBA can always adopt 

it as an SBA-initiated protest. However, 

often this is a delay tactic used by an 

incumbent contractor protesting the 

apparent successful offeror in order to 


ddrumheller on DSK120RN23PROD with RULES6
Federal Register / Vol. 89, No. 242 / Tuesday, December 17, 2024 / Rules and Regulations 102469 

continue to perform the underlying 

work while the protest is resolved. This 

change would not affect the ability of a 

large business to protest the HUBZone 

status of an apparent successful offeror 

where the apparent successful offeror 

received the benefit of the HUBZone 

price evaluation preference in an 

unrestricted competition and the large 

business submitted an offer for that 

contract. In such a case, a large business 

could otherwise be eligible for the 

award of the contract. 

On May 16, 2024, SBA published a 

proposed rule in the Federal Register to 

make several changes to the WOSB 

program. 89 FR 42816. In that rule, SBA 

proposed to amend the definition of the 

term ‘‘interested party’’ to clarify who 

may submit a protest against an 

apparent successful offeror’s EDWOSB 

or WOSB status. 89 FR 42819. In 

response to that proposed rule, 

commenters recommended that SBA 

should also clarify the term ‘‘interested 

party’’ for both HUBZone and SDVO 

status protests. SBA agreed and is 

amending the term ‘‘interested party’’ 

for HUBZone status protests in that final 

rule. As such, it is no longer necessary 

to make that change in this final rule. 

SBA proposed to amend the 

definition of ‘‘principal office’’ to make 

several changes and clarifications. First, 

SBA proposed to require firms to 

provide a lease that commenced at least 

30 days prior to the date of SBA’s 

review and ends at least 60 days after 

the date of SBA’s review. Second, SBA 

proposed to clarify the requirement that 

a firm must conduct business from the 

location identified as the firm’s 

principal office and may be required to 

demonstrate that it is doing so by 

providing documentation such as 

photos and/or providing a live or virtual 

walk-through of the space. SBA also 

proposed to clarify that for shared 

working spaces (or ‘‘coworking’’ 

spaces), firms will need to provide 

evidence that the firm has dedicated 

space within any shared location, and 

that such dedicated space contains 

sufficient work surface area, furniture, 

and equipment to accommodate the 

number of employees claimed to work 

from this location. SBA proposed to 

specify that a virtual office (or other 

location where a firm only receives mail 

and/or occasionally performs business) 

does not qualify as a principal office. 

Third, SBA proposed to add a provision 

stating that if 100% of a firm’s 

employees telework (i.e., work the 

majority of the time from their homes), 

then at least 51% of its employees must 

work from HUBZone locations and the 

firm’s principal office would be the 

location where its records are kept. One 

of the purposes of the principal office 

requirement is to provide an infusion of 

capital into the HUBZone area with 

employees utilizing the services of other 

business concerns located near the 

HUBZone firm’s principal office. Where 

all of a firm’s employees telework, that 

intent cannot be fulfilled. However, 

SBA understands that in today’s 

business environment, firms are 

utilizing telework employees more and 

more. With that understanding, SBA 

proposed to allow 100% of a firm’s 

employees to telework, but where that 

occurs SBA required the firm to have 

51% of its employees reside in a 

HUBZone instead of the normal 35%. 

SBA believes that such an additional 

requirement would make up for the lack 

of additional capital infusion caused by 

not having a traditional office located in 

a HUBZone. In addition, SBA sought 

comments on whether SBA could allow 

teleworking employees who reside and 

work within the same census tract as the 

firm’s claimed principal office (or an 

adjacent census tract) to be counted as 

working from the principal office. 

SBA received twenty-six comments 

on these proposed changes, some of 

which supported the proposed revisions 

and some of which opposed them. Most 

commenters opposed the proposed 

increase of the HUBZone residency 

requirement from 35% to 51% for firms 

with teleworking employees. Many 

argued that such a change would be 

detrimental to small businesses, 

especially in sectors like IT and 

consulting, where high-wage positions 

often operate remotely. These 

commenters believed that a 51% 

requirement would be unmanageable 

and could discourage HUBZone 

participation, ultimately undermining 

the program’s goal of fostering economic 

growth in underutilized areas. Instead, 

they suggested maintaining the 35% 

threshold, which has historically 

facilitated access for small businesses, 

allowing them to thrive while 

contributing to local economies. Many 

commenters argued that the principal 

office should not be limited to 

traditional office spaces, especially 

since many small businesses operate 

from home offices. They advocated for 

counting employees who reside and 

work in the same or adjacent census 

tracts as those working from the 

principal office, even if it is owneroccupied. Additionally, some 

commenters raised concerns about the 

proposed requirement for a lease to be 

active for a specific period before and 

after SBA reviews, which could impose 

burdensome compliance challenges for 

businesses with shorter-term leases or 

those sharing space with parent 

companies. Overall, the comments 

emphasized the need for flexibility in 

the definition of the principal office and 

the residency requirement to reflect 

contemporary work practices, such as 

telework. Many suggested that SBA 

should consider alternatives that 

recognize the realities of modern 

business operations without creating 

barriers to entry for new firms. 

Additionally, they called for clear 

guidance and documentation 

expectations to ensure compliance 

while maintaining the program’s 

integrity and supporting economic 

development in HUBZone areas. 

Given the volume of negative 

comments received, SBA has decided 

not to implement the proposed 

provision requiring that if 100% of a 

firm’s employees telework, then 51% 

must reside in HUBZones in order to 

meet the principal office requirement. 

SBA believes that allowing 35% of a 

firm’s employees to qualify the firm as 

HUBZone eligible where the firm does 

not have a ‘‘principal office’’ would be 

inconsistent with the statutory 

requirements. The principal office 

requirement is statutorily required in 

addition to the 35% residency 

requirement. The proposed rule 

attempted to recognize the increase in 

teleworking, but sought to make up for 

the lack of a principal office being 

located in a HUBZone by requiring a 

greater percentage of HUBZone resident 

employees. The final rule does not 

adopt the proposed language. As such, 

the current policy will continue to 

apply, meaning that HUBZone firms 

must always have an office located in a 

HUBZone where more employees work 

compared to any other location (unless 

all employees work in HUBZones and 

have at least 35% HUBZone resident 

employees. SBA will continue to 

evaluate the impact of the prevalence of 

telework on the HUBZone portfolio. 

SBA proposed to revise the definition 

of ‘‘Qualified Disaster Area’’ to provide 

that a census tract or non-metropolitan 

county shall be considered to be a 

Qualified Disaster Area starting on the 

date on which the President declared 

the major disaster for the area in which 

the census tract or non-metropolitan 

county, as applicable, is located (or in 

the case of a catastrophic incident, on 

the date on which the catastrophic 

incident occurred in the area in which 

the census tract or non-metropolitan 

county, as applicable, is located) and 

ending on the date when SBA next 

updates the HUBZone Map in 

accordance with § 126.104(a). This is 

SBA’s current interpretation of the 

statutory definition of ‘‘Qualified 


ddrumheller on DSK120RN23PROD with RULES6
102470 Federal Register / Vol. 89, No. 242 / Tuesday, December 17, 2024 / Rules and Regulations 

Disaster Area’’ and SBA proposed to 

make that interpretation clearer. SBA 

received two comments on this, both of 

which supported SBA’s clarifications. 

SBA proposed to revise the definition 

of ‘‘Redesignated Area’’ to delete the last 

sentence, which currently reads: 

‘‘However, an area that was a 

redesignated area on or after December 

12, 2017, shall remain a redesignated 

area until June 30, 2023.’’ This is a 

reference to the previous map freeze, 

and since the map freeze ended on June 

30, 2023, this language is no longer 

necessary. SBA received one comment 

supporting this update. 

SBA proposed to revise the definition 

of ‘‘reside’’ to provide that to determine 

residence, SBA will first look to an 

individual’s address identified on his or 

her driver’s license ‘‘or other 

government-issued identification.’’ The 

current regulation provides that SBA 

will rely on an individual’s voter 

registration card. However, voter 

registration cards generally do not 

specify the date that they were issued 

and thus SBA cannot rely on them to 

determine how long an individual has 

resided at a location. In addition, SBA 

proposed to change the requirement for 

an individual to have lived at a location 

for 180 calendar days immediately prior 

to the relevant date of review. SBA 

proposed to decrease this to 90 calendar 

days because it would allow firms to 

enter the program more quickly where 

they have employees who have resided 

in HUBZones for less than 180 days. 

SBA received 13 comments on these 

proposed revisions to the definition of 

‘‘reside.’’ Eight commenters supported 

these changes and five opposed them. 

The commenters who supported the 

reduction to 90 days argued that it 

would streamline the certification 

process and encourage companies to 

hire HUBZone residents more 

efficiently. They emphasized that the 

current rules create rigidities that can 

hinder businesses from fully benefiting 

from HUBZone participation. 

Suggestions for improvement included 

allowing greater flexibility in how 

residency is verified, such as accepting 

various forms of documentation and 

aligning verification processes with 

existing employment and tax records. 

Commenters argued that this flexibility 

would also accommodate special 

circumstances, like those faced by 

military personnel and students living 

in HUBZones, ensuring that these 

individuals can still contribute to and 

benefit from the HUBZone program. 

Commenters who opposed the change to 

90 days were concerned about the 

potential for companies to hire 

employees only temporarily to meet 

certification requirements. They argued 

that employees should be permanent 

members of the company, which would 

foster a more stable workforce. 

Additionally, there was significant 

opposition to using driver’s licenses for 

address verification. Some commenters 

argued that it imposes unnecessary 

financial burdens on employees, 

especially those who may not regularly 

update their identification due to 

economic constraints. Alternative 

verification methods, such as lease 

agreements, were suggested as more 

practical solutions. 

SBA agrees that some flexibility in 

demonstrating residency is required, 

and that there may be good reasons why 

a driver’s license does not match the 

address of the claimed HUBZone 

residence. For example, where a 

claimed HUBZone employee’s spouse is 

in the military and that individual has 

accompanied the spouse to a new 

residence where the spouse is currently 

deployed, the individual’s driver’s 

license may legitimately identify a 

residence in a totally different State. 

However, SBA still believes that a 

driver’s license is the easiest way to 

demonstrate residency and that it 

should not be eliminated as a means of 

verifying an individual’s address. The 

final rule clarifies that SBA will ask for 

a driver’s license in all cases, but if a 

driver’s license is not available (e.g., an 

individual lives in a city and uses only 

public transportation) or the residence 

on the driver’s license does not match 

the claimed HUBZone residence, SBA 

will accept other proof of residency. In 

such case, the final rule requires that an 

individual also provide an explanation 

as to why a driver’s license is 

unavailable or inconsistent. This is a 

change from the proposed rule, which 

required an individual to submit a 

signed statement explaining why a 

driver’s license is unavailable and 

attesting to the individual’s dates of 

residency. SBA believes that the final 

rule is a more reasonable requirement. 

The final rule adopts the 90-day 

residency requirement set forth in the 

proposed rule. SBA believes that 90 

days strikes a good balance between 

ensuring that individuals actually reside 

in a specified location and allowing 

firms seeking HUBZone certification to 

avail themselves of a streamlined 

application process. SBA is not 

concerned with the commenters who 

believed that companies could hire 

employees only temporarily to meet 

certification requirements because the 

final rule also adds the requirement that 

a firm must qualify as an eligible 

HUBZone small business concern as of 

the date it submits an offer for a 

HUBZone contract. 

SBA proposed to revise the definition 

of ‘‘Small business concern (SBC)’’ to 

make it consistent with the definition 

contained in § 126.200(b)(1). In order to 

be eligible for the HUBZone program, 

SBA previously required that a concern 

qualify as small for the size standard 

corresponding to its primary industry. 

That requirement was contained both in 

§ 126.103 and § 126.200(b)(1). In 2023, 

SBA amended § 126.200(b)(1) to specify 

that a concern must qualify as small 

under the size standard corresponding 

to any NAICS code listed in its profile 

in the System for Award Management. 

88 FR 26164, 26212 (Apr. 27, 2023). 

SBA inadvertently did not make a 

corresponding change to the definition 

of small business concern contained in 

§ 126.103. Thus, SBA proposed to 

amend § 126.103 to be consistent with 

§ 126.200(b)(1). SBA implements this 

change in the final rule. 

SBA proposed to add a new definition 

for the term ‘‘System for Award 

Management (SAM)’’ providing that this 

term has the same meaning as that 

which is in FAR 2.101. SBA also 

proposed to remove the words ‘‘System 

for Award Management’’ wherever they 

appear in this part and add in their 

place the acronym ‘‘SAM’’. 

Finally, SBA proposed to remove the 

word ‘‘SBC’’ wherever it appears in this 

part and add in its place the phrase 

‘‘small business concern’’. 

Section 126.104 

SBA proposed to make several 

amendments to § 126.104, which 

explains how Governor-designated 

covered areas become designated. First, 

SBA proposed to insert language 

providing that a State Governor may 

annually submit a petition to the SBA 

Office of the HUBZone Program 

requesting that certain covered areas be 

designated as Governor-designated 

covered areas. This is not a change from 

current policy, but rather a restatement 

of that policy in a more clear and direct 

way. Second, SBA proposed to clarify 

that a petition need not seek SBA 

approval for those covered areas 

previously designated as Governordesignated covered areas. Third, SBA 

proposed to specify that a Governordesignated covered area will be treated 

as a HUBZone until SBA next updates 

the HUBZone Map in accordance with 

§ 126.104(a), or one year after the 

petition is approved, whichever is later. 

Fourth, SBA proposed to authorize the 

Associate Administrator for Government 

Contracting and Business Development 

or designee, instead of the SBA 

Administrator, to approve specific 


ddrumheller on DSK120RN23PROD with RULES6
Federal Register / Vol. 89, No. 242 / Tuesday, December 17, 2024 / Rules and Regulations 102471 

covered areas to be considered as 

Governor-designated covered areas. SBA 

believes that this will reduce the 

amount of time to approve a petition, 

which will allow small businesses 

located in such areas the opportunity to 

participate more expeditiously in the 

HUBZone Program. 

Finally, SBA proposed to remove the 

term ‘‘urbanized area’’ in the definition 

of ‘‘covered area’’ in § 126.104(d)(1). 

The HUBZone statute and the current 

regulations provide that only certain 

areas are eligible to become GovernorDesignated Covered Areas. Such areas 

are referred to as ‘‘covered areas.’’ A 

‘‘covered area’’ is defined in the statute 

and regulations as ‘‘an area in a State 

. . . (i) [t]hat is located outside of an 

urbanized area, as determined by the 

Bureau of the Census; (ii) [w]ith a 

population of not more than 50,000; and 

(iii) [f]or which the average 

unemployment rate is not less than 120 

percent of the average unemployment 

rate of the United States or of the State 

in which the covered area is located, 

whichever is less, based on the most 

recent data available from the American 

Community Survey conducted by the 

Bureau of the Census.’’ 15 U.S.C. 

657a(b)(3)(F)(v)(I); 13 CFR 126.104(d)(1). 

Thus, the statute and implementing 

regulations provide that ‘‘covered areas’’ 

must be located outside of ‘‘urbanized 

areas.’’ At the time this provision was 

implemented, the Census Bureau 

defined ‘‘urbanized areas’’ as ‘‘urban 

areas’’ with populations of 50,000 or 

more. In addition, the Census Bureau 

defined ‘‘urban clusters’’ as ‘‘urban 

areas’’ with populations of more than 

2,500 and less than 50,000. Given these 

definitions, SBA interpreted the statute 

to mean that areas located in ‘‘urban 

clusters’’ could be eligible for 

Governor’s designation if they also met 

the unemployment requirement. In 

addition, SBA interpreted ‘‘area’’ to 

mean either a census tract or a county. 

Following the 2020 census, the Census 

Bureau changed the definition of ‘‘urban 

area’’ in several ways, including by 

removing the distinction between 

‘‘urbanized areas’’ and ‘‘urban clusters’’ 

and discontinuing the use of those 

terms. As a result, areas that previously 

were known as urbanized areas or urban 

clusters are both now simply designated 

as urban areas. In a Federal Register 

notice published on December 29, 2022, 

the Census Bureau noted: ‘‘Agencies 

using the [urban area] classification for 

their programs are responsible for 

ensuring that the classification is 

appropriate for their use.’’ 87 FR 80114, 

8011. To be consistent with 

Congressional intent, SBA proposed to 

amend the definition of ‘‘covered area’’ 

to remove the term ‘‘urbanized area’’ 

and instead provide that the term 

‘‘covered area’’ means a census tract or 

a county ‘‘that is located outside of an 

urban area, as determined by the Bureau 

of the Census, with a population of not 

more than 50,000.’’ SBA received no 

comments on proposed § 126.104 and 

adopts it as final in this rule. 

Section 126.105 

SBA proposed to add a new § 126.105, 

explaining when the HUBZone Map 

will be updated in accordance with 

statutory requirements. Proposed 

§ 126.105 provided that Qualified 

Census Tracts and Qualified NonMetropolitan Counties will be updated 

every five years. This is consistent with 

the statutory requirement for SBA to 

update these designations on a five-year 

cycle. The proposed rule provided that 

Redesignated Areas will be added to the 

HUBZone Map when areas cease to be 

designated as Qualified Census Tracts or 

Qualified Non-Metropolitan Counties, 

in accordance with the five-year cycle, 

and will expire after three years. The 

proposed rule provided that Qualified 

Base Closure Areas will be added to the 

HUBZone Map after SBA receives 

information that the Department of 

Defense has created a new base closure 

area and will expire after eight years. 

The proposed rule provided that 

Qualified Disaster Areas generally will 

be added to the HUBZone Map on a 

monthly basis, based on data received 

by SBA from the Federal Emergency 

Management Agency (FEMA), and 

generally will expire on the effective 

date of the five-year HUBZone Map 

update following the declaration. 

Finally, the proposed rule provided that 

Governor-designated covered areas will 

be added to the HUBZone Map after 

SBA approves a petition in accordance 

with § 126.104 and will expire on the 

effective date of the five-year HUBZone 

Map update following the approval, or 

one year after the petition is approved, 

whichever is later. 

SBA received three comments on this 

new section, all of which were 

supportive. One commenter noted that 

the five-year cycle offers businesses 

greater stability and minimizes 

disruptions, fostering long-term 

planning and investment in HUBZone 

areas. To further improve this area of 

the program, the commenter suggested 

including active-duty military bases in 

eligibility criteria to increase 

participation from military families and 

extending the re-designation period 

from three to five years to reduce 

administrative burden on SBA and to 

provide more stability for affected 

communities. SBA notes that these 

changes would require statutory 

amendments. As such, SBA is 

implementing this section as proposed. 

Sections 126.200(b)(1), 127.200(e), and 

128.204(a) 

Section 126.200 sets forth the 

requirements a concern must meet to be 

eligible as a certified HUBZone small 

business concern. Pursuant to 

§ 126.200(b)(1), a concern, together with 

its affiliates, must qualify as a small 

business concern under the size 

standard corresponding to any NAICS 

code listed in its profile in SAM. This 

paragraph does not, however, explain 

how SBA will determine whether a 

business concern qualifies as small. 

Some have questioned whether SBA 

performs a formal size determination 

with respect to each application. That is 

not the case. In determining whether a 

concern seeking to be a certified 

HUBZone small business (or one 

seeking to recertify its HUBZone status) 

qualifies as small under the size 

standard corresponding to a specific 

NAICS code, SBA will accept the 

concern’s size representation in SAM, 

unless there is evidence to the contrary. 

SBA will request a formal size 

determination pursuant to 

§ 121.1001(b)(8) of this chapter where 

any information it possesses calls into 

question the concern’s SAM size 

representation. The proposed rule 

clarified SBA’s intent in this regard. The 

proposed rule also provided the same 

guidance for WOSB/EDWOSB 

certifications by adding a new 

§ 127.200(e) and to VOSB/SDVOSB 

certifications by revising § 128.204(a). 

SBA received two comments that 

supported this change. Both 

commenters agreed that SBA should not 

perform a formal size determination for 

every applicant to the HUBZone, 

WOSB, and VetCert programs. One 

commenter noted that size is generally 

a self-certification function that is 

properly addressed by protests from 

competitors with respect to the award of 

specific contracts, and it would be 

burdensome for both SBA and 

individual applicants to require formal 

size determinations on every 

application. One commenter also 

recommended that the applicable 

provisions be clarified to apply the same 

rule to certification and recertification. 

Although SBA believes the proposed 

rule adequately captured firms applying 

for HUBZone, WOSB and VetCert 

certifications and those seeking to 

recertify such status, the final rule 

makes minor wording changes to make 

that clear. 


ddrumheller on DSK120RN23PROD with RULES6
102472 Federal Register / Vol. 89, No. 242 / Tuesday, December 17, 2024 / Rules and Regulations 

Section 126.200 

SBA proposed to revise 

§ 126.200(c)(1) to incorporate policy 

updates to the ‘‘long-term investment’’ 

provision, which was implemented 

through SBA’s final rule published on 

November 26, 2019 (84 FR 65222). This 

provision incentivizes firms to make 

long-term investments in qualifying 

HUBZones by allowing them to 

maintain their principal office for up to 

10 years and continue to be considered 

to meet the principal office requirement 

even if the area loses its HUBZone 

designation. First, SBA proposed to 

specify that the 10-year ‘‘clock’’ starts to 

run on the firm’s HUBZone certification 

date (if the investment was made prior 

to the firm’s certification) or on the 

firm’s recertification date that follows 

the execution of the lease or deed (if the 

investment was made after the firm’s 

certification). Second, SBA proposed to 

clarify SBA’s current policy that a firm 

is not eligible to take advantage of the 

long-term investment provision if its 

principal office is in a Redesignated 

Area or a Qualified Disaster Area at the 

time of the investment. Redesignated 

Areas and Qualified Disaster Areas are 

areas that have already lost their 

designation as Qualified Census Tracts 

or Qualified Non-Metropolitan Counties 

because the income, poverty, and/or 

unemployment levels of those tracts/ 

counties have improved beyond the 

statutory levels necessary to qualify as 

HUBZones. SBA does not believe it 

would be in line with the purpose of the 

HUBZone program—to encourage 

investment in low-income and highunemployment areas—to encourage 

firms to invest in areas that have already 

surpassed the HUBZone thresholds for 

these socioeconomic indicators. SBA 

notes that if a firm’s principal office is 

in a location that falls within both a 

qualifying area (i.e., Qualified Census 

Tract, Qualified Non-Metropolitan 

County, Governor-Designated Covered 

Area, Qualified Base Closure Area) and 

a non-qualifying area (e.g., Redesignated 

Area that was previously a Qualified 

Non-Metropolitan County) at the time of 

the investment, the firm would be 

eligible for this provision. In addition, 

SBA proposed to provide that this 

provision would not apply to an 

investment made within 180 days of the 

expiration of an area’s designation as a 

Qualified Census Tract, Qualified NonMetropolitan County, GovernorDesignated Covered Area, or Qualified 

Base Closure Area. Third, SBA proposed 

to provide that a firm is not eligible for 

this provision if its principal office is 

owner-occupied (e.g., a location that 

also serves as a residence). In such a 

case, SBA does not believe that the 

investment in the HUBZone was 

primarily to develop a certified 

HUBZone small business. 

SBA received four comments on 

proposed § 126.200(c), three of which 

were supportive of the clarifications 

related to the long-term investment 

provision. One commenter opposed the 

proposed exclusion for an owner’s 

residence, but this commenter 

mistakenly believed that the rule 

proposed to disallow an owner’s 

residence to qualify as a principal office, 

when in fact the rule proposed this 

exclusion only for the long-term 

investment provision. Another 

commenter supported the timing of the 

10-year clock but encouraged SBA to 

allow exceptions to the owner-occupied 

exclusion. For example, if a company 

purchases a property and is in the 

process of building or intends to build, 

the commenter suggested that the 

property could be considered eligible if 

it is commercially zoned. Additionally, 

the commenter suggested that SBA 

should consider providing flexibility for 

properties like duplexes that serve dual 

purposes (both residential and office), as 

more companies are adopting such 

models. SBA does not believe that it 

makes sense to allow an exception for 

future construction. At the time of 

certification, a firm must demonstrate 

that it currently has a principal office in 

a HUBZone. Unless it does so, it would 

not be eligible for participation in the 

program. Construction of a new 

principal office could take several years. 

If it does not currently have a principal 

office located in a HUBZone and SBA 

counted the projected new construction 

site as its principal office, the firm 

would in essence would be certified 

into the program without currently 

meeting all of the necessary 

requirements and could be in this noncompliance state for a lengthy time 

while construction takes place. SBA 

does not believe that was the intent of 

the program. Conversely, if a firm 

currently has a principal office located 

in a HUBZone but has purchased 

another property in a HUBZone to 

construct a new principal office at the 

time of its application, it again does not 

make sense to invoke the long-term 

investment provision. If SBA considered 

the projected construction site to be an 

applicant’s principal office, the firm 

would lose the construction time from 

the 10-year protection period. As such, 

SBA does not adopt this suggestion. 

Regarding a duplex, SBA believes that a 

duplex, where residence and business 

are truly separated, would qualify for 

the long-term investment protection. A 

duplex has two separate addresses. The 

final rule states that an owner’s 

residence cannot qualify for the longterm investment protection. However, 

where a residence is located in one half 

of a duplex with a separate address from 

the business concern which is located in 

the other half of the duplex with its own 

distinct address, the business duplex 

address would qualify for the long-term 

investment protection. It would not, 

however, where the address of the 

residence is the same as the address of 

the business. 

The final rule amends the principal 

office long-term investment provision to 

state that the 10-year protection period 

starts to run on the firm’s HUBZone 

certification date (if the investment was 

made prior to the firm’s certification) or 

on the date of the investment (if the 

investment was made after the firm’s 

HUBZone certification date). The 

language stating that the protection 

period started on the date of 

recertification was a holdover from 

when HUBZone recertification was 

required annually. Because this rule 

changes recertification from an annual 

requirement to a requirement that 

occurs every three years, SBA does not 

believe it makes sense to tie the 10-year 

protection period to the date of 

recertification where the investment is 

made after the date of the firm’s 

certification. If an investment occurs 

soon after certification, and 

recertification is not required for three 

years, a firm could receive almost 13 

years of protection instead of the 

intended 10 years. That was not SBA’s 

intent. 

SBA proposed to revise 

§ 126.200(d)(1) to clarify that if a firm 

has one employee, that employee must 

reside in a HUBZone for the firm to be 

eligible for HUBZone certification. That 

has always been SBA’s interpretation of 

the HUBZone requirements, and SBA 

proposed to make that explicit. SBA did 

not receive any comments on this 

clarification and is implementing it as 

proposed. 

SBA proposed to revise 

§ 126.200(d)(3), which addresses 

‘‘Legacy HUBZone Employees,’’ to 

clarify certain requirements and place 

limits on who can qualify as a Legacy 

HUBZone Employee. First, SBA 

proposed to clarify that a Legacy 

HUBZone Employee is an individual 

who: (a) resided in a HUBZone (other 

than a Redesignated Area) for at least 90 

days preceding, and 180 days following, 

the concern’s HUBZone certification 

date or most recent recertification date, 

and (b) remains an employee at the time 

of the concern’s current recertification 

date. Second, SBA proposed to clarify 


ddrumheller on DSK120RN23PROD with RULES6
Federal Register / Vol. 89, No. 242 / Tuesday, December 17, 2024 / Rules and Regulations 102473 

that an individual cannot reside in a 

Redesignated Area and qualify as a 

Legacy HUBZone Employee. This does 

not mean to imply that an individual 

who resided in a HUBZone when a firm 

was first certified as a HUBZone eligible 

firm and continued to live at that same 

location while the area transitioned to a 

Redesignated Area cannot be considered 

a Legacy HUBZone Employee if that 

individual moves to a non-HUBZone 

area. SBA proposed to clarify that an 

individual who qualifies as a HUBZone 

employee for the first time while living 

in a Redesignated Area cannot later be 

deemed a Legacy HUBZone Employee. 

Third, SBA proposed to specify that a 

certified HUBZone small business may 

only have one legacy HUBZone 

employee at a given time. SBA supports 

the growth of individual HUBZone 

employees and allowing such 

employees to improve their personal 

residential situation. However, SBA is 

concerned that the Legacy HUBZone 

Employee concept could be abused. 

Without a limit on the number of Legacy 

HUBZone Employees permitted by SBA, 

a firm could potentially move all 

individuals into a HUBZone for a oneyear period and qualify all of those 

individuals as Legacy HUBZone 

Employees without those individuals 

ever intending to live long-term in the 

HUBZone area. SBA sought comments 

on: what the limit on Legacy HUBZone 

Employees should be and whether there 

should be any other limitations; 

whether SBA should limit the duration 

of Legacy HUBZone employee status to 

a certain number of years, and if so, how 

many years would be appropriate; 

whether individuals who were students 

when they resided in a HUBZone 

should be eligible for treatment as 

Legacy HUBZone Employees; whether 

Legacy Employees should be limited to 

full-time employees only; and whether 

an owner of the concern should be able 

to qualify as a Legacy HUBZone 

Employee. SBA is concerned that not 

imposing some restrictions on Legacy 

Employees could open the provision to 

abuse. The purpose of this provision is 

to allow HUBZone firms to retain 

employees who have managed to 

improve their position and move out of 

a HUBZone. This purpose is not 

relevant to many owners of HUBZones 

because they are not at risk of being 

fired for moving out of a HUBZone. 

The majority of comments opposed 

the proposed limitations on the number 

of ‘‘Legacy HUBZone Employees.’’ 

Many commenters argued that the 

proposed limitations would negatively 

impact businesses that rely on a broader 

pool of legacy employees for stability 

and workforce retention, especially in 

light of HUBZone redesignations. 

Commenters argued that restricting 

legacy employees to one per firm would 

punish HUBZone companies for 

successfully retaining staff, discourage 

employee development, and create 

unnecessary administrative burdens. 

They emphasized that companies have 

relied on the legacy employee provision 

as it was originally written and that 

reducing the number of eligible legacy 

employees would harm long-term 

employee retention and growth. Some 

commenters pointed out that limiting 

legacy employees disproportionately 

affects smaller firms with fewer 

employees, making it harder for them to 

meet the HUBZone requirements while 

maintaining staff. Commenters 

suggested several alternatives, such as 

allowing up to 50% of a firm’s 

employees to be legacy employees, or 

implementing a scalable approach based 

on company size. There was also 

support for grandfathering existing 

legacy employees and suggestions that 

the legacy designation should be based 

on the duration of time an employee has 

worked in a HUBZone, not just their 

residency status. Many commenters 

opposed limiting the duration of legacy 

status or suggested that it should match 

the amount of time an employee lived 

in a HUBZone. A few argued for a a 

specific timeframe, such as five years, to 

provide stability for businesses. Overall, 

there was significant concern that 

restricting legacy employees contradicts 

the intent of the HUBZone program. 

These commenters believed that hiring 

an individual that lives in an area of 

high unemployment or low income (i.e., 

a HUBZone) and providing that 

individual with a good salary that 

enables the individual to move to a 

better neighborhood should be 

celebrated as a success of the HUBZone 

program, and should not be 

discouraged. One commenter stated that 

a HUBZone firm may be forced to fire 

a good employee in order to remain 

eligible for the program because that 

employee moved to a better 

neighborhood due to the success of the 

HUBZone program. 

The comments were mixed on 

whether to limit legacy employee status 

to full-time employees only, excluding 

students who lived in a HUBZone while 

attending school, and whether business 

owners should be considered legacy 

employees. 

Based on the comments received, SBA 

has decided not to limit firms to only 

one Legacy HUBZone Employee. 

Instead, this final rule provides that a 

HUBZone small business concern may 

have up to four Legacy HUBZone 

Employees at a given time, but must 

have at least one other HUBZone 

employee in order for any employee to 

count as a Legacy HUBZone resident 

employee. This means there could never 

be a scenario where a HUBZone firm 

has zero employees residing in 

HUBZones. In addition, the final rule 

provides that an individual who 

initially qualified as a HUBZone 

Resident Employee by residing in a 

Redesignated Area or a Qualified 

Disaster Area will not qualify as a 

Legacy HUBZone Employee and that 

individuals who work fewer than 30 

hours per week at any time during their 

employment with the HUBZone concern 

cannot qualify as Legacy HUBZone 

Employees. Of course, that would not 

include normal time off for vacation or 

sick leave (including extended time off 

for maternity/paternity leave). SBA 

believes this compromise strikes the 

right balance between the concern 

related to risk that were raised in the 

proposed rule and the concerns raised 

in the comments. 

SBA proposed to revise § 126.200(e), 

which addresses the ‘‘attempt to 

maintain’’ requirement, to clarify when 

HUBZone firms must certify that they 

will attempt to maintain compliance 

with the 35% HUBZone residency 

requirement during the performance of 

a HUBZone contract. The proposed rule 

provided that firms must make this 

certification when they apply for 

HUBZone certification, at the time they 

complete their recertification, and at the 

time of offer for any HUBZone contract. 

SBA received one comment on this 

change, which requested that SBA 

clarify how it intends to monitor and 

enforce the ‘‘attempt to maintain’’ 

requirement for contracts that count 

toward agency HUBZone goals but are 

not HUBZone set-asides (such as 

subcontracts). The commenter urged 

SBA to ensure consistent oversight 

across all types of HUBZone contracts, 

including subcontracts. In response to 

this comment, SBA notes that the 

‘‘attempt to maintain’’ requirement is 

statutory, and is specifically tied to 

HUBZone set-asides, HUBZone sole 

source contracts, and contracts where 

the HUBZone price evaluation 

preference is applied. Thus, this final 

rule does not expand the ‘‘attempt to 

maintain’’ requirement to HUBZone 

subcontracts or to non-HUBZone 

contracts for which a procuring agency 

takes goaling credit as an award to a 

HUBZone small business concern. SBA 

has clarified this in the definition of 

‘‘attempt to maintain’’ in § 126.103 by 

specifying that the requirement applies 

only during the performance of a 


ddrumheller on DSK120RN23PROD with RULES6
102474 Federal Register / Vol. 89, No. 242 / Tuesday, December 17, 2024 / Rules and Regulations 

HUBZone contract as defined in 

§ 126.600. SBA has also clarified in this 

final rule that the 20% floor described 

in the definition of ‘‘attempt to 

maintain’’ is not an automatic substitute 

for the 35% HUBZone residency 

requirement. Specifically, this final rule 

adds a sentence to the definition of 

‘‘attempt to maintain’’ stating that a firm 

that cannot demonstrate that it is 

making the ‘‘substantive and 

documented efforts’’ described in the 

definition of ‘‘attempt to maintain’’ has 

failed to attempt to maintain the 

HUBZone residency requirement. 

SBA proposed to amend § 126.200(f) 

to provide that HUBZone firms must 

certify that they will comply with the 

applicable limitations on subcontracting 

requirements when they apply for 

HUBZone certification, and at the time 

they complete their recertification. The 

proposed rule also provided that 

certified HUBZone small business 

concerns also agree to comply with the 

limitations on subcontracting 

requirements under FAR clause 52.219– 

14, Limitations on Subcontracting, by 

submitting an offeror for and executing 

a HUBZone contract. SBA received one 

comment on proposed § 126.200(f), 

which provided that if the requirement 

to maintain compliance at the 

subcontracting level applies, then the 

flexibility granted through the ‘‘attempt 

to maintain’’ provision should also be 

extended to these subcontracts. As 

discussed above, this final rule does not 

extend the ‘‘attempt to maintain’’ 

provision to HUBZone subcontracts. In 

reviewing this provision, SBA believes 

that it is not necessary to require a 

certification relating to the limitation on 

subcontracting requirements that apply 

to possible future HUBZone contracts. 

By statute and applicable contract 

clauses, the limitations on 

subcontracting apply to all HUBZone 

contracts. SBA does not believe that any 

benefit is added by requiring firms to 

certify that they will comply with those 

requirements at the time of application 

and recertification. As such, this final 

rule removes proposed paragraph (f) and 

the associated burden of requiring 

another certification. 

Finally, SBA proposed to revise 

§ 126.200(g) (regarding suspension and 

debarment) to clarify that neither a 

concern nor any of its owners may have 

an active exclusion in SAM at the time 

of application or at any time while the 

concern is HUBZone-certified. Because 

of the elimination of paragraph (f) 

identified above, the final rule moves 

the provisions regarding suspension and 

debarment from § 126.200(g) to 

§ 126.200(f). SBA received one comment 

on this proposed amendment, which 

supported the change but also suggested 

specifying that affiliates of excluded 

entities cannot be HUBZone-certified. 

SBA notes that a suspension or 

debarment action specifically identifies 

the entities and individuals involved in 

those entities that are excluded in SAM. 

The fact that a business concern may be 

somehow affiliated with a business 

concern that has been suspended or 

debarred does not automatically make 

the affiliated business ineligible for 

Government programs and assistance. A 

Suspension and Debarment Official has 

discretion to suspend or debar affiliated 

companies where it makes sense to do 

so. Where the Suspension and 

Debarment Official does not suspend or 

debar an affiliated business concern, 

that business concern remains eligible 

for Government programs and 

assistance. SBA does not believe it 

would be consistent with the debarment 

and suspension regulations to render all 

possible affiliates ineligible for SBA’s 

programs where they themselves have 

not been suspended or debarred. 

Section 126.201 

SBA proposed to amend § 126.201 by 

refining the language explaining the 

ownership requirements for HUBZone 

small business concerns. The current 

regulations provide: ‘‘An owner of a 

SBC seeking HUBZone certification or a 

qualified HUBZone SBC is a person who 

owns any legal or equitable interest in 

such SBC.’’ SBA proposed to rephrase 

this sentence to read: ‘‘For purposes of 

qualifying for HUBZone certification, 

SBA considers any person who owns 

any legal or equitable interest in a 

concern to be an owner of the concern.’’ 

This change is intended only to make 

this section clearer and easier to read, 

without changing the meaning or intent 

of the provision. SBA received no 

comments on this proposed amendment 

and adopts it as final in this rule. 

Section 126.204 

SBA proposed to revise § 126.204(a) 

to specify that a HUBZone firm can have 

affiliates, so long as the firm and its 

affiliates in the aggregate qualify as 

small in at least one NAICS code listed 

in the HUBZone firm’s SAM profile. 

This clarification is necessary because 

the current regulation says only that the 

firm and its affiliates in the aggregate 

must be small—without specifying that 

the firms, together, must be small in at 

least one NAICS code listed in the 

HUBZone-certified firm’s SAM profile. 

SBA also proposed to amend 

§ 126.204(c) to clarify that SBA reviews 

the ‘‘totality of circumstances’’ when 

determining whether to aggregate the 

employees of affiliated companies for 

purposes of calculating a firm’s 

compliance with the 35% HUBZone 

residency and principal office 

requirements. In addition, SBA 

proposed to add a new paragraph (c)(4) 

clarifying SBA’s current policy that if 

firms are not considered affiliated for 

size purposes, their employees generally 

will not be aggregated for HUBZone 

purposes. 

SBA received three comments on 

proposed § 126.204, all of which were 

supportive. One commenter suggested 

that SBA should also explain how SBA 

will treat employees of a parent, 

subsidiary or sister entity for HUBZone 

purposes. The commenter noted that 

such firms would be affiliated under 

SBA’s size regulations, but the 

commenter believed SBA should not 

aggregate the employees of a parent, 

subsidiary, or sister entity for HUBZone 

program purposes as long as the 

companies were operating 

independently. The commenter noted 

that there is a certain amount of interdependence that will always exist 

between parent/subsidiary/sister 

entities, such as shared accounting 

functions and potentially shared 

management or directors, and it would 

defeat the purpose of permitting indirect 

ownership of HUBZone firms if SBA 

aggregates the employees of parent/ 

subsidiary or sister entities simply 

because of the types of interdependence or overlap between entities 

that is inherent in the parent/subsidiary 

or sister entity relationships. The 

commenter suggested that SBA should 

only aggregate the employees of parent/ 

subsidiary or sister entities when the 

entities go beyond the types of 

connections that are customary for 

parent/subsidiary or sister entity 

relationships and, as a result, the firms 

are essentially operating as one 

combined entity without any separation 

of employees, resources, and facilities. 

SBA believes that the current regulatory 

language adequately addresses these 

concerns. In the entity-owned small 

business context (i.e., Tribe, ANC, or 

NHO), a firm is generally not considered 

to be affiliated with its parent or sister 

companies. As noted above, the rule 

provides that if firms are not considered 

affiliated for size purposes, their 

employees generally will not be 

aggregated for HUBZone purposes. For 

other affiliated companies, although 

their receipts or employees will be 

aggregated for size purposes, the 

employees will not be aggregated for 

HUBZone residency requirements as 

long as there is a clear line of fracture 

between the concern seeking HUBZone 

status and its affiliates. In addition, 


ddrumheller on DSK120RN23PROD with RULES6
Federal Register / Vol. 89, No. 242 / Tuesday, December 17, 2024 / Rules and Regulations 102475 

current § 126.204(c)(2) specifically 

provides that ‘‘[t]he use of common 

administrative services between parent 

and/or sister concerns by itself will not 

result in an affiliate’s employees being 

counted as employees of the HUBZone 

applicant or HUBZone small business 

concern.’’ 

Sections 124.203, 126.302, 126.303, 

127.301, 127.302, 128.301 

Sections 126.302 and 126.303 provide 

general guidance on applying to SBA to 

be certified as a HUBZone small 

business concern. Section 124.203 

provides similar guidance for applying 

to the 8(a) BD program; sections 127.301 

and 127.302 do so for the WOSB 

program and section 128.301 does the 

same for applying to the VetCert 

program. The current regulations for the 

8(a) BD, HUBZone and WOSB programs 

require that an application must be 

electronically signed by a specified 

individual (by each individual claiming 

social and economic disadvantage status 

for the 8(a) BD program and by an 

officer of the concern who is authorized 

to represent the concern for the 

HUBZone and WOSB programs). The 

proposed rule changed that language to 

provide instead that the individual(s) 

upon whom eligibility is based take 

responsibility for the accuracy of all 

information submitted on behalf of the 

applicant. The proposed rule added 

similar language to § 128.301 for the 

VetCert program. SBA received two 

comments supporting this change 

without substantive comment and SBA 

adopts the proposed language as final. 

Section 126.304(e) 

SBA proposed to amend § 126.304(e) 

to clarify the records that HUBZone 

participants must maintain to ensure 

continued eligibility. Specifically, the 

proposed rule clarified that HUBZone 

small business concerns must retain 

documentation related to any ‘‘Legacy 

HUBZone employees’’ in order to 

demonstrate that individuals being 

claimed as Legacy HUBZone employees 

meet the requirements (i.e., 180 days of 

HUBZone residence after the firm’s 

certification or recertification date, and 

uninterrupted employment). SBA 

received one comment on this section, 

which was supportive of the 

clarification, and is implementing it as 

proposed. 

Section 126.306(h) 

SBA proposed to amend § 126.306 by 

adding a new paragraph (h) to make 

clear that SBA’s decision to approve or 

deny an application to the HUBZone 

program is the final agency decision. 

This is a clarification of SBA’s longstanding policy. There is no 

reconsideration or appeal process 

because declined applicants are 

permitted to reapply to the HUBZone 

program 90 days after receiving the 

decline decision. SBA received four 

comments on this proposed 

clarification, all of which were 

supportive. However, one commenter 

expressed concern about situations 

where errors are made during the 

certification process, particularly in 

light of the rollout of SBA’s new 

certification platform, where less 

experienced analysts would be 

evaluating HUBZone certifications and 

could be more prone to mistakes. The 

commenter suggested applying this 

provision to first-time applicants only, 

and allowing firms that are denied 

based on ownership or size the 

opportunity to appeal. After reviewing 

the comments, SBA is implementing 

this section as proposed. SBA first notes 

that any firm that is denied HUBZone 

certification based on SBA’s 

determination that the firm does not 

qualify as a small business concern may 

currently request a formal size 

determination as authorized by 

§ 121.1001(b)(8). As such, there is no 

need to specify that first time applicants 

can ‘‘appeal’’ SBA’s determination that 

the applicant does not qualify as small. 

In addition, SBA believes that treating 

first-time applicants and returning 

applicants differently would cause 

confusion. Further, there are already 

policies in place to address situations 

where processing errors take place. 

Where an error in processing occurs, 

SBA is able to fix the error without 

requiring the applicant to wait 90 days 

to reapply. 

Sections 126.309, 126.803, 127.305, and 

128.305 

SBA proposed to revise § 126.309, 

which describes when a declined or 

decertified firm can re-apply for 

HUBZone certification. The proposed 

rule maintained the 90-day wait period 

for firms whose application has been 

declined, but SBA proposed to 

eliminate that wait period for firms that 

have been decertified. When the 

HUBZone regulations were first 

implemented, declined or decertified 

firms were required to wait one year to 

reapply to the HUBZone program. At 

that time, SBA chose the one-year 

period to give small businesses 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. 

However, SBA found that in many 

cases, a small business only had to hire 

a few additional HUBZone residents to 

come back into compliance. SBA also 

found that after the 2010 census, many 

small businesses had principal offices in 

HUBZone areas that were expiring and 

some such businesses may be planning 

to move to newly-designated HUBZone 

areas. SBA found that it would not serve 

the purposes of the program to make 

such small businesses wait one year to 

reapply. Thus, in 2011, SBA reduced 

the wait period to ninety (90) calendar 

days, to encourage businesses to move 

into newly designated HUBZones and 

hire HUBZone residents, which are the 

two purposes of the statute. SBA also 

believed that it would create an 

incentive for small businesses that no 

longer meet the HUBZone program 

requirements to voluntarily decertify 

and then seek eligibility when they 

come back into compliance. SBA 

proposed a corresponding change to 

§ 126.803, to provide that a firm that is 

decertified for any reason (including 

based on a protest or due to voluntarily 

withdrawing) can reapply immediately 

after the decertification is effective. In 

order to promote consistency across 

SBA’s programs, SBA proposed to make 

similar changes in § 127.305 for the 

WOSB program and in § 128.305 for the 

VetCert program to eliminate the 90-day 

wait time to reapply for certification in 

those programs after it has been 

decertified. 

SBA received three comments on 

these proposed changes. One 

commenter opposed maintaining the 90- 

day wait after decline, arguing that 

certification is often declined due to 

minor or inaccurate reasons that can be 

quickly resolved. The commenter also 

expressed concern that combined with 

processing times, a 90-day waiting 

period could cause unnecessary loss of 

contracting opportunities. The 

commenter recommended that the 90- 

day waiting period be eliminated 

altogether. One commenter supported 

the proposed changes and thought that 

it made sense to align the rules for all 

of SBA’s certification programs. SBA 

notes that changes can be made to an 

application during SBA’s processing of 

the application. If SBA has identified a 

‘‘minor’’ or ‘‘inaccurate’’ reason for 

decline, that reason can be overcome 

before a final eligibility determination is 

made. As such, the final rule retains the 

90-day waiting period after a concern is 

declined certification. 

Section 126.401 

SBA proposed to revise § 126.401, 

which describes program examinations. 

The proposed rule explained that a 


ddrumheller on DSK120RN23PROD with RULES6
102476 Federal Register / Vol. 89, No. 242 / Tuesday, December 17, 2024 / Rules and Regulations 

program examination is an investigation 

by SBA officials, which verifies the 

accuracy of any certification made or 

information provided as part of the 

HUBZone application process, as part of 

the recertification process, or in 

connection with a HUBZone contract. 

The current regulation does not specify 

that program examinations may be 

conducted to verify the accuracy of 

certifications made in connection with 

HUBZone contracts. This addition is 

necessary because this final rule 

requires a HUBZone small business 

concern to meet the 35% HUBZone 

residency and principal office 

requirements on the date it submits an 

offer for a HUBZone contract, and SBA 

needs a mechanism to enforce this 

requirement. SBA did not receive any 

comments on this proposed revision. 

Section 126.403 

SBA proposed to amend § 126.403(a) 

to clarify that a program examination 

may include a site visit. The current 

regulations describing program 

examinations provide that ‘‘SBA may 

conduct a program examination, or parts 

of an examination, at one or more of the 

concern’s offices.’’ In order to conduct 

a program exam at ‘‘one or more 

locations,’’ implicit in that language is 

the authority to conduct site visits. The 

proposed rule merely explicitly set forth 

that authority. SBA notes that site visits 

are just one potential facet of a program 

examination and not all program 

examinations include site visits. The 

proposed rule added a sentence to 

§ 126.403(b) clarifying that the burden 

of proof to demonstrate eligibility is on 

the concern subject to the program 

examination. 

SBA did not receive any comments on 

the proposed revisions and adopts them 

as final in this rule. 

Section 126.404 

SBA proposed to amend § 126.404, 

which identifies the possible outcomes 

of a program examination. The proposed 

rule revised paragraphs (b) and (c) to 

eliminate the discussion of program 

examinations on applicants and to 

clarify that where a firm is found 

ineligible pursuant to a program 

examination, SBA will suspend the 

firm’s eligibility as a certified HUBZone 

small business concern for a period of 

30 calendar days to allow the firm to 

submit sufficient documentation 

showing that it was in fact eligible on 

the date of review. During the 30-day 

suspension period, the firm is ineligible 

to submit offers for or be awarded 

HUBZone contracts. Where the firm 

fails to submit documentation sufficient 

to demonstrate its eligibility by the last 

day of the 30-day period, the firm will 

be decertified. SBA will remove a firm’s 

certification in DSBS as a certified 

HUBZone small business concern 

during the 30-day suspension period. 

SBA may also identify such suspension 

actions on its website to ensure that 

relevant contracting officers are aware of 

any a firm’s current ineligibility. Prior to 

this rule, SBA has not formally removed 

firms’ HUBZone status in DSBS during 

this 30-day period. However, SBA 

believes that in order for the statutory 

requirement to be enforceable, SBA 

must remove a firm’s certification in 

DSBS during the 30-day suspension 

period. In addition, the proposed rule 

provided that the firm must provide 

written notice of the concern’s 

ineligibility to the contracting officer for 

any pending HUBZone award. If SBA 

overturns its determination, SBA will 

reverse the firm’s decertification and 

reinstate its certification. 

SBA received one comment on this 

proposed amendment. The commenter 

supported the proposed decertification 

process for firms found ineligible during 

program exams because it enhances 

transparency and compliance with 

statutory requirements and is a fair 

approach that protects legitimate 

HUBZone businesses. The final rule 

further clarifies this statutory provision 

by specifically stating that SBA will 

remove a firm as a certified HUBZone 

small business concern on DSBS during 

the 30-day suspension period. 

Sections 126.500 and 126.602 

SBA proposed to revise §§ 126.500, 

126.601, and 126.602 to eliminate the 

one-year certification rule and instead 

require firms to be eligible on the date 

of offer for HUBZone contracts and only 

recertify once every three years. SBA’s 

regulations in effect before this final 

rule required a certified HUBZone small 

business to annually recertify its 

HUBZone status to SBA. Under those 

rules, once a firm annually recertified 

its HUBZone status, it generally could 

submit offers for HUBZone contracts for 

one year without being required to meet 

the 35% HUBZone residency and 

principal office requirements at the time 

of offer. Thus, those regulations set one 

point in time—the date of certification 

or the certification anniversary date—as 

the time at which a firm must be eligible 

for a HUBZone contract. In addition, if 

a firm was eligible as of its certification 

or certification anniversary date, it 

remained eligible for HUBZone 

contracts for a period of one year from 

that date regardless of whether the firm 

falls out of compliance with the 

HUBZone eligibility requirements 

throughout the year. SBA believes that 

that process permitted abuses that were 

not intended for the program. A firm 

could hire one or more individuals who 

reside in a HUBZone for four weeks 

prior to its application for certification 

and immediately dismiss those 

individuals from its employ after 

becoming certified and be eligible 

throughout the year for HUBZone 

contracts. Similarly, a firm could again 

re-hire one or more individuals who 

reside in a HUBZone for four weeks 

prior to its certification anniversary date 

and immediately release those 

individuals after the certification 

anniversary date and be eligible for 

additional HUBZone contracts for 

another year. SBA believes that that was 

not the intent of the program. 

Thus, SBA proposed to revise 

§ 126.500 to eliminate the ‘‘one-year 

certification’’ rule and instead require 

firms to recertify to SBA every three 

years. SBA believes annual 

recertification is not necessary, and 

would impose undue burdens on 

HUBZone small businesses, if firms are 

also required to be eligible at the time 

they submit offers on any HUBZone 

contracts, as discussed further below. 

Moreover, SBA believes that uniformity 

among its contracting programs is an 

important goal, and SBA’s WOSB and 

VetCert programs require firms to 

recertify their status every three years. 

Some commenters opposed a triennial 

recertification requirement and believed 

it would not be sufficient to help firms 

maintain compliance after winning a 

HUBZone contract. However, the 

majority of commenters supported the 

proposed move to triennial 

recertification. This final rule 

implements a triennial recertification 

requirement, bringing the HUBZone 

program in line with SBA’s other 

certification programs. 

Proposed § 126.500(a)(1)(i) provided 

that, in order to recertify, a HUBZone 

firm that did not receive a HUBZone 

contract during the year preceding its 

recertification date must represent that, 

at the time of its recertification, at least 

35% of its employees reside in 

HUBZones and the concern’s principal 

office is located in a HUBZone. SBA did 

not receive any comments on this 

proposed provision and is 

implementing it as proposed. 

Proposed § 126.500(a)(1)(ii) provided 

that a HUBZone firm that was awarded 

a HUBZone contract during the year 

preceding its recertification date would 

have to represent that, at the time of its 

recertification, it is attempting to 

maintain compliance with the 35% 

HUBZone residency requirement and 

the concern’s principal office is located 

in a HUBZone. SBA has found that the 


ddrumheller on DSK120RN23PROD with RULES6
Federal Register / Vol. 89, No. 242 / Tuesday, December 17, 2024 / Rules and Regulations 102477 

HUBZone Program goals are not 

sufficiently fulfilled by how the 

‘‘attempt to maintain’’ requirement is 

currently being implemented. Under the 

current rules, a HUBZone firm can have 

less than 35% HUBZone residents at the 

time of its recertification if the firm is 

performing a HUBZone contract. This 

means that a firm being awarded 

HUBZone contracts potentially never 

has to demonstrate that it is employing 

at least 35% HUBZone residents. SBA 

believes that an indefinite period of 

allowing a HUBZone small business 

concern to fall below the 35% residency 

requirement is contrary to the purpose 

of the HUBZone Program. SBA believes 

that the intent of the program would be 

better fulfilled by giving firms a specific 

‘‘grace period’’ after they are awarded a 

HUBZone contract during which time 

they can take the necessary steps to hire 

enough HUBZone residents to get back 

up to 35% HUBZone residency. If a 

firm’s recertification falls within this 

grace period, then such firm’s 

recertification would require the firm to 

represent that it is ‘‘attempting to 

maintain’’ compliance with the 35% 

HUBZone residency requirement. After 

the grace period, then such firm would 

have to be back up to 35% HUBZone 

residency at the time of any 

recertification. SBA proposed that the 

grace period be 12 months following the 

award of a HUBZone contract. The 

proposed rule also included this 

requirement in proposed § 126.602. 

SBA received thirty comments on 

proposed §§ 126.500(a)(1)(i) and 

126.602, the majority of which were 

supportive. Many commenters 

supported a 12-month grace period, 

noting that it would provide the 

necessary flexibility for staffing 

adjustments. They suggested that this 

flexibility is vital for firms to comply 

with the rule without causing undue 

strain on their operations. Several 

commenters agreed that HUBZone firms 

should eventually have to meet the 35% 

requirement but argued that one year 

from the contract award was too short. 

A few suggested extending the 

timeframe to 18 months or two years. 

Some commenters suggested that the 

award of subsequent HUBZone 

contracts should extend the time to 

come into compliance with the 35% 

requirement, arguing that this would 

help businesses manage multiple 

contracts without the burden of quickly 

meeting the 35% employee threshold 

and would provide more time to adjust 

staffing levels without compromising 

quality or making rushed hiring 

decisions. In response to these 

comments, SBA has decided to 

implement the 12-month grace period. 

The final rule provides that where a 

certified HUBZone small business 

concern was awarded a HUBZone 

contract during the ‘‘12-month period 

preceding its recertification’’ it can 

represent that it is attempting to 

maintain compliance with the 35% 

HUBZone residency. That language is 

not limited to the first HUBZone 

contract received by a certified 

HUBZone small business concern. As 

long as the concern received any 

HUBZone contract during the 12-month 

period preceding its recertification, it 

can represent that it is attempting to 

maintain compliance with the 35% 

HUBZone residency. In effect, that 

language allows each additional 

HUBZone award to trigger a new 12- 

month grace period from the date of 

award of the additional HUBZone 

contract. 

Proposed § 126.500(a)(2) provided 

that a concern’s recertification must be 

submitted within 90 calendar days 

before the triennial anniversary of its 

HUBZone certification date. SBA 

received two comments on proposed 

§ 126.500(a)(2). One commenter 

opposed the recertification deadline of 

90 days before triennial anniversary and 

the removal of 30 day post-certification 

date grace period, believing this change 

would lead to (1) firms certifying 

compliance before being able to comply 

(since companies cannot attest to 

meeting the HUBZone requirements 90 

days before their recertification date as 

the measurement period for HUBZone 

employees will not have started), and 

(2) firms having to rush to compile 

information for certification in the days 

leading up to the certification date. 

Instead, the commenter suggested that 

SBA allow HUBZone firms the 

additional time they currently have to 

compile information so that they can 

ensure they meet all program 

requirements. The other commenter 

requested clarification of the 90-day 

recertification window—specifically, if 

the HUBZone firm would be responsible 

for initiating recertification, and if so, 

whether SBA would send out reminders 

about a firm’s upcoming recertification. 

Regarding the first comment, SBA 

concurs with the concerns raised by the 

commenter and clarifies this 

requirement in this final rule. 

Specifically, the final rule makes clear 

that when a HUBZone firm recertifies its 

HUBZone status during the 90 days 

prior to its certification anniversary 

date, it will be recertifying its eligibility 

as of the date it makes that 

recertification. This is a change from the 

current rules, which require firms to 

recertify their status as of their 

anniversary date. Since this final rule 

eliminates the one-year certification 

rule, there is no longer a need for firms 

to recertify their status as of their exact 

anniversary date. By giving firms a 90- 

day window in which to complete this 

recertification, SBA believes firms will 

have sufficient time to gather and 

review their payroll records to ensure 

that they indeed meet the HUBZone 

requirements before recertifying. In 

addition, in response to the concern that 

firms would recertify prior to being able 

to comply, SBA does not see the 

concern the commenter does. 

Recertifying ‘‘early’’ does not benefit the 

firm. The final rule eliminates the 

provision giving eligibility for the 

remainder of the year after 

recertification. Under the provisions set 

forth in the final rule, a firm must be 

eligible on the date it submits an offer 

for a HUBZone contract. Whether it 

recertified early or on time does not 

change this requirement. If the firm is 

not HUBZone eligible on the date it 

submits its offer for a HUBZone 

contract, it will not be eligible for that 

contract. Regarding the second 

comment, SBA will continue its current 

practice of sending out reminders to 

HUBZone firms notifying them of their 

upcoming recertification deadline and 

corresponding 90-day window. Firms 

will be responsible for completing the 

recertification process at any time 

during that 90-day period. For 

consistency purposes, this rule also 

amends § 128.306(d) to provide that 

same 90-day period for the VetCert 

program. 

Proposed § 126.500(a)(3) provided 

that a firm that fails to recertify will be 

proposed for decertification. SBA 

requested comments on whether such 

firms should be decertified 

automatically within a certain 

timeframe (such as 30 days) of failing to 

recertify. SBA received three comments 

on this, two of which supported 

automatic decertification because it 

encourages accountability. One 

commenter noted that this policy 

should be consistent across all SBA 

programs and stated that 30 days 

seemed like a fair amount of time. 

Another commenter supported a 30-day 

grace period before decertification, 

noting that this would allow firms to 

address problems or submit 

recertification paperwork, without 

unduly penalizing them. One 

commenter opposed automatic 

decertification, stating that it would not 

be in the best interests of the 

government or the industrial base. In 

response to the comments, the final rule 


ddrumheller on DSK120RN23PROD with RULES6
102478 Federal Register / Vol. 89, No. 242 / Tuesday, December 17, 2024 / Rules and Regulations 

provides that if a concern fails to 

recertify, SBA will decertify the concern 

at the end of its eligibility period. 

However, if a concern is able to recertify 

its eligibility within 30 days of the end 

of its eligibility period, SBA will 

reinstate the firm as a certified 

HUBZone small business concern. Thus, 

this final rule removes the proposed 

decertification step, which SBA has 

found to create an unnecessary 

administrative burden in most cases, but 

continues to provide due process to 

firms by creating a 30-day grace period 

which allows firms to recertify and 

come back into compliance with SBA’s 

regulations. This final rule also amends 

§ 127.400(b) and § 128.306(a) for the 

WOSB and VetCert programs, 

respectively, to ensure consistency 

between the programs. 

SBA proposed to revise § 126.500(b) 

to explain that SBA will conduct a 

program examination of each certified 

HUBZone small business concern at 

least once every three years to ensure 

continued program eligibility, but SBA 

may conduct more frequent program 

examinations using a risk-based analysis 

to select which concerns are examined. 

This is SBA’s current policy, and the 

proposed rule was intended to make 

this policy clearer. Frequency of 

program exams is not specified in 

statute, so this final rule aligns the 

HUBZone program with the other three 

programs, which conduct program 

examinations using a risk-based 

approach to determine which firms are 

examined. SBA has found that resources 

are not well-spent conducting exams on 

low-risk firms. This change will reduce 

the burden on small businesses that are 

not obtaining Federal contracts, improve 

the experience of small businesses with 

multiple certifications by making the 

requirements consistent across 

programs, and reduce the impact on 

SBA staffing because the HUBZone 

program will perform roughly 500 

exams per year, rather than 1,500 per 

year. SBA received two comments in 

response to proposed § 126.500(b), both 

of which were supportive. One 

commenter requested clarification of 

how ‘‘risk-based’’ will be defined and 

suggested that the analysis should also 

examine subcontracting agreements. 

Another commenter recommended that 

in conjunction with triennial 

recertification with full document 

review, SBA conduct annual check-ins 

and site visits as needed. Risk-based 

program examinations will utilize 

contract data to determine which firms 

have been awarded contracts as a 

measure of risk to the government. 

Regarding the recommendation for 

annual ‘‘check-ins,’’ SBA believes that 

the risk-based program examinations 

provide sufficient assurance against 

fraud, waste, and abuse, and annual 

reviews for all firms in the portfolio 

would create unnecessary paperwork 

and administrative burdens for both 

small businesses and the government, 

without providing enough of a benefit 

justify the cost. Thus, this final rule 

implements § 126.500(b) as proposed. 

Section 126.501 

SBA proposed to revise § 126.501 in 

its entirety to address a certified 

HUBZone small business concern’s 

ongoing obligations to SBA (which is 

what this section addressed prior to the 

2019 rule change). First, proposed 

§ 126.501(a) provided that a certified 

HUBZone small business concern that 

acquires, is acquired by, or merges with 

another business entity must provide 

evidence to SBA, within 30 calendar 

days of the transaction becoming final, 

that the concern continues to meet the 

HUBZone eligibility requirements. A 

concern that no longer meets the 

requirements may voluntarily withdraw 

from the program or it will be removed 

by SBA pursuant to program 

decertification procedures. This is 

SBA’s current policy, but the current 

regulations only require a firm to notify 

SBA via email where it is involved in 

a merger or acquisition and do not 

explain what happens after such 

notification. SBA received two 

comments on this proposed provision. 

One commenter opposed recertification 

after a merger or acquisition generally 

because that could result in a firm being 

ineligible for orders issued under a 

multiple award contract. The concern 

raised by this comment was discussed 

above in response to comments 

pertaining to § 125.12. The other 

commenter questioned whether it is still 

necessary for HUBZone firms to report 

mergers and acquisition if the program 

is now proposing eligibility at the time 

of offer. As noted in SBA’s response to 

the comments pertaining to § 125.12, 

recertification is necessary for both 

possible ineligibility for future orders 

and for procuring agency goaling 

purposes (i.e., a procuring agency 

cannot count an order or an option 

under a multiple award contract as a 

HUBZone award if the firm is no longer 

HUBZone eligible). 

Proposed § 126.501(b) provided that a 

certified HUBZone small business 

concern that is performing a HUBZone 

contract and fails to ‘‘attempt to 

maintain’’ the minimum employee 

HUBZone residency requirement must 

notify SBA via email to hubzone@

sba.gov within 30 calendar days of such 

occurrence. A concern that cannot meet 

the requirement may voluntarily 

withdraw from the program or it will be 

removed by SBA pursuant to program 

decertification procedures. SBA 

received three comments on proposed 

§ 126.501(b), all of which opposed the 

provision. One commenter disagreed 

with the requirement, arguing that it 

poses a significant compliance burden. 

Another commenter noted that the 

provision was overly harsh because a 

firm could temporarily appear to not 

comply with the attempt to maintain 

requirements but could correct that 

through its marketing efforts before it 

submits an offer for another HUHZone 

contract. The firm believed that 

decertifying a firm before it had the full 

opportunity to come back into 

compliance was wrong. SBA agrees. The 

firm will not be eligible for any 

HUBZone contract if it does not comply 

with the ‘‘attempt to maintain’’ 

requirements at time of offer, and will 

be decertified if it does not comply with 

those requirements at the time of 

recertification. SBA believes that is 

sufficient and deletes the language set 

forth in proposed § 126.501(b) in this 

final rule. 

Section 126.503 

SBA proposed to add a new paragraph 

(d) to § 126.503, clarifying that SBA will 

decertify a HUBZone small business 

concern that is debarred from Federal 

contracting without first proposing the 

firm for decertification. This is merely a 

clarification of an existing policy. Once 

a firm has been debarred, it is ineligible 

for all Federal contracts and 

subcontracts and thus there is no benefit 

to being HUBZone-certified. SBA 

received 18 comments on this proposed 

change, all of which were supportive. 

SBA is implementing this change as 

proposed. 

Section 126.504 

SBA proposed to amend § 126.504(a) 

to add that SBA will remove a firm’s 

HUBZone designation if the firm has 

been debarred from government 

contracting pursuant to the procedures 

in FAR 9.4. This change is consistent 

with the addition of a new paragraph (d) 

to § 126.503, discussed above. In 

addition, SBA proposed to revise 

§ 126.504(c) to clarify that once SBA 

decertifies a firm from the HUBZone 

program, that firm is ineligible to submit 

offers for HUBZone contracts. The 

current regulations provide that a firm 

is ineligible when it is ‘‘removed as a 

certified HUBZone small business 

concern in DSBS.’’ However, there are 

occasional lags between SBA’s 

decertification action and updates to 


ddrumheller on DSK120RN23PROD with RULES6
Federal Register / Vol. 89, No. 242 / Tuesday, December 17, 2024 / Rules and Regulations 102479 

DSBS, as well as potential errors in 

updates to DSBS. SBA believes that the 

effect of decertification should more 

properly be contained in § 126.503. As 

such, the final rule moves proposed 

§ 126.504(c)(1) to redesignated 

§ 126.503(e) in this final rule. In 

addition, the final rule moves proposed 

§ 126.504(c)(2), which provides that as 

long as a concern was a certified 

HUBZone small business and met the 

HUBZone requirements as of the date of 

its initial offer for a HUBZone contract, 

it may be awarded a HUBZone contract, 

to a new § 126.601(a)(5). 

Section 126.600 

Section 126.600 defines what 

qualifies as a ‘‘HUBZone contract.’’ SBA 

proposed to amend this section to 

clarify that a contract awarded to a joint 

venture may be considered a HUBZone 

contract if the joint venture meets the 

requirements in § 126.616. In addition, 

SBA proposed to clarify that the rules in 

Part 126 apply only to HUBZone prime 

contracts, and not to subcontracts 

awarded to HUBZone small businesses. 

SBA also proposed to add a new 

paragraph clarifying that orders 

awarded under a multiple award 

contract that was itself a HUBZone setaside are considered HUBZone 

contracts. SBA did not receive 

comments on these proposed 

clarifications. However, in response to 

other comments received, this final rule 

also adds a paragraph clarifying that 

orders set-aside for certified HUBZone 

small business concerns under a 

multiple award contract that was 

awarded as a small business set-aside 

are considered HUBZone contracts. 

Section 126.601 

SBA proposed to revise § 126.601(a) 

to specify that an offeror on HUBZone 

contract must be HUBZone-certified and 

meet the HUBZone eligibility 

requirements as of the date of its initial 

offer. As discussed above, this proposed 

change was made in conjunction with 

the proposed elimination of the ‘‘oneyear certification’’ rule and proposed 

return to triennial recertification. SBA 

proposed to clarify that a HUBZone firm 

must be HUBZone-certified on the date 

of its offer to highlight that for the 

HUBZone program—unlike the WOSB 

Program—a firm cannot submit an offer 

on HUBZone contract while its 

application is still pending. 

SBA received 28 comments on SBA’s 

proposal to require that HUBZone firms 

be eligible on the date of their initial 

offer. The comments reflected a mix of 

support and opposition. Those who 

opposed this change argued that it 

imposes significant burdens on 

HUBZone firms, citing unpredictable 

contract timelines and the challenge of 

maintaining compliance with the 35% 

HUBZone residency requirement. Many 

noted that the timing of contract 

opportunities is out of their control, 

with firms unable to plan ahead due to 

the variability in solicitation release 

dates, offer deadlines, and award 

timelines. They argued that this 

uncertainty could lead to frequent 

disruptions in eligibility. Opponents 

also expressed concerns about the 

increased administrative burden that 

would come with recertifications at the 

time of offer. They noted that this 

proposed requirement would require 

HUBZone firms to continuously 

evaluate their HUBZone eligibility as 

they prepare for each contract 

opportunity, creating a compliance 

burden that ultimately could discourage 

participation in the program. 

Additionally, they argued that this 

change would introduce unnecessary 

risks to the procurement process, as 

businesses may not know when an offer 

date will occur and could waste 

resources preparing proposals without 

knowing if they meet eligibility criteria. 

They argued that this uncertainty could 

also affect competition, with the 

potential for more protests and fewer 

HUBZone set-asides. Several 

commenters suggested alternatives, such 

as allowing recertification upon contract 

award instead of at the time of offer. 

Some believed this would reduce the 

administrative burden on both 

businesses and the government and still 

promote program integrity. Others 

proposed allowing a grace period or 

certification window for HUBZone 

businesses to adjust to workforce 

changes or other temporary fluctuations 

in eligibility. Some commenters urged 

SBA to maintain flexibility for 

competitive contracts, while keeping 

stricter compliance checks for sole 

source contracts. On the other hand, a 

number of commenters supported the 

provision to require eligibility at the 

time of offer, arguing that it ensures 

transparency and consistency with other 

small business programs. SBA is not 

swayed by the comments stating that 

firms do not know when a HUBZone 

opportunity will arise and, 

correspondingly, when an offer for a 

HUBZone opportunity must be 

submitted. These comments presume 

that maintaining at least 35% HUBZone 

resident employees is not important, 

and that as long as the firm did so at one 

point in time (i.e., the date of 

certification or recertification), it is free 

to ignore that requirement for the rest of 

the year. SBA does not believe that is in 

line with the intent of the program. One 

of the purposes of the program is to 

promote serious, meaningful 

employment of individuals residing in 

areas of high unemployment or low 

income (i.e., in HUBZones). That 

purpose should be paramount 

throughout the year, not merely at the 

time of recertification. If a firm knows 

that it must comply with the 35% 

residency requirement at the time it 

submits an offer for a HUBZone 

contract, maintaining that 35% will be 

something the firm tries to do 

throughout the year. SBA believes that 

is what the program intended. SBA also 

continues to believe that requiring 

HUBZone firms to be eligible at the time 

of offer is essential for increasing 

uniformity among the agency’s 

contracting programs. As such, the final 

rule requires a firm to be eligible at the 

time it submits its initial offer, 

including price, for a HUBZone 

contract. 

Proposed § 126.601(a)(2) provided 

that for a multiple award contract, 

where concerns are not required to 

submit price as part of the offer for the 

contract, an offeror must be identified as 

a certified HUBZone small business 

concern in DSBS (or successor system) 

and meet the HUBZone requirements in 

§ 126.200 on the date of initial offer, 

which may not include price. This is 

consistent with SBA’s size regulations at 

§ 121.404(a)(1)(iv). SBA did not receive 

any comments on this particular 

provision and is implementing it as 

proposed. 

Proposed § 126.601(f) clarified that an 

offeror on a competitively awarded 

HUBZone contract need not be eligible 

on the date of award of such contract. 

Prior to 2020, SBA’s regulations 

required eligibility for a competitively 

awarded HUBZone contract both at time 

of offer and time of award. That caused 

problems with the procurement process 

where a HUBZone employee that was 

counted on for HUBZone eligibility left 

the firm in the time between the firm’s 

offer and the date of award. The firm 

could be in the process of hiring a new 

employee from a HUBZone but if it had 

not done so by the date of award the 

firm would be ineligible for award. SBA 

continues to believe that determining 

such a firm ineligible for award is 

inappropriate. There must be certainty 

to eligibility when a firm submits an 

offer. As long as a firm is eligible as of 

the date of its offer for a competitively 

awarded HUBZone contract, it will be 

eligible for award. This is similar to the 

size requirement where a firm must also 

be small on the date of its offer but may 

grow to be other than small between the 

date of its offer and the date of award. 


ddrumheller on DSK120RN23PROD with RULES6
102480 Federal Register / Vol. 89, No. 242 / Tuesday, December 17, 2024 / Rules and Regulations 

Proposed § 126.601(f) also provided, 

however, that there is an exception to 

this rule for HUBZone sole source 

awards. For a HUBZone sole source 

award, a firm must be HUBZonecertified at the time of award. SBA 

believes that sole source procurements 

warrant stricter eligibility rules. To be 

eligible for a sole source HUBZone 

award, a procuring activity must 

conclude that the firm receiving the 

award is the only certified HUBZone 

small business concern that is capable 

of performing the contract. That 

requirement by itself is very restrictive, 

and SBA believes that eligibility should 

also be restrictive. SBA does not believe 

that Congress intended to allow a firm 

that no longer qualifies as a HUBZone 

small business concern prior to award to 

be elevated to a status as the only 

certified HUBZone small business 

concern that is capable of performing 

the contract. In addition, this change 

would align HUBZone sole source 

awards with how SBA treats sole source 

awards in the 8(a) BD program. SBA 

received two comments on proposed 

§ 126.601(f). One commenter supported 

clarifying that an offeror on a 

competitively awarded HUBZone 

contract need not be eligible on the date 

of award but agreed with the exception 

for HUBZone sole source awards. The 

other commenter opposed requiring 

eligibility at the time of offer and award 

since, as noted in a prior rulemaking, 

companies cannot always control for 

turnover since the timing of award is 

unknown. SBA has reviewed the 

comments received and implements the 

rule as proposed. 

Section 126.605 

SBA proposed to amend § 126.605 to 

clarify that this section describes 

circumstances under which a 

contracting officer is prohibited from 

soliciting a requirement as a HUBZone 

contract. The proposed rule changed the 

words ‘‘may not’’ to ‘‘shall not’’ to 

clarify that a contracting officer does not 

have discretion to award a HUBZone 

contract in those specified instances. 

SBA did not receive any comments on 

this proposed amendment and 

implements it as proposed. 

Section 126.612 

SBA proposed to amend § 126.612 by 

adding a new paragraph (f) providing 

that the awardee of a HUBZone sole 

source contract must be an eligible 

HUBZone small business concern on the 

date of award. This has always been the 

policy for the 8(a) Business 

Development program (see 

§ 124.501(h)), and SBA is trying to make 

its socioeconomic programs as 

consistent as possible. SBA received 

two comments on this section, both of 

which opposed the change. One 

commenter believed that annual 

recertification should be sufficient, 

because compliance with the 35% 

requirement can change from one day to 

another. The second commenter argued 

that firms lack control over the timing 

of awards, so they may maintain 

artificially high staffing overhead while 

an award is pending, which could 

ultimately discourage program use. As 

noted in the discussion pertaining to 

§ 126.601(f) above, because of the 

restrictive nature of HUBZone sole 

source contracts, SBA believes that the 

eligibility for such contracts should also 

be restrictive. Because of that and SBA’s 

priority to make its contracting 

programs as uniform as possible, the 

final rule requires eligibility for sole 

source HUBZone contracts on the date 

of award. A firm must not merely be a 

certified HUBZone small business 

concern on the date of award for a 

HUBZone sole source contract, it must 

actually still meet all HUBZone 

eligibility requirements. The final rule 

adds clarifying language to provide that 

a contracting officer may rely on the 

firm’s status as a certified HUBZone 

small business concern in awarding a 

sole source HUBZone contract, but if 

there is a status protest relating to the 

apparent successful offeror, SBA will 

determine whether that firm continues 

to meet the HUBZone eligibility 

requirements. Because of the addition of 

that language, the final rule renumbers 

the paragraphs contained in § 126.612, 

with proposed § 126.612(f) becoming 

§ 126.612(a)(6) in the final rule. 

Section 126.613 

SBA proposed to amend § 126.613, 

which addresses the HUBZone price 

evaluation preference (PEP), to clarify 

how the HUBZone PEP should be 

applied. The proposed rule explained 

that to apply the HUBZone PEP, a 

contracting officer must add 10% to the 

offer of the otherwise successful large 

business offeror. Then, if the certified 

HUBZone small business concern’s offer 

is lower than that of the large business 

after the HUBZone PEP is applied, the 

certified HUBZone small business 

concern must be deemed the lowestpriced offeror. The proposed rule added 

a sentence specifying that the HUBZone 

price evaluation preference does not 

apply where the initial lowest 

responsive and responsible offeror is a 

small business concern. It also added 

language specifying that the HUBZone 

price evaluation preference does not 

apply if the certified HUBZone small 

business concern will receive the 

contract as part of a reserve for certified 

HUBZone small business concerns. 

However, the HUBZone price evaluation 

preference does apply to the nonreserved portion of a full and open 

multiple award contract. 

The proposed rule also added 

clarifying language to Example 1 

explaining that a non-HUBZone small 

business concern is not affected by the 

application of the HUBZone PEP where 

such non-HUBZone small business is 

not the lowest offeror prior to the 

application of the preference. This is 

because the HUBZone PEP is intended 

neither to harm nor to benefit a nonHUBZone small business. 

The proposed rule amended Example 

2 by specifying that, in the example, 

after the application of the HUBZone 

PEP, the HUBZone small business 

concern’s offer is not lower than the 

offer of the large business (i.e., $103 is 

not lower than $102.3 ($93 × 110%)). 

The proposed rule amended Example 

3 to clarify that a contracting officer 

should not apply the HUBZone PEP 

where the lowest, responsive, 

responsible offeror is a small business 

concern, even if a large business 

concern submitted an offer. 

In addition, the proposed rule 

clarified how the PEP should be applied 

to a procurement using trade off 

procedures. The proposed rule stated 

that for a procurement using trade off 

procedures, the contracting officer must 

first apply the 10% price preference to 

the offers of any large businesses and 

then determine which offeror represents 

the best value to the Government, in 

accordance with the terms of the 

solicitation. Where, after considering 

the price adjustment, the offer of the 

certified HUBZone small business is 

determined to be the best value to the 

Government, award shall be made to the 

certified HUBZone small business 

concern. Where evaluation points are 

given to both the price and technical 

aspects of an offer and the total 

evaluation points received by a certified 

HUBZone small business concern is 

equal to or greater than the total 

evaluation points received by a large 

business after considering the price 

adjustment, award shall be made to the 

certified HUBZone small business 

concern. 

SBA received four comments on this 

section. Several commenters suggested 

that SBA should explicitly state that the 

HUBZone PEP applies to all full and 

open procurements, including those 

involving orders issued under Indefinite 

Delivery/Indefinite Quantity (IDIQ) 

contracts and other procurement 

vehicles. SBA notes that the HUBZone 

PEP is a statutory requirement, and thus 


ddrumheller on DSK120RN23PROD with RULES6
Federal Register / Vol. 89, No. 242 / Tuesday, December 17, 2024 / Rules and Regulations 102481 

SBA does not have the discretion to 

expand the HUBZone PEP to orders 

under IDIQ contracts without 

Congressional action. In general, the 

commenters agreed with the proposed 

clarifications on how the HUBZone PEP 

should be applied, including the 

examples provided by SBA. One 

commenter asked for clarification as to 

whether the applicable limitation on 

subcontracting and the 

nonmanufacturer rule applied to 

contracts for which a certified HUBZone 

small business concern received the 

benefit of the HUBZone PEP. Section 

126.600(c) specifies that awards through 

full and open competition after the 

HUBZone price evaluation preference is 

applied to an other than small business 

in favor of a certified HUBZone small 

business is a HUBZone contract. Since 

the limitations on subcontracting and 

the nonmanufacturer rule apply to all 

HUBZone contracts as they do generally 

for all small business contracts, they 

apply to unrestricted contracts where a 

HUBZone PEP is used. SBA does not 

believe a specific regulatory provision 

stating that is needed. Several 

commenters requested further 

clarification regarding the application of 

the HUBZone PEP to mentor-prote ́ge ́

joint ventures, particularly when a large 

business mentor is performing a 

significant portion (e.g., 60%) of the 

contract. They questioned whether it is 

appropriate to give the large business 

mentor a price evaluation preference 

over another large business competing 

for the same contract, as this could 

create an unfair advantage and dilute 

the intent of the HUBZone PEP. SBA 

agrees that one large business should 

not be receiving a PEP against another 

large business. The final rule clarifies 

that a HUBZone PEP does not apply to 

a HUBZone joint venture consisting of 

a certified HUBZone small business 

concern and its other than small mentor. 

Section 126.615 

SBA proposed to amend § 126.615 by 

adding a reference to § 125.9 to clarify 

that large businesses may participate in 

HUBZone procurements by serving as 

SBA-approved mentors under SBA’s 

mentor-prote ́ge ́ program, and by 

correcting the cross-reference to the 

limitations on subcontracting. SBA did 

not receive any comments on this 

proposed amendment but changes the 

words ‘‘large business’’ to ‘‘other than 

small business’’ in the final rule to 

reflect SBA’s general terminology. 

Section 126.616 

SBA proposed to amend § 126.616, 

which describes the circumstances 

under which a joint venture can be 

awarded a HUBZone contract. The 

proposed rule deleted language from 

current § 126.616(a)(1) stating that a 

‘‘joint venture itself need not be a 

certified HUBZone small business 

concern.’’ SBA proposed to delete this 

language because it implies that a joint 

venture could be HUBZone-certified, 

when in fact the HUBZone program 

does not certify joint ventures under any 

circumstances. Instead, proposed 

§ 126.616(a)(1) clarified that SBA does 

not certify HUBZone joint ventures, but 

provided that a joint venture should be 

designated as a HUBZone joint venture 

in SAM (or successor system), with the 

HUBZone-certified joint venture partner 

identified. The proposed rule added a 

new paragraph (k) providing that a 

procuring agency may only receive 

HUBZone credit for an award to a 

HUBZone joint venture where the joint 

venture complies with the requirements 

in § 126.616. 

SBA received two comments on this 

proposed amendment. One commenter 

supported this change without 

substantive comment. The second 

commenter stated that joint ventures 

should not lose an award if they are not 

designated in SAM. SBA notes that all 

offerors, including joint venturers must 

be registered in SAM at the time of offer. 

SBA implements this section as 

proposed. 

Section 126.619 

As discussed above, this final rule 

moves all recertification requirements 

for size and socioeconomic status to a 

new § 125.12. Section 126.619 refers to 

the requirements set forth in § 125.12 as 

applying to recertifications of HUBZone 

status. 

Section 126.701 

SBA proposed to amend § 126.701 by 

removing the words ‘‘these 

subcontracting percentages’’ in the 

section heading and adding in their 

place the words ‘‘the limitations on 

subcontracting’’ to clarify the content of 

the section. SBA received no comments 

on this proposed revision and adopts it 

as final in this rule. 

Section 126.800 

SBA proposed to revise § 126.800 to 

make the section more readable, to 

clarify that interested parties may 

protest a HUBZone joint venture 

offeror’s eligibility for award of a 

HUBZone contract, and to add a 

paragraph providing that SBA may 

protest an apparent successful offeror’s 

status as a certified HUBZone small 

business concern on a non-HUBZone 

contract. SBA believes that where there 

is evidence that a prospective awardee 

claiming status as a certified HUBZone 

small business does not meet the 

HUBZone requirements, there should be 

the ability to protest the firm’s 

HUBZone status, even for a nonHUBZone award. This will prevent an 

agency from receiving HUBZone credit 

where the awardee is not eligible for the 

program. SBA received no comments on 

this proposed revision and makes minor 

wording changes to clarify that for other 

than HUBZone contracts, any offeror for 

that contract, the contracting officer or 

SBA may protest an apparent successful 

offeror’s status as a certified HUBZone 

small business concern. 

Section 126.801 

In response to the change made to 

§ 126.601(a) requiring a HUBZone small 

business to be eligible for a HUBZone 

contract as of the date of its initial offer, 

the proposed rule made corresponding 

changes to § 126.801, to recognize that 

the date of offer would be the relevant 

date for protesting a HUBZone small 

business concern’s eligibility for award 

of a HUBZone contract. SBA received 

no comments on this proposed revision. 

The final rule adopts the proposed 

language and adds clarifying language 

regarding timeliness and where a 

HUBZone status protest should be filed. 

The final rule clarifies that an interested 

party other than a contracting officer or 

SBA must submit its written protest to 

the contracting officer. The contracting 

officer must then forward that protest to 

SBA at hzprotests@sba.gov. A 

contracting officer can initiate his/her 

own HUBZone status protest by filing a 

protest with SBA at that same email 

address. The final rule also specifies in 

the general section the current policy 

that a protest by a contracting officer or 

SBA challenging the HUBZone status of 

an apparent successful offeror on a 

HUBZone contract or of an awardee on 

a HUBZone contract is always timely. It 

cannot be premature (i.e., before an 

apparent awardee has been selected), 

but it can be at any point after that. 

Section 126.803 

SBA proposed to amend § 126.803 by 

revising paragraph (a), which explains 

the date that will be used to determine 

a firm’s HUBZone eligibility if it is the 

subject of a HUBZone status protest. 

Consistent with the proposed 

requirement that a firm be eligible on 

the date of offer for a competitive 

HUBZone contract, proposed 

§ 126.803(a) provided that for all 

HUBZone contracts other than 

HUBZone sole source awards, SBA shall 

determine a protested firm’s HUBZone 

eligibility as of the date of its initial 

offer that includes price. The proposed 


ddrumheller on DSK120RN23PROD with RULES6
102482 Federal Register / Vol. 89, No. 242 / Tuesday, December 17, 2024 / Rules and Regulations 

rule provided that for HUBZone sole 

source awards, SBA would determine a 

protested firm’s HUBZone eligibility as 

of the date of award. 

SBA also proposed to add a new 

paragraph to § 126.803 providing that 

the burden of proof to demonstrate 

eligibility is on the protested concern. 

This paragraph explained that if a 

concern does not provide information 

requested by SBA within the allotted 

time provided, or if it submits 

incomplete information, SBA may draw 

an adverse inference and presume that 

the information that the applicant failed 

to provide would demonstrate 

ineligibility and sustain the protest on 

that basis. These policies are explained 

in SBA’s protest notification letters, and 

SBA believes they should also appear in 

the protest regulations. SBA received no 

comments on these proposed revisions 

and adopts them in this final rule. In 

addition, this final rule adds a 

paragraph specifying that for two-step or 

two-phase procurements, SBA will 

determine the HUBZone small business 

concern’s eligibility as of the date that 

it submits its initial bid or proposal 

(which may or may not include price) 

during phase one. This is to align with 

§ 126.601(e), which addresses two-step 

procurements. 

Section 126.900 

SBA proposed to amend § 126.900 by 

adding a new paragraph (e)(4) providing 

that if SBA discovers that false or 

misleading information has been 

knowingly submitted by a small 

business concern in order to obtain or 

maintain HUBZone certification, SBA 

will propose the firm for decertification. 

SBA received fifteen comments on this 

section, all of which were supportive. 

SBA adopts this proposed revision as 

final in this rule. 

Sections 127.200 and 128.200 

In order to be eligible for the 8(a) BD 

program, SBA requires socially and 

economically disadvantaged individuals 

to reside in the United States. See 13 

CFR 124.101. There currently is not a 

similar requirement for the WOSB or 

VetCert programs. SBA believes that 

qualifying individuals should reside in 

the United States to more adequately 

advance the purposes of the programs. 

The proposed rule added a United 

States residency requirement for 

qualifying individuals in the WOSB and 

VetCert programs. SBA received two 

comments supporting these proposals 

without substantive comment and 

adopts the proposed rule as final. 

Section 127.400 

Section 127.400 provides guidance as 

to how a concern can maintain its 

WOSB or EDWOSB certification. 

Current § 127.400(b) specifies that a 

concern must either request a program 

examination from SBA or notify SBA 

that it has requested a program 

examination from a third-party certifier 

no later than 30 days prior to its 

certification anniversary. In order to 

provide consistency between the 

programs, this rule states that a concern 

must either recertify with SBA or notify 

SBA that it has completed a program 

examination from a third party certifier 

in the 90 calendar days prior to its 

certification anniversary. This rule also 

revises the example set forth in the 

regulations to take into account the 

change from 30 days to 90 days. 

Section 134.1104 

Section 134.1104 sets forth the time 

limits a VOSB or SDVOSB must appeal 

an adverse determination finding it 

ineligible for the VetCert program to 

SBA’s Office of Hearings and Appeals 

(OHA). Currently, § 134.1104 requires 

an appeal to be filed within 10 business 

days of receipt of the denial. When an 

application for the 8(a) BD program is 

denied, a firm has 45 days from the date 

it receives the Agency decision to file an 

appeal with OHA. See 13 CFR 

124.206(b). SBA is in the process of 

establishing a uniform application 

processing system. That system will 

allow a firm to simultaneously apply for 

multiple certifications for which it 

believes it is eligible. If a firm applied 

for 8(a) and VetCert certification at the 

same time and was denied for both 

programs, the current regulations would 

require the firm to appeal its VetCert 

denial withing 10 days while not being 

required to file its 8(a) eligibility appeal 

for 45 days. SBA believes that may be 

confusing to affected applicants and that 

there should be consistency in the 

appeal process. As such, this rule 

changes the time to file an appeal for the 

VetCert program to 45 days. 

Compliance With Executive Orders 

12866, 12988, 13132, 13563, the 

Congressional Review Act (5 U.S.C. 

801–808), the Paperwork Reduction Act 

(44 U.S.C. Ch. 35), and the Regulatory 

Flexibility Act (5 U.S.C. 601–612): 

Executive Orders 12866, 13563 and 

14904 

Executive Order 12866, ‘‘Regulatory 

Planning and Review,’’ directs agencies 

to assess all costs and benefits of 

available regulatory alternatives and, if 

regulation is necessary, to select 

regulatory approaches that maximize 

net benefits (including potential 

economic, environmental, public health 

and safety effects, distributive impacts, 

and equity). Executive Order 13563, 

‘‘Improving Regulation and Regulatory 

Review,’’ emphasizes the importance of 

quantifying both costs and benefits, of 

reducing costs, of harmonizing rules, 

and of promoting flexibility. Executive 

Order 14094, ‘‘Modernizing Regulatory 

Review,’’ amends section 3(f) of 

Executive Order 12866 and supplements 

and reaffirms the principles, structures 

and definitions governing contemporary 

regulatory review established in 

Executive Order 12866 and Executive 

Order 13563. The OMB Office of 

Information and Regulatory Affairs 

(OIRA) has determined that this rule is 

a significant regulatory action and, 

therefore, it was reviewed under 

subsection 6(b) of E.O. 12866. 

Regulatory Impact Analysis 

1. Is there a need for the regulatory 

action? 

This regulatory action clarifies and 

streamlines SBA’s regulations governing 

the HUBZone Program and other 

contracting assistance programs. In 

2019, SBA published a comprehensive 

revision to the HUBZone Program 

regulations, which implemented 

changes intended to make these 

regulations easier to understand and 

implement. This rule is intended to 

further clarify and improve policies 

surrounding some of those changes to 

ensure that the HUBZone program 

fulfills its statutory purpose. In 

addition, SBA has heard from small 

businesses of a desire for consistency 

among its contracting assistance 

programs in order to relieve burdens 

associated with compliance with 

multiple programs. As a result, the rule 

makes several improvements to create 

uniformity among the programs, 

including deleting the program-specific 

recertification requirements contained 

separately in SBA’s size, 8(a) BD, 

HUBZone, WOSB, and VetCert and 

moving them to a new section that 

would cover all size and status 

recertification requirements. 

2. What are the incremental benefits and 

costs of this regulatory action? 

This rule benefits program 

participants by reducing burdens and 

increasing consistency with other 

contracting programs while changing or 

adding some compliance requirements 

that strengthen the program’s impact 

and reduce the potential for business 

policies and practices that are contrary 

to the goals of the HUBZone program. 

The reduction of burdens includes the 


ddrumheller on DSK120RN23PROD with RULES6
Federal Register / Vol. 89, No. 242 / Tuesday, December 17, 2024 / Rules and Regulations 102483 

decrease in the time of proof of 

residence for employees, removal of the 

90-day wait period for reapplication 

after decertification, revisions to the 

part of the rule that addresses Governordesignated covered areas, a change in 

the negative-control rule in SBA’s 

affiliation rule, deletion of programspecific requirements for certification, 

and triennial instead of annual 

recertification. Compliance 

requirements include limits on the 

number of Legacy Employees, revised 

requirements for the use of the ‘‘attempt 

to maintain’’ statutory language, and 

proof of eligibility at the time of offer of 

a HUBZone contract. These compliance 

measures are consistent with the 

program’s goal of promotion of growth 

and impact of small businesses in 

historically underutilized areas and 

SBA believes, as outlined below, that 

they are not substantial burdens. 

Benefits 

The decrease from 180 days to 90 

days for proof of employees’ residency 

allows for firms to enter the HUBZone 

program more quickly and increases 

opportunities for newly-hired 

employees. Both of these results 

increase accessibility of the program’s 

opportunities. Removal of the 90-day 

wait period for decertified firms also 

promotes the program’s accessibility 

because SBA has found that a shorter 

wait period is consistent with firms’ 

ability to qualify or return to 

compliance by hiring HUBZone 

residents or by moving to a newlydesignated HUBZone. 

The restatement of § 126.104 clarifies 

existing policy on Governor-designated 

covered areas, including the condition 

for annual petitions and a statement of 

no need for SBA’s approval of 

previously designated covered areas. 

This restatement decreases uncertainty 

for firms that participate or plan to 

participate in the program. The 

restatement also authorizes the 

Associate Administrator for Government 

Contracting and Business Development, 

or designee, instead of the 

Administrator to approve covered areas, 

which will reduce time to approve a 

petition and facilitate entry into the 

program. 

Amendments to regulations on 

affiliation will remove inconsistencies 

with other programs’ regulations. The 

benefit of the amendments is more 

certainty on measures that minorityshare investors can include to protect 

their investments without a finding of 

control. This rule further reduces 

uncertainty in this matter by applying 

the same language to the 8(a) BD, WOSB 

and VetCert programs. SBA expects the 

changes in regulations on affiliation and 

control and increased consistency 

among programs to improve the 

environment for access to capital for 

small businesses in contracting 

assistance programs. 

The rule returns the HUBZone 

program to triennial recertification and 

deletes program-specific recertification 

requirements. Both of these changes 

alleviate the burden associated with 

recertification. With recertification 

taking about an hour to complete, SBA 

estimates that the change to triennial 

recertification will result in an annual 

reduction in the time burden from 

recertification of approximately 2,468 

hours and about $326,911 in annual 

savings. SBA has seen a downward 

trend in the number of HUBZone firms 

over the years, with lateness in annual 

recertification as one reason for the 

trend, so a reduction in this 

recertification burden may increase the 

number of HUBZone program 

participants and, consequently, result in 

wider economic benefits generated by 

more HUBZone firms in communities. 

Deletion of program-specific 

recertification requirements will also 

reduce time in recertification. In 2023, 

SBA sampled several years of data to 

estimate that about 10% of the firms in 

the HUBZone program were also in the 

WOSB program and 15% in the 8(a) 

program. The eliminated recertification 

procedures from uniform certification 

will reduce the time burden by an 

estimated 617 hours and generate an 

additional $81,728 in annual savings. 

Revisions in Compliance Measures 

This final rule revises § 126.200(d)(3) 

to allow HUBZone firms to retain 

employees who have move out of a 

HUBZone but proposes a limitation on 

the number of these Legacy HUBZone 

Employees. This is an attempt to 

balance the needs of employees who 

move for personal reasons or for 

professional development with the aims 

of the program to promote business 

activity in specific areas. The limitation 

is a potential source of burden on small 

business entities but is offset by the 

economic development from 

employment of HUBZone residents. 

SBA is also adjusting the threshold of 

20 percent of employees for ‘‘attempt to 

maintain’’ currently in § 126.500(a)(2) 

with 35 percent. This increased 

threshold is a stronger standard but the 

procedures for demonstrating 

compliance are not different. Any 

resulting costs should be balanced 

against SBA’s assessment that HUBZone 

goals are not sufficiently fulfilled by 

implementation of the current 

requirement of 20 percent. 

This rule requires any certified 

HUBZone small business to be eligible 

as of the date of offer for any HUBZone 

contract. In Federal Procurement Data 

System (FPDS) data from previous 

years, approximately 2,100 new 

HUBZone contracts were awarded in a 

fiscal year. SBA estimates it takes 

approximately 1 hour for a firm to 

gather proof that it is eligible at the time 

of offer. Thus, this rule will increase the 

burden on HUBZone small business 

concerns by approximately 2,100 hours 

for an estimated annual cost of 

$278,166. SBA notes that the number of 

firms in the program has decreased over 

the past few years and this number of 

2,100 may therefore be too high. SBA 

also notes that a specific small business 

entity incurs this burden only when a 

contract is offered and that, in the 

aggregate, the burden is balanced by the 

benefits of consistency of this provision 

with other contracting programs and 

maintenance of standards for the 

integrity of the HUBZone program. 

Summary 

The changes in this rule clarify and 

streamline regulations and increase 

consistency with other contracting 

programs. Many of the benefits are not 

quantifiable, but SBA estimates annual 

savings of about $408,639 from reduced 

frequency of recertification. Benefits 

from the changes regarding affiliation 

and control reduce uncertainty for 

investors and will therefore have a 

significant impact on access to capital. 

The rule contains measures that 

introduce or strengthen some 

compliance requirements but these are 

balanced by the need to maintain the 

goals and integrity of the program. The 

one quantifiable burden noted in these 

compliance measures is proof of 

eligibility at the time of offer and this is 

a cost only when the benefit of the offer 

is present. 

3. What are the alternatives to this rule? 

SBA considered alternatives to each 

of the significant changes made by this 

rule. Instead of requiring HUBZone 

firms to recertify every three years and 

be eligible at the time of offer, SBA 

considered maintaining the current 

requirement where annual 

recertification allows a concern to seek 

and be eligible for HUBZone contracts 

for a year. However, SBA has found that 

the annual recertification requirement 

does not fulfill the purposes of the 

HUBZone program as effectively as 

requiring firms to be eligible at the time 

of offer for HUBZone contracts. 

Moreover, SBA believes that uniformity 

among its contracting programs is an 

important goal, and returning to 


ddrumheller on DSK120RN23PROD with RULES6
102484 Federal Register / Vol. 89, No. 242 / Tuesday, December 17, 2024 / Rules and Regulations 

triennial recertification and eligibility 

determinations based on the date of 

offer would bring the HUBZone program 

much more in line with SBA’s other 

small business and socioeconomic 

contracting programs. 

This regulatory action is needed to 

clarify and improve SBA’s regulations 

governing the HUBZone Program and 

SBA’s other socioeconomic contracting 

programs. In 2019, SBA published a 

comprehensive revision to the 

HUBZone Program regulations, which 

implemented changes intended to make 

the HUBZone Program more efficient 

and effective. This rule is intended to 

clarify and improve policies 

surrounding some of those changes. The 

clarifications and improvements are 

needed to ensure that the rules 

governing the HUBZone program fulfill 

its statutory purpose. In addition, SBA 

has heard from the small business 

community that improvements are 

needed to make its socioeconomic 

contracting programs more uniform, in 

order to relieve burdens associated with 

compliance with multiple programs. As 

a result, this final rule makes several 

improvements to create uniformity 

among the programs, including deleting 

the program specific recertification 

requirements contained separately in 

SBA’s size, 8(a) BD, HUBZone, WOSB, 

and VetCert and moving them to a new 

section that would cover all size and 

status recertification requirements. 

Executive Order 13132 

For the purposes of Executive Order 

13132, Federalism, SBA has determined 

that this rule will not have substantial, 

direct effects on the States, on the 

relationship between the national 

government and the States, or on the 

distribution of power and 

responsibilities among the various 

levels of government. Therefore, for the 

purpose of Executive Order 13132, 

Federalism, SBA has determined that 

this rule has no federalism implications 

warranting preparation of a federalism 

assessment. 

Paperwork Reduction Act, 44 U.S.C. Ch. 

35 

This rule does not impose additional 

reporting or recordkeeping requirements 

under the Paperwork Reduction Act, 44 

U.S.C. Chapter 35. 

In 2019, SBA revised its regulations to 

give contracting officers discretion to 

request information demonstrating 

compliance with the limitations on 

subcontracting requirements. See 84 FR 

65647 (Nov. 29, 2019). In conjunction 

with this revision, SBA requested an 

Information Collection Review by OMB 

(Limitations on Subcontracting 

Reporting, OMB Control Number 3245– 

0400). OMB approved the Information 

Collection. This rule does not alter the 

contracting officer’s discretion to 

require a contractor to demonstrate its 

compliance with the limitations on 

subcontracting at any time during 

performance and upon completion of a 

contract. The estimated number of 

respondents, burden hours, and costs 

remain the same as that identified by 

SBA in the previous Information 

Collection. As such, SBA believes this 

provision is covered by its existing 

Information Collection, Limitations on 

Subcontracting Reporting. 

Regulatory Flexibility Act, 5 U.S.C. 601– 

612 

According to the Regulatory 

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

when an agency issues a rulemaking, it 

must prepare a regulatory flexibility 

analysis to address the impact of the 

rule on small entities. However, section 

605 of the RFA allows an agency to 

certify a rule, in lieu of preparing an 

analysis, if the rulemaking is not 

expected to have a significant economic 

impact on a substantial number of small 

entities. The RFA defines ‘‘small entity’’ 

to include ‘‘small businesses,’’ ‘‘small 

organizations,’’ and ‘‘small 

governmental jurisdictions.’’ This final 

rule concerns various aspects of SBA’s 

HUBZone program, as well as its size, 

8(a) BD, WOSB, and VetCert programs. 

As such, the rule relates to small 

businesses but would not affect ‘‘small 

organizations’’ or ‘‘small governmental 

jurisdictions.’’ 

The rule changes clarify and 

streamline regulations and increase 

consistency with other contracting 

programs. Many of the benefits are not 

quantifiable, but SBA estimates annual 

savings of about $408,639 from reduced 

frequency of HUBZone recertification. 

There are approximately 5,000 small 

businesses that are listed as certified 

HUBZone small businesses in DSBS, 

and under the proposed rule, these 

firms would only need to recertify every 

three years, rather than every year. 

Benefits from the proposed changes 

regarding affiliation and control reduce 

uncertainty for investors and may 

therefore improve access to capital. The 

rule contains measures that introduce or 

strengthen some compliance 

requirements, but these are balanced by 

the need to maintain the goals and 

integrity of the program. The one 

quantifiable burden noted in these 

proposed compliance measures is proof 

of HUBZone eligibility at the time of 

offer and this is a cost only when the 

benefit of the offer is present. Moreover, 

this burden is counterweighed by the 

benefit of making the HUBZone program 

more consistent with SBA’s other 

socioeconomic contracting programs, 

which decreases the amount of 

regulations that small businesses must 

learn and understand in order to 

participate in SBA’s programs. The 

other changes that make the programs 

more consistent, such as consolidating 

the regulations related to recertification 

of size and status, only serve to benefit 

the small businesses that participate in 

these programs. Based on the foregoing, 

SBA does not believe that the proposed 

amendments would have a disparate 

impact on small businesses or would 

impose any additional significant costs. 

For the reasons discussed, SBA certifies 

that this proposed rule would not have 

a significant economic impact on a 

substantial number of small entities. 

List of Subjects 

13 CFR Part 121 

Administrative practice and 

procedure, Government procurement, 

Government property, Grant programs— 

business, Individuals with disabilities, 

Loan programs—business, Small 

businesses. 

13 CFR Part 124 

Administrative practice and 

procedure, Government procurement, 

Government property, Small businesses. 

13 CFR Part 125 

Government contracts, Government 

procurement, Reporting and 

recordkeeping requirements, Small 

businesses, Technical assistance. 

13 CFR Part 126 

Administrative practice and 

procedure, Government procurement, 

Penalties, Reporting and recordkeeping 

requirements, Small businesses. 

13 CFR Part 127 

Government contracts, Reporting and 

recordkeeping requirements, Small 

businesses. 

13 CFR Part 128 

Government contracts, Government 

procurement, Reporting and 

recordkeeping requirements, Small 

businesses Technical assistance, 

Veterans. 

13 CFR Part 134 

Administrative practice and 

procedure, Claims, Confidential 

business information, Equal access to 

justice, Equal employment opportunity, 

Lawyers, Organization and function 

(Government agencies). 

Accordingly, for the reasons stated in 

the preamble, SBA amends 13 CFR parts 


ddrumheller on DSK120RN23PROD with RULES6
Federal Register / Vol. 89, No. 242 / Tuesday, December 17, 2024 / Rules and Regulations 102485 

121, 124, 125, 126, 127, 128, and 134 as 

follows: 

PART 121—SMALL BUSINESS SIZE 

REGULATIONS 

■ 1. The authority citation for part 121 

continues to read as follows: 

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

636(a)(36), 662, and 694a(9). 

■ 2. Amend § 121.103 by revising 

paragraphs (a)(3), (h)(3) introductory 

text, and (h)(3)(i), and adding a new 

adding paragraph (h)(3)(v), to read as 

follows: 

§ 121.103 How does SBA determine 

affiliation? 

(a) * * * 

(3) Control may be affirmative or 

negative. Negative control includes, but 

is not limited to, instances where a 

minority shareholder has the ability, 

under the concern’s charter, by-laws, or 

shareholder’s agreement, to prevent a 

quorum or otherwise block action by the 

board of directors or shareholders. 

However, SBA will not find that a 

minority shareholder has negative 

control where such minority 

shareholder has the authority to block 

action by the board of directors or 

shareholders regarding the following 

extraordinary circumstances: 

(i) Adding a new equity stakeholder 

or increasing the investment amount of 

an equity stakeholder; 

(ii) Dissolution of the company; 

(iii) Sale of the company or all assets 

of the company; 

(iv) The merger of the company; 

(v) The company declaring 

bankruptcy; 

(vi) Amendment of the company’s 

corporate governance documents to 

remove the shareholder’s authority to 

block any of (a)(3)(i) through (v); and 

(vii) Any other extraordinary action 

that is crafted solely to protect the 

investment of the minority 

shareholders, and not to impede the 

majority’s ability to control the 

concern’s operations or to conduct the 

concern’s business as it chooses. 

* * * * * 

(h) * * * 

(3) Ostensible subcontractors and 

unduly reliant managing joint venture 

partners. (i) An offeror is ineligible as a 

small business concern, an 8(a) small 

business concern, a certified HUBZone 

small business concern, a WOSB/ 

EDWOSB concern, or a VOSB/SDVOSB 

concern where SBA determines there to 

be an ostensible subcontractor. An 

ostensible subcontractor is a 

subcontractor that is not a similarly 

situated entity, as that term is defined 

in § 125.1 of this chapter, and performs 

primary and vital requirements of a 

contract, or of an order, or is a 

subcontractor upon which the prime 

contractor is unusually reliant. 

* * * * * 

(v) A joint venture offeror is ineligible 

as a small business concern, an 8(a) 

small business concern, a certified 

HUBZone small business concern, a 

WOSB/EDWOSB concern, or a VO/ 

SDVO small business concern where 

SBA determines that the managing joint 

venture partner will not perform 40% of 

the work to be performed by the joint 

venture. 

* * * * * 

■ 3. Amend § 121.104 by revising 

paragraph (a)(1) to read as follows: 

§ 121.104 How does SBA calculate annual 

receipts? 

(a) * * * 

(1) SBA will consider and generally 

rely on a concern’s Federal income tax 

return and any amendments filed with 

the IRS on or before the date of selfcertification to determine the size status 

of the concern. Where a concern may 

legally exclude certain revenue for tax 

purposes, SBA will not include that 

revenue in its analysis. However, SBA 

may consider other relevant information 

where there is reasonable basis to 

believe the tax filings are false. 

* * * * * 

■ 4. Revise § 121.404 to read as follows: 

§ 121.404 When is the size status of a 

business concern determined? 

(a) General. A concern, including its 

affiliates, must qualify as small under 

the NAICS code assigned to a contract 

as of the date the concern submits a 

written self-certification that it is small 

to the procuring activity as part of its 

initial offer or response which includes 

price. Once awarded a contract as a 

small business, a firm is generally 

considered to be a small business 

throughout the life of that contract. 

(b) Multiple Award Contracts. (1) If a 

single NAICS code is assigned to a 

multiple award contract as set forth in 

§ 121.402(c)(1)(i), SBA determines size 

status for the underlying multiple award 

contract as of the date a business 

concern submits its initial offer (or other 

formal response to a solicitation), which 

includes price, for the contract based 

upon the size standard set forth in the 

solicitation for the multiple award 

contract. 

(2) When multiple NAICS codes are 

assigned to a multiple award contract as 

set forth in § 121.402(c)(1)(ii), SBA 

determines size status for the 

underlying multiple award contract for 

each discrete category for which an offer 

is submitted, by applying the size 

standard corresponding to each discrete 

category, as of the date a business 

concern submits its initial offer which 

includes price for the contract. 

(3) Where concerns are not required to 

submit price as part of the initial offer 

for a multiple award contract, SBA 

determines size status for the 

underlying multiple award contract as 

of the date a business concern submits 

its initial offer for the contract, which 

may not include price. 

(c) Orders and Agreements 

Established Against Multiple Award 

Contracts—(1) Unrestricted Contracts. 

Where an order is set-aside for small 

business under an unrestricted multiple 

award contract, SBA determines size 

status for each order placed against the 

multiple award contract as of the date 

a business concern submits its initial 

offer (or other formal response to a 

solicitation), which includes price, for 

each order. 

(2) Set-Aside or Reserved Contracts. 

Where an order is issued under a 

multiple award contract that itself was 

set aside or reserved for small business 

(i.e., small business set-aside, 8(a) small 

business, service-disabled veteranowned small business, HUBZone small 

business, or women-owned/ 

economically-disadvantaged womenowned small business), SBA determines 

size status as of the date a business 

concern submits its initial offer, which 

includes price, for the set-aside or 

reserved multiple award contract, 

unless a contracting officer requests size 

recertification with respect to a specific 

order. 

(i) Where a contracting officer 

requests size recertification with respect 

to a specific order, size is determined as 

of the date the business concern submits 

its initial offer (or other formal response 

to a solicitation), which includes price, 

for the order. 

(ii) Where a contracting officer 

requests size recertification with respect 

to a specific order, size is determined 

only with respect to that order. Where 

a contract holder has grown to be other 

than small and cannot recertify as small 

for a specific order for which a 

contracting officer requested 

recertification, it may continue to 

qualify as small for other orders issued 

under the contract where a contracting 

officer does not request recertification. 

(3) Agreements. With respect to 

agreements established under FAR part 

13, size is determined as of the date the 

business concern submits its initial 

offer, which includes price, for the 

agreement. Because an agreement is not 

a contract, the concern must also qualify 

as small as of the date the concern 


ddrumheller on DSK120RN23PROD with RULES6
102486 Federal Register / Vol. 89, No. 242 / Tuesday, December 17, 2024 / Rules and Regulations 

submits its initial offer, which includes 

price, for each order issued pursuant to 

the agreement to be considered small for 

the order. 

(4) Exceptions. (i) For orders or BPAs 

to be placed against the GSA Federal 

Supply Schedule (FSS) Multiple Award 

Schedule (MAS) contract, size is 

determined as of the date the business 

concern submits its initial offer, which 

includes price, for the GSA FSS MAS 

contract. 

(ii) For 8(a) sole source orders issued 

under a multiple award contract, size is 

determined in accordance with 

§ 124.503(i)(1)(iv) of this chapter, as of 

the date the order is offered to the 8(a) 

BD program, regardless of whether the 

multiple award contract is unrestricted, 

set-aside, or the GSA FSS MAS contract. 

(iii) Size is determined on the date of 

recertification when a recertification is 

required pursuant to §§ 125.12(a) and 

(b) of this chapter, or on the date of 

initial offer which includes price if 

requested by a contracting officer 

pursuant to § 125.12(c). This exception 

applies to all provisions of 

§§ 121.404(a), (b), (c), and (d). 

(d) Eligibility for SBA programs. A 

concern applying to be certified as a 

Participant in SBA’s 8(a) Business 

Development program (under part 124, 

subpart A, of this chapter), as a 

HUBZone small business concern 

(under part 126 of this chapter), as a 

women-owned small business concern 

(under part 127 of this chapter), or as a 

service-disabled veteran-owned small 

business concern (under part 128 of this 

chapter) must qualify as a small 

business as of the date of its application 

and, where applicable, the date the SBA 

program office requests a formal size 

determination in connection with a 

concern that otherwise appears eligible 

for program certification. For the 8(a) 

Business Development program, a 

concern must qualify as small under the 

size standard corresponding to its 

primary industry classification. For all 

other certification programs, a concern 

must qualify as small under the size 

standard corresponding to any NAICS 

code listed in its SAM profile. SBA will 

accept a concern’s size representation in 

SAM, or successor system, unless there 

is evidence indicating that the concern 

is other than small. SBA will request a 

formal size determination pursuant to 

§ 121.1001(b)(8) where any information 

it possesses calls into question the SAM 

size representation. 

(e) Certificates of competency. The 

size status of an applicant for a 

Certificate of Competency (COC) 

relating to an unrestricted procurement 

is determined as of the date of the 

concern’s application for the COC. 

(f) Nonmanufacturer rule, ostensible 

subcontractor rule, and joint venture 

agreements. Compliance with the 

nonmanufacturer rule set forth in 

§ 121.406(b)(1), the ostensible 

subcontractor rule set forth in 

§ 121.103(h)(3), and the joint venture 

agreement requirements in §§ 124.513(c) 

and (d), §§ 126.616(c) and (d), 

§§ 127.506(c) and (d), and §§ 125.8(b) 

and (c) of this chapter, as appropriate, 

is determined as of the date of the final 

proposal revision for negotiated 

acquisitions and final bid for sealed 

bidding. 

(g) Subcontracting. For subcontracting 

purposes, a concern must qualify as 

small as of the date that it certifies that 

it is small for the subcontract. The 

applicable size standard is that which is 

set forth in § 121.410 and which is in 

effect at the time the concern selfcertifies that it is small for the 

subcontract. A prime contractor may 

rely on the self-certification of a 

subcontractor provided it does not have 

a reason to doubt the concern’s selfcertification. 

(h) Two-step procurements. For 

purposes of architect-engineering, 

design/build or two-step sealed bidding 

procurements, a concern must qualify as 

small as of the date that it certifies that 

it is small as part of its initial bid or 

proposal (which may or may not 

include price). 

(i) Recertification. See § 125.12 for 

information on recertification of size 

and status, and the effect of 

recertification. None of the exceptions 

set forth in paragraph (c)(4) of this 

section have an effect or serve as an 

exception to whether recertification is 

required under § 125.12. 

(j) Follow-on contracts. A follow-on or 

renewal contract is a new contracting 

action. As such, size is determined as of 

the date the concern submits a written 

self-certification that it is small to the 

procuring agency as part of its initial 

offer including price for the follow-on or 

renewal contract. 

■ 5. Amend § 121.702 by revising 

paragraph (c)(7) to read as follows: 

§ 121.702 What size and eligibility 

standards are applicable to the SBIR and 

STTR programs? 

* * * * * 

(c) * * * 

(7) Affiliation based on the ostensible 

subcontractor rule. A concern with an 

other than small ostensible 

subcontractor cannot be considered a 

small business concern for SBIR and 

STTR awards. An ostensible 

subcontractor is a subcontractor or 

subgrantee that performs primary and 

vital requirements of a funding 

agreement (i.e., those requirements 

associated with the principal purpose of 

the funding agreement), or a 

subcontractor or subgrantee upon which 

the concern is unusually reliant. 

(i) All aspects of the relationship 

between the concern and the 

subcontractor are considered, including, 

but not limited to, the terms of the 

proposal (such as management, 

technical responsibilities, and the 

percentage of subcontracted work) and 

agreements between the concern and 

subcontractor or subgrantee (such as 

bonding assistance or the teaming 

agreement). 

(ii) To determine whether a 

subcontractor performs primary and 

vital requirements of a funding 

agreement, SBA will also consider 

whether the concern’s proposal 

complies with the performance 

requirements of the SBIR or STTR 

program. 

(iii) The prime and any small business 

ostensible subcontractor both must 

comply individually with the 

ownership and control requirements in 

paragraphs (a) and (b) of this section, as 

applicable. 

* * * * * 

■ 6. Amend § 121.1001 by adding 

paragraphs (a)(10) through (12), and 

(b)(2)(iii) to read as follows: 

§ 121.1001 Who may initiate a size protest 

or request a formal size determination? 

(a) * * * 

(10) For orders set-aside for small 

business, women-owned small business, 

service-disabled veteran-owned small 

business, or HUBZone small business 

under an unrestricted multiple award 

contract or such orders issued under 

any type of small business multiple 

award contract where a contracting 

officer has requested a size 

recertification, the following entities 

may file a size protest: 

(i) Any offeror that the contracting 

officer has not eliminated from 

consideration for any procurementrelated reason, such as nonresponsiveness, technical 

unacceptability or outside of the 

competitive range; 

(ii) The contracting officer; 

(iii) The SBA Government Contracting 

Area Director having responsibility for 

the area in which the headquarters of 

the protested offeror is located, 

regardless of the location of a parent 

company or affiliates, the SBA program 

manager relating to the order at issue 

(i.e., the Director of Government 

Contracting, the Associate 

Administrator for Business 

Development, or the Director of 


ddrumheller on DSK120RN23PROD with RULES6
Federal Register / Vol. 89, No. 242 / Tuesday, December 17, 2024 / Rules and Regulations 102487 

HUBZone, as appropriate), or the 

Associate General Counsel for 

Procurement Law. 

(11) In connection with a size 

recertification relating to a contract 

required by § 125.12 of this chapter, the 

following entities may file a size protest 

challenging the recertification: 

(a) Any contract holder on that 

multiple award contract; 

(b) The contracting officer; or 

(c) The SBA program manager relating 

to the contract at issue (i.e., the Director 

of Government Contracting, the 

Associate Administrator for Business 

Development, or the Director of 

HUBZone, as appropriate), or the 

Associate General Counsel for 

Procurement Law. 

(12) In connection with a size 

recertification relating to a multiple 

award contract required by § 125.12 of 

this chapter, any contract holder on that 

multiple award contract may also 

request a formal size determination 

concerning a recertifying concern’s 

status as a small business. 

(i) A request for a formal size 

determination made by another contract 

holder on a multiple award contract 

must be sufficiently specific to provide 

reasonable notice as to the grounds 

upon which the recertifying concern’s 

size is questioned. Some basis for the 

belief or allegation that the recertifying 

concern does not continue to qualify as 

small must be given. 

(ii) SBA will dismiss as not 

sufficiently specific any request for a 

formal size determination alleging 

merely that the recertifying concern is 

not small or is affiliated with unnamed 

other concerns. 

(b) * * * 

(2) * * * 

(iii) Where SBA initially verified the 

eligibility of an 8(a) Participant for the 

award of an 8(a) contract but 

subsequently receives specific 

information that the Participant may be 

other than small and consequently 

ineligible for the award, the Associate 

Administrator for Business 

Development or the Associate General 

Counsel for Procurement Law may 

request a formal size determination at 

any point prior to award. 

* * * * * 

■ 7. Amend § 121.1010 by revising 

paragraph (b) to read as follows: 

§ 121.1010 How does a concern become 

recertified as a small business? 

* * * * * 

(b) Recertification will not be required 

nor will the prohibition against future 

self-certification apply if the adverse 

SBA size determination is based solely 

on a finding of affiliation limited to a 

particular Government procurement or 

property sale, such as an ostensible 

subcontracting relationship or noncompliance with the nonmanufacturer 

rule. 

* * * * * 

PART 124—8(a) BUSINESS 

DEVELOPMENT/SMALL 

DISADVANTAGED BUSINESS STATUS 

DETERMINATIONS 

■ 8. The authority citation for part 124 

continues to read as follows: 

Authority: 15 U.S.C. 634(b)(6), 636(j), 

637(a), 637(d), 644, 42 U.S.C. 9815; and Pub. 

L. 99–661, 100 Stat. 3816; Sec. 1207, Pub. L. 

100–656, 102 Stat. 3853; Pub. L. 101–37, 103 

Stat. 70; Pub. L. 101–574, 104 Stat. 2814; Sec. 

8021, Pub. L. 108–87, 117 Stat. 1054; and 

Sec. 330, Pub. L. 116–260. 

■ 9. Amend § 124.3 by revising the 

definition of ‘‘Community Development 

Corporation or CDC’’ to read as follows: 

§ 124.3 What definitions are important in 

the 8(a) BD program? 

* * * * * 

Community Development Corporation 

or CDC means a nonprofit organization 

responsible to residents of the area it 

serves which has received financial 

assistance under 42 U.S.C. 9805, et seq. 

or has received a letter from the 

Department of Health and Human 

Services affirming that it has received 

assistance under a successor program to 

that authorized by 42 U.S.C. 9805. 

* * * * * 

§ 124.4 [Removed] 

■ 10. Remove § 124.4. 

■ 11. Amend § 124.102 by adding the 

following sentences to the end of 

paragraph (a)(1) to read as follows: 

§ 124.102 What size business is eligible to 

participate in the 8(a) BD program? 

(a) * * * 

(1) * * * In determining whether a 

concern applying to be certified for the 

8(a) BD program qualifies as a small 

business concern under the size 

standard corresponding to its primary 

industry classification, SBA will accept 

the concern’s size representation in the 

System for Award Management (SAM), 

or successor system, unless there is 

evidence indicating that the concern is 

other than small. SBA will request a 

formal size determination pursuant to 

§ 121.1001(b)(8) of this chapter where 

any information it possesses calls into 

question the concern’s SAM size 

representation. 

* * * * * 

■ 12. Amend § 124.105 by: 

■ a. Revising paragraph (b); 

■ b. Revising paragraph (f)(1); 

■ c. Removing the words ‘‘10 percent’’ 

wherever they appear in paragraph 

(h)(1) and adding in their place the 

words ‘‘20 percent’’; 

■ d. Removing the words ‘‘20 percent’’ 

in paragraph (h)(1) and adding in their 

place the words ‘‘30 percent’’; and 

■ e. Revising paragraphs (h)(2), (i)(2), 

and (k). 

The revisions read as follows: 

§ 124.105 What does it mean to be 

unconditionally owned by one or more 

disadvantaged individuals? 

* * * * * 

(b) Ownership of a partnership. In the 

case of a concern which is a 

partnership, one or more individuals 

determined by SBA to be socially and 

economically disadvantaged must serve 

as general partners, with control over all 

partnership decisions. At least 51 

percent of every class of partnership 

interest must be unconditionally owned 

by one or more individuals determined 

by SBA to be socially and economically 

disadvantaged. The ownership must be 

reflected in the concern’s partnership 

agreement. 

* * * * * 

(f) * * * 

(1) At least 51 percent of any 

distribution of profits paid to the 

owners of a corporation, partnership, or 

limited liability company concern, and 

a disadvantaged individual’s ability to 

share in the profits of the concern must 

be commensurate with the extent of his 

or her ownership interest in that 

concern; 

* * * * * 

(h) * * * 

(2) A non-Participant business 

concern in the same or similar line of 

business or a principal of such concern 

may generally not own more than a 20 

percent interest in an 8(a) Participant 

that is in the developmental stage or 

more than a 30 percent interest in an 

8(a) Participant in the transitional stage 

of the program, except that a business 

concern approved by SBA to be a 

mentor pursuant to § 125.9 of this 

chapter may own up to 40 percent of its 

8(a) Participant prote ́ge ́ as set forth in 

§ 125.9(d)(2), whether or not that 

concern is in the same or similar line of 

business as the Participant. 

(i) * * * 

(2) (i) Prior approval by the AA/BD is 

not needed where: 

(A) All non-disadvantaged individual 

(or entity) owners involved in the 

change of ownership own no more than 

a 30 percent interest in the concern both 

before and after the transaction; 

(B) The transfer results from the death 

or incapacity due to a serious, long-term 


ddrumheller on DSK120RN23PROD with RULES6
102488 Federal Register / Vol. 89, No. 242 / Tuesday, December 17, 2024 / Rules and Regulations 

illness or injury of a disadvantaged 

principal; 

(C) The disadvantaged individual or 

entity in control of the Participant will 

increase the percentage of its ownership 

interest by any percentage; or 

(D) The Participant has never received 

an 8(a) contract and the individual(s) or 

entity upon whom initial eligibility was 

based continues to own more than 50% 

of the Participant. 

(ii) In determining whether a nondisadvantaged individual involved in a 

change of ownership has more than a 30 

percent interest in the concern, SBA 

will aggregate the interests of all 

immediate family members as set forth 

in § 124.3, as well as any individuals 

who are affiliated based on an identity 

of interest under § 121.103(f). 

(iii) Where prior approval is not 

required, the concern must notify SBA 

within 60 days of such a change in 

ownership, or before it submits an offer 

for an 8(a) contract, whichever occurs 

first. 

Example 1 to paragraph (i)(2). 

Disadvantaged individual A owns 90% 

of 8(a) Participant X; non-disadvantaged 

individual B owns 10% of X. In order 

to raise additional capital, X seeks to 

change its ownership structure such that 

A would own 75%, B would own 10% 

and C would own 15%. X can 

accomplish this change in ownership 

without prior SBA approval. Nondisadvantaged owner B is not involved 

in the transaction and nondisadvantaged individual C owns less 

than 30% of X both before and after the 

transaction. 

Example 2 to paragraph (i)(2). 

Disadvantaged individual C owns 60% 

of 8(a) Participant Y; non-disadvantaged 

individual D owns 35% of Y; and nondisadvantaged individual E owns 5% of 

Y. C seeks to transfer 5% of Y to E. Prior 

SBA approval is not needed. Although 

non-disadvantaged individual D owns 

more than 30% of Y, D is not involved 

in the transfer. Because the only nondisadvantaged individual involved in 

the transfer, E, owns less than 30% of 

Y both before and after the transaction, 

prior approval is not needed. 

Example 3 to paragraph (i)(2). 

Disadvantaged individual A owns 80% 

of 8(a) Participant X; non-disadvantaged 

individual B owns 20% of X. A seeks to 

transfer 15% of X to B. SBA approval is 

needed. Although B, the nondisadvantaged owner of X, owns less 

than 30% of X prior to the transaction, 

prior approval is needed because B 

would own more than 30% after the 

transaction. 

Example 4 to paragraph (i)(2). ANC A 

owns 55% of 8(a) Participant X; nondisadvantaged individual B owns 45% 

of X. B seeks to transfer 10% to A. Prior 

SBA approval is not needed. Although 

a non-disadvantaged individual who is 

involved in the transaction, B, owns 

more than 30% of X both before and 

after the transaction, SBA approval is 

not needed because the change only 

increases the percentage of A’s 

ownership interest in X. 

Example 5 to paragraph (i)(2). 

Disadvantaged individual C owns 65% 

of 8(a) Participant Z and nondisadvantaged individual D owns 35% 

of Z. Z has been in the 8(a) BD program 

for 2 years but has not yet been awarded 

an 8(a) contract. C seeks to transfer 10% 

to D. Although a non-disadvantaged 

individual who is involved in the 

transaction, D, owns more than 30% of 

Z both before and after the transaction, 

prior SBA approval is not needed 

because Z has never received an 8(a) 

contract. 

* * * * * 

(k) Right of first refusal. A right of first 

refusal granting a non-disadvantaged 

individual or other entity the 

contractual right to purchase the 

ownership interests of a qualifying 

disadvantaged individual does not affect 

the unconditional nature of ownership, 

if the terms follow normal commercial 

practices. If those rights are exercised by 

a non-disadvantaged individual or other 

entity after certification, the Participant 

must notify SBA. If the exercise of those 

rights results in disadvantaged 

individuals owning less than 51% of the 

concern, SBA will initiate termination 

pursuant to §§ 124.303 and 124.304. 

■ 13. Amend § 124.106 by: 

■ a. Removing paragraph (d)(3); 

■ b. Redesignating paragraphs (d)(4) and 

(d)(5) as paragraphs (d)(3) and (d)(4), 

respectively; 

■ c. Revising paragraph (e)(3); 

■ d. Removing the text ‘‘director, or key 

employee’’ in paragraph (f) and adding 

in its place the text ‘‘or director’’; 

■ e. Redesignating paragraph (h) as 

paragraph (i); and 

■ f. Adding new paragraph (h). 

The revision and addition to read as 

follows: 

§ 124.106 When do disadvantaged 

individuals control an applicant or 

Participant? 

* * * * * 

(e) * * * 

(3) Receive compensation from the 

applicant or Participant in any form as 

a director, officer or employee, that 

exceeds the compensation to be 

received by the highest ranking officer 

(usually CEO or President), unless the 

concern demonstrates that the 

compensation to be received by the nondisadvantaged individual is 

commercially reasonable or that the 

highest-ranking officer has elected to 

take lower compensation to benefit the 

applicant or Participant. A Participant 

must notify SBA within 30 calendar 

days if the compensation paid to the 

highest-ranking officer of the Participant 

falls below that paid to a nondisadvantaged individual. In such a 

case, SBA must determine that that the 

compensation to be received by the nondisadvantaged individual is 

commercially reasonable or that the 

highest-ranking officer has elected to 

take lower compensation to benefit the 

Participant before SBA may determine 

that the Participant is eligible for an 8(a) 

award. 

* * * * * 

(h) Exception for extraordinary 

circumstances. SBA will not find that a 

lack of control exists where a socially 

and economically disadvantaged 

individual does not have the unilateral 

power and authority to make decisions 

regarding the following extraordinary 

circumstances: 

(1) Adding a new equity stakeholder 

or increasing the investment amount of 

an equity stakeholder; 

(2) Dissolution of the company; 

(3) Sale of the company or all assets 

of the company; 

(4) The merger of the company; 

(5) The company declaring 

bankruptcy; 

(6) Amendment of the company’s 

corporate governance documents to 

remove the shareholder’s authority to 

block any of paragraphs (h)(1) through 

(5) of this section; 

(7) Any other extraordinary action 

that is crafted solely to protect the 

investment of the minority 

shareholders, and not to impede the 

majority’s ability to control the 

concern’s operations or to conduct the 

concern’s business as it chooses. 

* * * * * 

■ 14. Amend § 124.107 by: 

■ a. Revising the first sentence of the 

introductory text; 

■ b. Revising paragraph (a); 

■ c. Removing paragraph (e); and 

■ d. Redesignating paragraph (f) as 

paragraph (e). 

The revisions read as follows: 

§ 124.107 What is potential for success? 

SBA must determine that with 

contract, financial, technical, and 

management support from the 8(a) BD 

program, from contractors or from 

others assisting with business 

operations, the applicant concern is able 

to perform 8(a) contracts and possess 

reasonable prospects for success in 

competing in the private sector. * * * 


ddrumheller on DSK120RN23PROD with RULES6
Federal Register / Vol. 89, No. 242 / Tuesday, December 17, 2024 / Rules and Regulations 102489 

(a) Income tax returns for each of the 

two previous tax years must show 

operating revenues. 

* * * * * 

■ 15. Amend § 124.108 by: 

■ a. Removing paragraph (a)(1); 

■ b. Redesignating paragraphs (a)(2), (3), 

(4) and (5) as paragraphs (a)(1), (2), (3), 

and (4), respectively; and 

■ c. Revising newly redesignated 

paragraph (a)(3) and paragraph (e). 

The revision to read as follows: 

§ 124.108 What other eligibility 

requirements apply for individuals or 

businesses? 

* * * * * 

(a) * * * 

(3) An applicant is ineligible for 

admission to the 8(a) BD program if the 

applicant concern or a proprietor, 

partner, limited liability member, 

director, officer, or holder of at least 20 

percent of its stock, or another person 

(including key employees) with 

significant authority over the concern 

lacks business integrity as demonstrated 

by conduct that could be grounds for 

suspension or debarment; 

* * * * * 

(e) Federal financial obligations. A 

business concern is ineligible for 

admission to or participation in the 8(a) 

BD program if either the concern or any 

of its principals has failed to pay 

significant financial obligations owed to 

the Federal Government, including 

unresolved tax liens and defaults on 

Federal loans or other Federally assisted 

financing. However, a small business 

concern may be eligible if the concern 

or the affected principals can 

demonstrate that they are current on an 

approved repayment plan or the 

financial obligations owed have been 

settled and discharged/forgiven by the 

Federal Government. 

■ 16. Amend § 124.203 by removing the 

last three sentences and adding a 

sentence in their place to read as 

follows: 

§ 124.203 What must a concern submit to 

apply to the 8(a) BD program? 

* * * The majority socially and 

economically disadvantaged owner 

must take responsibility for the accuracy 

of all information submitted on behalf of 

the applicant. 

■ 17. Amend § 124.204 by revising 

paragraph (d) to read as follows: 

§ 124.204 How does SBA process 

applications for 8(a) BD program 

admission? 

* * * * * 

(d) An applicant must be eligible as of 

the date SBA issues a decision. An 

applicant’s eligibility will be based on 

the totality of circumstances, including 

facts set forth in the application, 

supporting documentation, any 

information received in response to any 

SBA request for clarification, and any 

changed circumstances. 

* * * * * 

■ 18. Revise § 124.207 to read as 

follows: 

§ 124.207 Can an applicant reapply for 

admission to the 8(a) BD program? 

A concern which has been declined 

for 8(a) BD program participation may 

submit a new application for admission 

to the program at any time after 90 

calendar days from the date of the 

Agency’s final decision to decline. 

■ 19. Amend § 124.303 by adding 

paragraph (c) to read as follows: 

§ 124.303 What is termination? 

* * * * * 

(c)(1) A firm that is terminated from 

the 8(a) BD Program due to the 

submission of false or misleading 

information may be removed from 

SBA’s other small business contracting 

programs, including the HUBZone 

Program, the Women-Owned Small 

Business (WOSB) Program, the Veteran 

Small Business Certification (VetCert) 

Program, and SBA’s Mentor-Prote ́ge ́

Program. In addition, SBA will refer the 

matter to the SBA Office of Inspector 

General for review and may recommend 

that Government-wide debarment or 

suspension proceedings be initiated. 

(2) A firm that is decertified from the 

HUBZone Program, the WOSB Program, 

or the VetCert Program due to the 

submission of false or misleading 

information may be terminated from the 

8(a) BD Program. 

(3) SBA may require a firm that is 

decertified from the HUBZone Program, 

the WOSB Program, or the VetCert 

Program due to the submission of false 

or misleading information to enter into 

an administrative agreement with SBA 

as a condition of admission to the 8(a) 

BD program. 

■ 20. Amend § 124.503 by revising 

paragraph (g)(1)(iii) to read as follows: 

§ 124.503 How does SBA accept a 

procurement for award through the 8(a) BD 

program? 

* * * * * 

(g) * * * 

(1) * * * 

(iii) For open requirements, the effect 

that contract would have on the 

equitable distribution of 8(a) contracts; 

and 

* * * * * 

■ 21. Amend § 124.504 by revising 

paragraph (a) to read as follows: 

§ 124.504 What circumstances limit SBA’s 

ability to accept a procurement for award as 

an 8(a) contract, and when can a 

requirement be released from the 8(a) BD 

program? 

* * * * * 

(a) Prior intent to award as a small 

business set-aside, or use the HUBZone, 

VetCert, or Women-Owned Small 

Business programs. A procuring 

activity, for itself or for another end 

user, issued a solicitation for or 

otherwise expressed publicly a clear 

intent to award the contract as a small 

business set-aside, or to use the 

HUBZone, VetCert, or Women-Owned 

Small Business programs prior to 

offering the requirement to SBA for 

award as an 8(a) contract. 

(1) However, SBA may accept the 

requirement into the 8(a) BD program 

where the AA/BD determines that there 

is a reasonable basis to cancel the initial 

solicitation or, if a solicitation had not 

yet been issued, a reasonable basis for 

the procuring agency to change its 

initial clear expression of intent to 

procure outside the 8(a) BD program 

(e.g., the procuring agency’s needs have 

changed since the initial solicitation 

was issued such that the solicitation no 

longer represents its current needs; or 

appropriations that were no longer 

available for the requirement as 

anticipated in one fiscal year are 

available in the succeeding fiscal year). 

(i) A change in strategy only (i.e., an 

agency seeking to solicit through the 

8(a) BD program instead of through 

another previously identified program) 

will not constitute a reasonable basis for 

SBA to accept the requirement into the 

8(a) BD program. 

(ii) The AA/BD may coordinate with 

the D/GC, where appropriate, before 

accepting a requirement into the 8(a) BD 

program to ensure that another SBA 

program is not adversely affected. 

(2) The AA/BD may also permit the 

acceptance of the requirement under 

extraordinary circumstances. 

* * * * * 

■ 22. Amend § 124.509 by redesignating 

paragraph (d)(1)(ii) as paragraph 

(d)(1)(iii), and adding new paragraph 

(d)(1)(ii) to read as follows: 

§ 124.509 What are non-8(a) business 

activity targets? 

* * * * * 

(d) * * * 

(1) * * * 

(ii) In determining the projected 

revenue SBA should consider in 

determining whether one or more 

unsuccessful offers submitted by the 

Participant would have given the 

Participant sufficient revenues to 

achieve the applicable non-8(a) business 


ddrumheller on DSK120RN23PROD with RULES6
102490 Federal Register / Vol. 89, No. 242 / Tuesday, December 17, 2024 / Rules and Regulations 

activity target under paragraph 

(d)(1)(i)(A) of this section, SBA will 

consider only the base year of the 

procurement at issue and not the 

projected full value of the procurement. 

SBA will not consider projected revenue 

under a particular non-8(a) contract 

where SBA determines the Participant 

submitted its offer without possessing 

reasonable prospects of success. In 

making this determination, SBA will 

consider all relevant factors, including, 

but not limited to: 

(A) The magnitude of the contract 

relative to that of the Participant’s 

previous contracts: and 

(B) The past performance and 

experience of a joint venture partner 

and/or a subcontractor. 

Example 1 to paragraph (d)(1)(ii): 

Participant X is in year 2 of the 

transitional stage (or year 6 of the 8(a) 

BD program). It has never received a 

contract in excess of $5M. X received 

$20M in total revenue and $3M in non8(a) revenue during program year 6. X 

failed to meet its applicable non-8(a) 

business activity target (BAT) of 25% 

($20M × 0.25 = $5M). To demonstrate its 

good efforts to achieve non-8(a) revenue, 

X submits evidence that it submitted 

two offers without any identified 

subcontractors: one for a five-year 

contract valued at $100M and one for a 

five-year contract valued at $5M. SBA 

would not consider the first offer to 

qualify as a ‘‘good faith effort’’ and 

would determine that the offer had no 

reasonable prospect for success since 

the magnitude of that contract far 

exceeded anything it had performed 

previously (submitting an offer for a 

$100M contract where the firm had 

never performed a contract in excess of 

$5M) and X did not identify any 

subcontractor or joint venture partner 

with relevant past performance and 

experience. The second offer would 

count as a good faith effort since its 

overall value was in line with previous 

contracts X had performed. However, 

because SBA considers only the 

projected revenue for the base year of 

the contract (or $1M), considering this 

offer does not bring X into compliance 

with its BAT ($3M + $1M = $4M, which 

is less than the $5M required to be in 

compliance). 

* * * * * 

■ 23. Amend § 124.514 by revising 

paragraph (a)(1) to read as follows: 

§ 124.514 Exercise of 8(a) options and 

modifications. 

(a) * * * 

(1) If a firm’s term of participation in 

the 8(a) BD program has ended (or the 

firm has otherwise exited the program) 

or is no longer small under the size 

standard corresponding to the NAICS 

code for the requirement, negotiations to 

price the option cannot be entered into 

and the option cannot be exercised. 

* * * * * 

■ 24. Amend § 124.518 by revising the 

section heading and paragraph (c), and 

adding paragraph (d) to read as follows: 

§ 124.518 How can an 8(a) contract be 

terminated or novated before performance 

is completed? 

* * * * * 

(c) Substitution of one 8(a) contractor 

for another. SBA may authorize another 

Participant to complete performance 

and, in conjunction with the procuring 

activity, permit novation of an 8(a) 

contract where a procuring activity 

contracting officer demonstrates to SBA 

that the Participant that was awarded 

the 8(a) contract is unable to complete 

performance, where an 8(a) contract will 

otherwise be terminated for default, or 

where SBA determines that substitution 

would serve the business development 

needs of both 8(a) Participants. In 

determining whether a substitution 

would serve the business development 

needs of both 8(a) Participants, SBA will 

consider whether the substitution 

would allow a Participant to circumvent 

program policies or impede the interests 

of the program. 

Example 1 to paragraph (c): 

Participant A anticipates it will not 

meet its applicable business activity 

target (BAT). Participant A seeks to 

transfer an 8(a) contract to another 

eligible 8(a) Participant through the 

substitution process and then perform a 

significant portion of that contract as a 

subcontractor to the new 8(a) 

Participant because the revenue from 

the subcontract will accrue to 

Participant A as non-8(a) revenue. SBA 

would not approve such a substitution 

because doing so would allow 

Participant X to circumvent the BAT 

requirement. 

Example 2 to paragraph (c): 

Participant B is performing the last 

option period of performance under an 

8(a) contract it won through 

competition. Participant B has 

graduated from the 8(a) Business 

Development (BD) program and will 

therefore not be eligible to receive the 

contract for the follow-on requirement. 

Participant B seeks to transfer its 

contract to Participant C, a sister 

company owned by the same Tribe/ 

Alaska Native Corporation/Native 

Hawaiian Organization/Community 

Development Corporation, to allow 

Participant C to be the incumbent 

contractor when the procuring agency 

seeks to procure the follow-on 

procurement as an 8(a) sole source 

contract. SBA regulations governing 

entity participation in the 8(a) BD 

program prohibit a Participant from 

receiving an 8(a) sole source contract 

that is a follow-on contract to an 8(a) 

contract that was performed 

immediately previously by a sister 

company. Participant C would therefore 

not be eligible to receive the sole source 

follow-on contract to Participant B’s 8(a) 

contract if contract performance ended 

under Participant B. SBA would not 

approve such a substitution because 

doing so would impede these policies. 

Example 3 to paragraph (c): 

Participant D competed for and won a 

spot on a multiple award, Indefinite 

Quantity, Indefinite Delivery 8(a) 

contract. Participant D has exceeded the 

size standard under the NAICS code 

assigned to the contract and is therefore 

no longer eligible to receive sole source 

task orders issued under the contract; 

Participant D may, however, continue to 

receive competitive orders. Participant 

D seeks to transfer the contract to 

another eligible 8(a) Participant through 

the substitution process. SBA would not 

approve such a substitution because 

doing so would not serve its business 

development needs. 

(d) Novation to the lead partner to an 

8(a) joint venture. A joint venture that 

was awarded an 8(a) contract may seek 

to novate the 8(a) contract to the lead 

8(a) Participant to the joint venture, 

provided each member of the joint 

venture agrees to such novation and the 

non-lead 8(a) joint venture partner will 

transfer all assets needed to perform the 

contract to the lead 8(a) Participant. In 

order for SBA to authorize novation, 

SBA must determine that the 8(a) 

Participant seeking to be novated the 

contract continues to meet all 8(a) 

eligibility requirements as if for a new 

8(a) contract at the time of novation and 

the procuring agency must determine 

that the 8(a) firm is capable and 

responsible to perform the contract. 

§ 124.602 [Amended] 

■ 25. Amend § 124.602 by: 

■ a. Removing the word ‘‘$10,000,000’’ 

in paragraphs (a)(1) and (a)(2) and 

adding in its place the word 

‘‘$20,000,000’’; 

■ b. Removing the words ‘‘$2,000,000 

and $10,000,000’’ in paragraph (b)(1) 

and adding in their place the words 

‘‘7,500,000 and $20,000,000’’; and 

■ c. Removing the word ‘‘$2,000,000’’ in 

paragraph (c) and adding in its place the 

word ‘‘$7,500,000’’. 

§ 124.603 [Amended] 

■ 26. Amend § 124.603 by removing the 

word ‘‘Former’’ and adding in its place 


ddrumheller on DSK120RN23PROD with RULES6
Federal Register / Vol. 89, No. 242 / Tuesday, December 17, 2024 / Rules and Regulations 102491 

the words ‘‘If requested by the SBA, 

former’’. 

■ 27. Revise § 124.604 to read as 

follows: 

§ 124.604 Report of benefits for firms 

owned by Tribes, ANCs, NHOs and CDCs. 

(a) As part of its annual financial 

statement submission (see § 124.602), 

each Participant owned by a Tribe, 

ANC, NHO or CDC must submit to SBA 

information showing how the Tribe, 

ANC, NHO or CDC has provided 

benefits to the Tribal or native members 

and/or the Tribal, native or other 

community due to the Tribe’s/ANC’s/ 

NHO’s/CDC’s participation in the 8(a) 

BD program through one or more firms. 

This data includes information relating 

to funding cultural programs, 

employment assistance, jobs, 

scholarships, internships, subsistence 

activities, and other services provided 

by the Tribe, ANC, NHO or CDC to the 

affected community. 

(b) A participating Tribe, ANC, NHO, 

or CDC may submit a consolidated 

report prepared by the parent entity 

showing how the Tribe, ANC, NHO, or 

CDC has provided benefits to the Tribal 

or native members and/or the Tribal, 

native or other community due to the 

Tribe’s/ANC’s/NHO’s/CDC’s 

participation in the 8(a) BD program 

through one or more firms. Where a 

Tribe/ANC/NHO/CDC elects to report 

consolidated community benefits, its 

individual 8(a) Participants need not 

submit separate reports as prescribed 

under paragraph (a) of this section. 

PART 125—GOVERNMENT 

CONTRACTING PROGRAMS 

■ 28. The authority citation for part 125 

continues to read as follows: 

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

637, 644, 657f, 657q, 657r, and 657s; 38 

U.S.C. 501 and 8127. 

■ 29. Amend § 125.1 by adding, in 

alphabetical order, the definitions of 

‘‘Agreement’’, ‘‘Disqualifying 

recertification’’, ‘‘Qualifying 

recertification’’, and ‘‘Set Aside or 

Reserved Award’’ to read as follows: 

§ 125.1 What definitions are important to 

SBA’s Government Contracting Programs? 

Agreement means a Blanket Purchase 

Agreement, Basic Agreement, or a Basic 

Ordering Agreement. 

* * * * * 

Disqualifying recertification means a 

recertification as either other than small 

or other than a qualified small business 

program participant that is required for 

eligibility to participate in a Set Aside 

or Reserved Award. 

* * * * * 

Qualifying recertification means a 

recertification as small or as a qualified 

small business program participant that 

is required for eligibility to participate 

in a Set Aside or Reserved Award. 

* * * * * 

Set Aside or Reserved Award means a 

contract, including multiple award 

contracts, agreements, or orders against 

contracts or agreements, that are set 

aside, partially set aside, or reserved for 

small business or any socio-economic 

small business program participants. 

* * * * * 

■ 30. Amend § 125.2 by: 

■ a. Redesignating paragraph (c)(6) as 

paragraph (c)(7); 

■ b. Adding new paragraph (c)(6); 

■ c. Redesignating paragraph (e)(7) as 

paragraph (e)(8); and 

■ d. Adding new paragraph (e)(7). 

The additions read as follows: 

§ 125.2 What are SBA’s and the procuring 

agency’s responsibilities when providing 

contracting assistance to small 

businesses? 

* * * * * 

(c) * * * 

(6) Prohibition on competitions 

requiring or favoring additional 

socioeconomic certifications. A 

procuring activity cannot create a small 

business set-aside or reserve (for either 

a contract, order or agreement) that 

requires multiple socioeconomic 

certifications in addition to a size 

certification (e.g., a competition cannot 

be limited only to small business 

concerns that are also 8(a) and 

HUBZone certified) or give evaluation 

preferences to concerns having multiple 

socioeconomic certifications. 

* * * * * 

(e) * * * 

(7) Partial set-aside and reserve. A 

procuring activity may have both a 

partial small business set-aside and a 

small business reserve on the same 

contract. A partial set-aside can be done 

for one or more CLINs that must be setaside for small business and a reserve 

could also be done on the same 

procurement for other items or services 

where a contracting officer would have 

discretion to utilize the small business 

reserve where appropriate. 

* * * * * 

■ 31. Amend § 125.3 by: 

■ a. Adding paragraphs (a)(4) and (b)(4); 

■ b. Removing from paragraph (d)(1) the 

text ‘‘30 days’’ and ‘‘October 30th’’ and 

adding in their place ‘‘45 days’’ and 

‘‘November 14th’’, respectively; and 

■ c. Removing from paragraph (d)(2) the 

text ‘‘60 days’’ and ‘‘November 30th’’ 

and adding in their place ‘‘75 days’’ and 

‘‘December 14th’’, respectively. 

The additions read as follows: 

§ 125.3 What types of subcontracting 

assistance are available to small 

businesses? 

(a) * * * 

(4) For subcontracting purposes, a 

concern must qualify as a small 

business concern and a socioeconomic 

small business concern as of the date 

that it certifies that it is small or that it 

qualifies as a socioeconomic small 

business concern for the subcontract. 

(b) * * * 

(4) Except for HUBZone and SDVO 

small business subcontractors, a prime 

contractor may rely on the 

socioeconomic self-certification of a 

subcontractor provided the prime 

contractor does not have a reason to 

doubt the subcontractor’s selfcertification. 

* * * * * 

■ 32. Amend § 125.6 by revising the 

second sentence and adding a new third 

sentence in paragraph (d) introductory 

text and adding two sentences to the 

end of paragraph (d)(3) to read as 

follows: 

§ 125.6 What are the prime contractor’s 

limitations on subcontracting? 

* * * * * 

(d) * * * However, for a multi-agency 

set aside contract where more than one 

agency can issue orders under the 

contract, the ordering agency must use 

the period of performance for each order 

to determine compliance and monitor 

compliance with the limitations on 

subcontracting for that specific order. At 

the end of performance of the order, the 

ordering contracting officer should then 

inform the contracting officer for the 

underlying multi-agency contract if the 

ordering contracting officer knows that 

the contractor has failed to meet the 

applicable limitations on subcontracting 

requirement. * * * 

* * * * * 

(3) * * * Except with respect to 

staffing contracts, work performed by an 

employee obtained from a temporary 

employee agency, professional employer 

organization, or leasing concern shall be 

treated as the recipient concern’s selfperformance. The work performed by 

employees leased to the small business 

prime contractor will therefore not 

count against the applicable limitation 

on subcontracting. 

* * * * * 

■ 33. Amend § 125.8 by revising 

paragraphs (e) and (f) to read as follows: 


ddrumheller on DSK120RN23PROD with RULES6
102492 Federal Register / Vol. 89, No. 242 / Tuesday, December 17, 2024 / Rules and Regulations 

§ 125.8 What requirements must a joint 

venture satisfy to submit an offer for a 

procurement or sale set aside or reserved 

for small business? 

* * * * * 

(e) Capabilities, past performance and 

experience. When evaluating the 

capabilities, past performance, 

experience, business systems and 

certifications of an entity submitting an 

offer for a contract set aside or reserved 

for small business as a joint venture 

established pursuant to this section, a 

procuring activity must consider work 

done and qualifications held 

individually by each partner to the joint 

venture as well as any work done by the 

joint venture itself previously. 

(1) A procuring activity has discretion 

whether to require a prote ́ge ́ or lead 

small business member of a joint 

venture to demonstrate some level of 

past performance and/or experience. It 

may rely solely on the past performance 

and experience of the mentor or nonsimilarly situated joint venture partner, 

or it may require some level of past 

performance and/or experience of the 

prote ́ge ́ or lead small business member. 

Where it requires some level of past 

performance and/or experience of the 

prote ́ge ́ or lead small business firm, the 

procuring activity shall not require that 

firm to individually meet all the same 

evaluation or responsibility criteria as 

that required of other offerors generally. 

(2) If a procuring activity requires a 

prote ́ge ́ or lead small business joint 

venture partner to demonstrate some 

successful performance and/or 

experience on fewer previous contracts 

of lower values than that required of 

other offerors generally, successful 

performance by the prote ́ge ́ or lead 

small business firm on the contracts it 

identifies shall be rated equivalently to 

successful performance by the mentor or 

non-similarly situated partner to the 

joint venture or any other individual 

offeror on the higher valued contracts 

they identify. 

(3) The partners to the joint venture 

in the aggregate must demonstrate the 

past performance, experience, business 

systems and certifications necessary to 

perform the contract. 

Example 1 to paragraph (e). A 

solicitation requires offerors to 

demonstrate successful performance on 

five similar contracts valued at $20 

million or more. Because a prote ́ge ́ joint 

venture partner must perform at least 

40% of the work to be done by a 

successful joint venture offeror, the 

procuring activity seeks to require a 

prote ́ge ́ joint venture partner to 

demonstrate some past performance. 

The procuring activity may require a 

prote ́ge ́ joint venture partner to 

demonstrate one or two contracts valued 

at $10 million or $8 million, but may 

not require the prote ́ge ́ to demonstrate 

successful performance on five similar 

contracts and may not require the 

prote ́ge ́ to demonstrate successful 

performance on contracts valued at $20 

million. In addition, if a procuring 

activity requires a prote ́ge ́ joint venture 

partner to demonstrate successful 

performance on two contracts valued at 

$10 million or more, successful 

performance by the prote ́ge ́ firm on 

those $10 million contracts shall be 

rated equivalently to successful 

performance by the mentor partner to 

the joint venture or any other individual 

offeror on $20 million contracts. 

(f) Contract execution. The procuring 

activity will execute a contract set aside 

or reserved for small business in the 

name of the joint venture entity when 

there is a separate legal entity joint 

venture or the name of a small business 

partner to the joint venture when there 

is an informal joint venture, but in 

either case will identify the award as 

one to a small business joint venture or 

a small business mentor-prote ́ge ́ joint 

venture, as appropriate. 

* * * * * 

■ 34. Amend § 125.9 by: 

■ a. Revising paragraph (b) introductory 

text; 

■ b. Revising paragraph (b)(2); 

■ c. Adding the word ‘‘a’’ after the 

words ‘‘more than one prote ́ge ́ at’’ and 

before the word ‘‘time’’ in paragraph 

(b)(3) introductory text; 

■ d. Adding paragraph (b)(4); 

■ e. Revising paragraph (c)(2); 

■ f. Redesignating paragraph (e)(6) as 

paragraph (c)(4); 

■ g. Revising newly redesignated 

paragraphs (c)(4)(iii) and (iv); 

■ h. Adding paragraph (c)(5); 

■ i. Adding paragraph (d)(1)(iv); and 

■ j. Redesignating paragraphs (e)(7), (8) 

and (9) as paragraphs (e)(6), (7) and (8), 

respectively. 

The revisions and additions read as 

follows: 

§ 125.9 What are the rules governing 

SBA’s small business mentor-prote ́ge ́

program? 

* * * * * 

(b) Mentors. Any for-profit business 

concern that demonstrates a 

commitment and the ability to assist 

small business concerns may act as a 

mentor and receive benefits as set forth 

in this section. This includes other than 

small businesses. 

* * * * * 

(2) (i) SBA will decline an application 

if SBA determines that the mentor does 

not possess good character or a 

favorable financial position, employs or 

otherwise controls the managers or key 

employees of the prote ́ge ́, or is 

otherwise affiliated with the prote ́ge ́. 

(ii) SBA may terminate the mentorprote ́ge ́ agreement if: 

(A) SBA determines that the mentor 

does not possess good character or a 

favorable financial position; 

(B) SBA determines that the mentor 

was affiliated with the prote ́ge ́ at the 

time of application or becomes affiliated 

with the prote ́ge ́ for reasons other than 

the mentor-prote ́ge ́ agreement or 

assistance provided under the 

agreement; or 

(C) Key managers or personnel 

become employees of both the mentor 

and prote ́ge ́ firms at the same time. 

* * * * * 

(4) A mentor cannot be a contract 

holder through joint ventures with two 

prote ́ge ́ small business concerns on the 

same small business multiple award 

contract or small business reserve on a 

multiple award contract at the same 

time. 

(i) Where a mentor purchases another 

business entity that is also an SBAapproved mentor that is a contract 

holder as a joint venture with a prote ́ge ́

small business and the mentor is also a 

contract holder with a prote ́ge ́ small 

business on that same multiple award 

contract, the mentor must exit one of 

those joint venture relationships. 

(ii) The prote ́ge ́ firm connected to the 

joint venture from which the mentor 

exits may seek to: 

(A) Acquire the new mentor’s interest 

in the small business multiple award 

contract or reserve and, where necessary 

and appropriate, novate such contract or 

reserve to itself only pursuant to FAR 

42.1204; or 

(B) Replace the new mentor with 

another business in the joint venture 

such that the revised joint venture will 

continue to qualify as small and be 

eligible for orders issued under the 

multiple award contract. 

(C) SBA will not find affiliation where 

a prote ́ge ́ obtains financing under 

normal commercial terms in order to 

purchase the mentor’s interest in a 

multiple award contract. 

* * * * * 

(c) * * * 

(2) A prote ́ge ́ firm may generally have 

only one mentor at a time. 

(i) SBA may approve a second mentor 

for a particular prote ́ge ́ firm where the 

second relationship will not compete or 

otherwise conflict with the first mentorprote ́ge ́ relationship, and: 

(A) The second relationship pertains 

to an unrelated NAICS code; or 


ddrumheller on DSK120RN23PROD with RULES6
Federal Register / Vol. 89, No. 242 / Tuesday, December 17, 2024 / Rules and Regulations 102493 

(B) The prote ́ge ́ firm is seeking to 

acquire a specific expertise that the first 

mentor does not possess. 

(ii) Where SBA has approved two 

mentor-prote ́ge ́ relationships for the 

same prote ́ge ́ small business, the prote ́ge ́

may enter joint venture relationships 

with each of its two mentors. However, 

those joint ventures cannot compete 

against each other and cannot be 

contract holders on the same multiple 

award contract. 

* * * * * 

(4) * * * 

(iii) If during the evaluation of the 

mentor-prote ́ge ́ relationship pursuant to 

paragraphs (g) and (h) of this section 

SBA determines that a mentor has not 

provided the business development 

assistance set forth in its mentor-prote ́ge ́

agreement or that the quality of the 

assistance provided was not satisfactory, 

SBA may terminate the mentor-prote ́ge ́

relationship. Where SBA or the parties 

themselves terminate a mentor-prote ́ge ́

relationship, SBA may allow the prote ́ge ́

to substitute another mentor for the time 

remaining in the mentor-prote ́ge ́

agreement without counting against the 

two-mentor limit. 

Example to paragraph (c)(4)(iii). 8(a) 

Participant X enters an SBA approved 

mentor-prote ́ge ́ relationship with A. 

After 3 years, X and A decide to 

terminate the mentor-prote ́ge ́

relationship. After 8 months of 

searching for a new mentor, X and B 

submit a mentor-prote ́ge ́ agreement to 

SBA for review. Once SBA determines 

that the mentor-prote ́ge ́ agreement 

meets all of SBA’s requirements, SBA 

will approve the X–B relationship for a 

period of 3 years from the date of SBA’s 

approval. The time searching for a new 

mentor and SBA’s review time are not 

subtracted from the time authorized for 

the substituted mentor-prote ́ge ́

relationship. 

(iv) Instead of having a six-year 

mentor-prote ́ge ́ relationship with two 

separate mentors, a prote ́ge ́ may seek to 

extend or renew a mentor-prote ́ge ́

relationship with the same mentor for a 

second six-year term. In order for SBA 

to approve an extension or renewal of a 

mentor-prote ́ge ́ relationship with the 

same mentor, the mentor must commit 

to providing additional business 

development assistance to the prote ́ge ́. 

Whether a prote ́ge ́ has a mentor-prote ́ge ́

relationship with two different mentors 

or the same mentor for a second six-year 

period, a concern cannot be a prote ́ge ́

for a total of more than 12 years. 

(5) Where a business concern 

purchases another business concern that 

is currently the mentor of a prote ́ge ́ firm, 

that business concern shall become the 

new mentor of the prote ́ge ́ if it commits 

to honoring the obligations under the 

seller’s mentor-prote ́ge ́ agreement or the 

purchasing business concern and the 

prote ́ge ́ negotiate a new mentor-prote ́ge ́

agreement that SBA approves. Where 

that occurs, that new mentor-prote ́ge ́

relationship will be effective for no 

longer than six years minus the length 

of the mentor-prote ́ge ́ relationship with 

the seller mentor. 

(i) The prote ́ge ́ firm can terminate its 

mentor-prote ́ge ́ relationship only if the 

purchasing business concern and the 

prote ́ge ́ firm cannot agree on either 

continuing with the previous mentorprote ́ge ́ agreement or negotiating a new 

mentor-prote ́ge ́ agreement that is 

acceptable to SBA. 

(ii) Where a mentor-prote ́ge ́

relationship is terminated, the prote ́ge ́

firm may seek another business concern 

to enter a mentor-prote ́ge ́ relationship 

for a duration not to exceed six years 

minus the length of the mentor-prote ́ge ́

relationship with the former mentor. 

Example 1 to paragraph (c)(5). 8(a) 

Participant A enters a mentor-prote ́ge ́

relationship with business concern X. 

After 3 years, business concern Y 

purchases X. A and Y agree to continue 

to abide by the mentor-prote ́ge ́

agreement between A and X. The 

mentor-prote ́ge ́ relationship between A 

and Y can last no longer than 3 years (6 

years minus the length of the A and X 

mentor-prote ́ge ́ relationship). At the end 

of that agreement A and Y could seek to 

renew the mentor-prote ́ge ́ relationship 

for another 6 years if this is A’s first 

mentor-prote ́ge ́ relationship. 

Example 2 to paragraph (c)(5). 8(a) 

Participant Z enters a mentor-prote ́ge ́

relationship with business concern B. 

After 3 years, business concern C 

purchases B. If either C is unwilling to 

abide by the terms of the Z–B mentorprote ́ge ́ agreement or Z does not want to 

extend a mentor prote ́ge ́ relationship 

with C and the mentor-prote ́ge ́

agreement is terminated, Z may seek a 

new business concern to enter a mentorprote ́ge ́ relationship. If business concern 

D agrees to enter into a mentor-prote ́ge ́

relationship with Z and SBA approves 

that relationship, the Z–D mentorprote ́ge ́ relationship can last for no 

longer than 3 years (6 years minus the 

length of the Z/B mentor-prote ́ge ́

relationship). If that was Z’s first 

mentor-prote ́ge ́ relationship, Z may seek 

to extend the Z–D mentor-prote ́ge ́

relationship for an additional 6 years or 

may seek a new mentor-prote ́ge ́

relationship with another firm for up to 

6 years. In no case can a prote ́ge ́ firm 

have mentor-prote ́ge ́ relationships 

lasting more than 12 years. 

(d) * * * 

(1) * * * 

(iv) Where a mentor seeks to sell its 

interest in a mentor-prote ́ge ́ joint 

venture, the prote ́ge ́ firm shall have a 

right of first refusal to purchase that 

interest. SBA will not find affiliation 

where a prote ́ge ́ obtains financing under 

normal commercial terms in order to 

purchase the mentor’s interest in a 

mentor-prote ́ge ́ joint venture. 

* * * * * 

■ 35. Add § 125.12 to read as follows: 

§ 125.12 Recertification of Size and Small 

Business Program Status. 

(a) General. Recertification of size and 

small business program status (i.e., 8(a), 

HUBZone, WOSB/EDWOSB, or 

SDVOSB) is required within 30 calendar 

days of a merger, acquisition, or sale of 

or by a concern or an affiliate of the 

concern, which results in a change in 

controlling interest. 

(1) A concern and the acquiring 

concern must recertify if each has 

received an award as a small business 

or small business program participant. 

(2) In the context of a joint venture, 

recertification is required from any 

partner to the joint venture that has 

merged or is party to the sale or 

acquisition. 

(3) Recertification does not change the 

terms and conditions of the award. The 

limitations on subcontracting, nonmanufacturer and subcontracting plan 

requirements in effect at the time of 

award remain in effect throughout the 

life of the award regardless of whether 

a recertification is qualifying or 

disqualifying. However, a contracting 

officer may require a subcontracting 

plan if a prime contractor’s size status 

changes from small to other than small 

as a result of a size recertification. 

(4) A size re-certification shall relate 

to the size standard in effect at the time 

of re-certification that corresponds to 

the NAICS code that was initially 

assigned to the award. 

(b) Long term contracts. For contracts 

(including multiple award contracts) 

and orders with durations of more than 

five years (including options), a concern 

must recertify its size and status no 

more than 120 days prior to the end of 

the fifth year of the award, and no more 

than 120 days prior to exercising any 

option thereafter. A contracting officer 

may also request size and/or status 

recertification, as he or she deems 

appropriate, prior to the 120-day point 

in the fifth year of a long-term contract 

or order. The agency and the contractor 

must immediately revise all applicable 

Federal contract databases to reflect the 

new size status. 

(c) Request by contracting officer. 

Recertification of size and small 


ddrumheller on DSK120RN23PROD with RULES6
102494 Federal Register / Vol. 89, No. 242 / Tuesday, December 17, 2024 / Rules and Regulations 

business program status is required 

where the contracting officer explicitly 

requires concerns to recertify their size 

or status in response to a solicitation for 

a set aside or reserved order or 

agreement. 

(d) Change in structure of entityowned concern. Size or status 

recertification is not required when the 

ownership of a concern that is at least 

51% owned by an Indian Tribe, Alaska 

Native Corporation, or Community 

Development Corporation changes to or 

from a wholly-owned business concern 

of the same entity, as long as the 

ultimate owner remains that entity. 

Example 1 to paragraph (d). Indian 

Tribe X owns 100% of small business 

ABC. ABC wins an award for a small 

business set-aside contract. In year two 

of contract performance, X changes the 

ownership of ABC so that X owns 100% 

of a holding company XYZ, Inc., which 

in turn owns 100% of ABC. This 

restructuring does not require ABC to 

recertify its status as a small business 

because it continues to be 100% owned 

(indirectly rather than directly) by 

Indian Tribe X. 

(e) Effect of Recertification—(1) 

Qualifying Recertification. A concern 

that has a qualifying recertification is 

generally considered to be a small 

business or small business program 

participant for up to five years from the 

date of the recertification and remains 

eligible for set-aside or reserved awards 

unless there is a subsequent 

disqualifying recertification. 

(2) Disqualifying Recertification—(i) 

Pending Set Aside or Reserved Award. 

If events triggering a disqualifying 

recertification under paragraph (a) of 

this section occur within 180 days after 

the date of an offer but prior to award, 

the concern is ineligible to receive the 

pending small business set aside or 

reserved award. The concern must 

notify the contracting officer of the 

change in its size or status. If events 

triggering a disqualifying recertification 

under paragraph (a) of this section occur 

more than 180 days after the date of an 

offer but prior to award, the concern is 

eligible to receive a pending single 

award or reserve and the award will 

count as an award to a small business 

or small business program participant 

for goaling purposes for up to five years 

from the date of the award unless there 

is a disqualifying recertification. 

However, where the underlying award 

is a multiple award small business set 

aside or reserve the concern is ineligible 

for the pending award because the 

concern would not be eligible for orders 

set aside for small business or set aside 

for a specific type of small business. See 

paragraph (e)(2)(ii)(B) of this section. 

(ii) Future Set Aside or Reserved 

Award—(A) Request for recertification 

on a specific order or agreement under 

an underlying multiple award contract 

that is set aside or reserved for small 

business. If a concern has a 

disqualifying size or status 

recertification in response to a 

contracting officer request for 

recertification on a specific order or 

agreement under an underlying multiple 

award contract that is set aside or 

reserved for small business (i.e., small 

business set-aside or reserve, 8(a) small 

business, service-disabled veteranowned small business, HUBZone small 

business, or women-owned/ 

economically disadvantaged womenowned small business), the concern is 

ineligible for the specific order or 

agreement but remains eligible for other 

set aside or reserved awards and 

unrestricted awards. 

(1) Where an initially-small contract 

holder has naturally grown to be other 

than small and could not recertify as 

small for a specific order or agreement 

for which a contracting officer requested 

recertification, it may continue to 

qualify as small for other orders or 

agreements where a contracting officer 

does not request recertification. 

(2) Where an initially-eligible 8(a), 

HUBZone, WOSB or SDVOSB contract 

holder on an 8(a), HUBZone, WOSB or 

SDVOSB set-aside or reserve cannot 

recertify its status for a specific order or 

agreement for which a contracting 

officer requested recertification, it may 

continue to qualify as eligible for other 

competitively awarded orders or 

agreements where a contracting officer 

does not request recertification. 

(B) Other Events Triggering 

Recertification. (1) If a concern has a 

disqualifying recertification in response 

to a recertification requirement on a 

long-term multiple award contract or a 

recertification requirement following a 

merger, acquisition, or sale involving a 

business entity that does not itself 

qualify as small under the NAICS code 

assigned to the multiple award contract, 

the concern is ineligible to submit an 

offer for a set aside or reserved award 

after the triggering event occurs. The 

concern remains eligible for unrestricted 

awards under a multiple award contract 

and orders issued under a single award 

small business contract. In either case, 

a procuring agency cannot count the 

order as an award to small business or 

to the specific type of small business 

(i.e., 8(a), WOSB, SDVOSB, or 

HUBZone). 

(2) If a concern has a disqualifying 

recertification in response to a 

requirement to recertify size and/or 

status following a merger, acquisition, 

or sale involving another small business 

concern, the concern remains eligible 

for set-aside or reserved orders issued 

under a multiple award contract, but a 

procuring agency cannot count the order 

as an award to small business or to the 

specific type of small business (i.e., 8(a), 

WOSB, SDVOSB, or HUBZone). 

(iii) Options. (A) For a single award 

small business set-aside or reserve 

award or any unrestricted award, a 

concern that submits a disqualifying 

recertification remains eligible to 

receive options. The procuring agency 

cannot count the option period as an 

award to a small business or small 

business program participant for goaling 

purposes. Such a concern may make a 

qualifying recertification for a 

subsequent option period if it meets the 

applicable size standard or becomes a 

certified small business program 

participant. 

(B) For a multiple award contract that 

is set-aside or reserved for small 

business, a concern that submits a 

disqualifying recertification in response 

to a recertification requirement on a 

long-term contract or a recertification 

requirement following a merger, 

acquisition, or sale involving a business 

entity that does not itself qualify as 

small under the NAICS code assigned to 

the multiple award contract is ineligible 

to receive options. 

(C) For a multiple award contract that 

is set-aside or reserved for small 

business, a concern that submits a 

disqualifying recertification in response 

to a requirement to recertify size and/or 

status following a merger, acquisition, 

or sale involving another small business 

concern, the concern remains eligible to 

receive options. The procuring agency 

cannot count the option period as an 

award to a small business or to the 

specific type of small business (i.e., 8(a), 

WOSB, SDVOSB, or HUBZone). Such a 

concern may make a qualifying 

recertification for a subsequent option 

period if it meets the applicable size 

standard or becomes a certified small 

business program participant. 

(f) Joint venture recertifications. 

Where a joint venture must recertify its 

small business size status under 

paragraph (a) of this section, the joint 

venture can recertify as small where all 

parties to the joint venture qualify as 

small at the time of recertification, or 

the prote ́ge ́ small business in a still 

active mentor-prote ́ge ́ joint venture 

qualifies as small at the time of 

recertification. A joint venture can 

recertify as small even though the date 

of recertification occurs more than two 

years after the joint venture received its 

first contract award (i.e., recertification 


ddrumheller on DSK120RN23PROD with RULES6
Federal Register / Vol. 89, No. 242 / Tuesday, December 17, 2024 / Rules and Regulations 102495 

is not considered a new contract award 

under § 121.103(h). 

(g) Delayed effective date. 

Notwithstanding paragraphs (e)(2)(ii)(B) 

and (e)(2)(iii)(B) of this section: 

(i) A firm that has a disqualifying size 

or status recertification due to a merger, 

acquisition or sale that occurs prior to 

January 17, 2026 remains eligible for 

orders issued under an underlying small 

business multiple award contract. 

However, the agency cannot count any 

new or pending orders issued pursuant 

to the contract, from that point forward, 

towards its small business and 

socioeconomic goals. This includes setasides, partial set-asides, and reserves 

for 8(a) BD Participants, certified 

HUBZone small business concerns, 

SDVO SBCs, and ED/WOSBs. 

(ii) A firm that has a disqualifying size 

or status recertification prior to the end 

of the fifth year of a long-term contract 

remains eligible for any options to be 

exercised prior to January 17, 2026. 

However, the agency cannot count those 

options towards its small business and 

socioeconomic goals. 

■ 36. Add § 125.13 to read as follows: 

§ 125.13 What restrictions apply to fees for 

representatives of applicants and 

participants in SBA’s 8(a) BD, HUBZone, 

WOSB and VetCert programs? 

(a) The compensation received by any 

packager, agent, or representative of a 

concern applying for 8(a) BD, HUBZone, 

WOSB/EDWOSB, or VOSB/SDVOSB 

certification in exchange for assisting 

the applicant in obtaining such 

certification must be reasonable in light 

of the service(s) performed by the 

packager, agent, or representative. 

(b) The compensation received by any 

packager, agent, or representative of a 

certified 8(a) BD, HUBZone small 

business concern, WOSB/EDWOSB, or 

VOSB/SDVOSB in exchange for 

assisting the concern in obtaining any 

small business contracts, orders, BPAs, 

BAs, or BOAs must be reasonable in 

light of the service(s) performed by the 

packager, agent, or representative, and 

cannot be a fee that is a percentage of 

the gross value of the contract, order, 

BPA, BA or BOA. 

(c) For good cause, SBA may initiate 

proceedings to suspend or revoke a 

packager’s, agent’s, or representative’s 

privilege to assist applicants obtain SBA 

certification and assist certified small 

business concerns obtain contracts, 

orders, or any other assistance to 

support participation in the 8(a) BD, 

HUBZone, WOSB or VetCert programs. 

Good cause is defined in § 103.4 of this 

chapter. 

(1) SBA may send a ‘‘show cause’’ 

letter requesting the agent or 

representative to demonstrate why the 

agent or representative should not be 

suspended or proposed for revocation, 

or may immediately send a written 

notice suspending or proposing 

revocation, depending upon the 

evidence in the administrative record. 

The notice will include a discussion of 

the relevant facts and the reason(s) why 

SBA believes that good cause exists. 

(2) Unless SBA specifies a different 

time in the notice, the agent or 

representative must respond to the 

notice within 30 calendar days of the 

date of the notice with any facts or 

arguments showing why good cause 

does not exist. The agent or 

representative may request additional 

time to respond, which SBA may grant 

in its discretion. 

(3) After considering the agent’s or 

representative’s response, SBA will 

issue a final determination, setting forth 

the reasons for this decision and, if a 

suspension continues to be effective or 

a revocation is implemented, the term of 

the suspension or revocation. 

(d) The relevant SBA program office 

may refer a packager, agent, or other 

representative to SBA’s Suspension and 

Debarment Official for possible 

Government-wide suspension or 

debarment where appropriate, including 

where it appears that the packager, 

agent, or representative assisted an 

applicant or certified small business 

concern to submit information to SBA 

that the packager, agent, or 

representative knew to be false or 

materially misleading. 

PART 126—HUBZONE PROGRAM 

■ 37. The authority citation for part 126 

continues to read as follows: 

Authority: 15 U.S.C. 632(a), 632(j), 632(p), 

644 and 657a. 

§ 126.100 [Amended] 

■ 38. Amend § 126.100 by removing the 

words ‘‘qualified SBCs’’ and adding in 

their place the words ‘‘small business 

concerns’’. 

§ 126.102 [Amended] 

■ 39. Amend § 126.102 by removing the 

words ‘‘qualified HUBZone SBCs’’ and 

adding in their place the words 

‘‘certified HUBZone small business 

concerns’’. 

■ 40. Amend § 126.103 by: 

■ a. Removing the definition for ‘‘AA/ 

BD’’; 

■ b. Revising the definitions for 

‘‘Attempt to maintain’’, ‘‘Certification or 

Certify’’, ‘‘Community Development 

Corporation or CDC’’, ‘‘Contracting 

Officer’’, ‘‘Decertify’’, ‘‘Dynamic Small 

Business Search (DSBS)’’, ‘‘Employee’’, 

and ‘‘Governor-Designated Covered 

Area’’; 

■ c. Adding in alphabetical order 

definitions for ‘‘HUBZone certification 

date’’, ‘‘HUBZone Map’’, and 

‘‘HUBZone resident employee’’; 

■ d. Revising the definitions for 

‘‘HUBZone small business concern or 

certified HUBZone small business 

concern’’, ‘‘Indian Tribal Government’’, 

and ‘‘Principal office’’; 

■ e. Removing paragraph (3) in the 

definition of ‘‘Qualified Census Tract’’; 

■ f. Revising the definition of ‘‘Qualified 

Disaster Area’’; 

■ g. Removing paragraph (4) in the 

definition of ‘‘Qualified NonMetropolitan County’’; 

■ h. Adding in alphabetical order the 

definition for ‘‘Recertification (or 

certification renewal)’’; 

■ i. Revising the definitions for 

‘‘Redesignated Area’’, ‘‘Reside’’, and 

‘‘Small business concern’’; and 

■ j. Adding in alphabetical order the 

definition for ‘‘System for Award 

Management (SAM)’’. 

The revisions and additions read as 

follows: 

§ 126.103 What definitions are important in 

the HUBZone program? 

* * * * * 

Attempt to maintain means making 

substantive and documented efforts to 

meet the HUBZone residency 

requirement, such as making written 

offers of employment, publishing 

advertisements seeking employees, and 

attending job fairs, and applies only 

during the performance of a HUBZone 

contract as defined in § 126.600. A firm 

that cannot demonstrate that it is 

making such efforts has failed to attempt 

to maintain the HUBZone residency 

requirement. In addition, a firm that has 

less than 20% of its total employees 

residing in a HUBZone during the 

performance of a HUBZone contract has 

failed to attempt to maintain the 

HUBZone residency requirement. 

* * * * * 

Certification or Certify means the 

process by which SBA determines that 

a concern is qualified for the HUBZone 

program and eligible to be designated by 

SBA as a certified HUBZone small 

business concern in DSBS (or successor 

system). 

* * * * * 

Community Development Corporation 

or CDC means a nonprofit organization 

responsible to residents of the area it 

serves which has received financial 

assistance under 42 U.S.C. 9805, et seq. 

or has received a letter from the 

Department of Health and Human 

Services affirming that it has received 


ddrumheller on DSK120RN23PROD with RULES6
102496 Federal Register / Vol. 89, No. 242 / Tuesday, December 17, 2024 / Rules and Regulations 

assistance under a successor program to 

that authorized by 42 U.S.C. 9805. 

* * * * * 

Contracting Officer has the meaning 

given that term in 41 U.S.C. 2101(1), 

which defines a contracting officer as a 

person who, by appointment in 

accordance with applicable regulations, 

has the authority to enter into a Federal 

agency procurement contract on behalf 

of the Government and to make 

determinations and findings with 

respect to such a contract. 

* * * * * 

Decertify means the process by which 

SBA removes a concern as a certified 

HUBZone small business concern from 

DSBS (or successor system) upon a 

finding that the firm does not meet the 

HUBZone eligibility requirements or 

after a firm voluntarily withdraws from 

the HUBZone program. 

Dynamic Small Business Search 

(DSBS) means the database that 

government agencies use to find small 

business contractors for upcoming 

contracts. The information a business 

provides when registering in SAM, as 

defined in this section, is used to 

populate DSBS. For HUBZone Program 

purposes, a concern’s DSBS profile will 

indicate whether it is a certified 

HUBZone small business concern, and 

if so, the date it was certified. 

Employee means an individual 

employed on a full-time, part-time, or 

other basis, so long as that individual 

generally works a minimum of 10 hours 

per week during the four-week period 

immediately prior to the relevant date of 

review. SBA may permit an individual 

to count as an employee if that 

individual works less than 10 hours in 

any week during the four-week period 

immediately prior to the relevant date of 

review provided the individual works at 

least 40 hours during that four-week 

period and the concern demonstrates a 

legitimate business reason for that work 

schedule. 

(1) To determine the number of hours 

worked by each individual employed by 

the business concern, SBA will review 

a concern’s payroll records for the most 

recently completed pay periods that 

account for the four-week period 

immediately prior to the relevant date of 

review. To determine if an individual is 

an employee, SBA reviews the totality 

of circumstances, including criteria 

used by the Internal Revenue Service 

(IRS) for Federal income tax purposes 

and the factors set forth in SBA’s Size 

Policy Statement No. 1 (51 FR 6099, 

February 20, 1986). 

(2) In general, the following are 

considered employees: 

(i) Individuals obtained from a 

temporary employee agency, from a 

concern primarily engaged in leasing 

employees, or through a union 

agreement, or co-employed pursuant to 

a Professional Employer Organization 

agreement; 

(ii) An individual who has an 

ownership interest in the concern and 

who works for the concern 80 hours or 

more during the four-week period 

immediately prior to the relevant date of 

review, whether or not the individual 

receives compensation; 

(iii) An owner who works less than 80 

hours during the four-week period 

immediately prior to the relevant date of 

review, where another individual has 

not been hired to manage and direct the 

actions of the concern’s employee(s); 

(iv) Reservists or National Guard 

members when called to active duty; 

and 

(v) Individuals who are on annual, 

sick, or maternity leave and continue to 

be paid by the business concern. 

(3) In general, the following are not 

considered employees: 

(i) Individuals who are not owners 

and receive no compensation for work 

performed; 

(ii) Individuals who receive deferred 

compensation for work performed; 

(iii) Independent contractors to whom 

payments are reported via IRS Form 

1099 and who are not otherwise 

considered employees under SBA’s Size 

Policy Statement No. 1; and 

(iv) Subcontractors. 

(4) Employees of an affiliate may be 

considered employees, if the totality of 

the circumstances shows that there is no 

clear line of fracture between the 

HUBZone applicant (or certified 

HUBZone small business concern) and 

its affiliate(s) (see § 126.204). 

(5) An individual must perform work 

for the concern to be considered an 

employee for HUBZone purposes. SBA 

may require evidence that an individual 

is performing work, including but not 

limited to the following: a job 

description; the individual’s resume; 

timesheets; proof of onboarding and/or 

training; evidence of regular 

communication assigning work to the 

individual and responses to such 

communication; examples of work 

product commensurate with hours 

worked; documentation demonstrating 

the individual’s participation in online 

or telephonic meetings with supervisors 

or colleagues, such as meeting 

invitations, notes from meetings, postmeeting questions or assignments; 

written attestations; and other relevant 

documentation. 

Governor-Designated Covered Area 

means an area that SBA has designated 

as a HUBZone by approving a Governorgenerated petition pursuant to the 

procedures described in § 126.104. 

* * * * * 

HUBZone certification date means the 

date on which SBA approves a 

concern’s application for HUBZone 

certification and is the date specified in 

the concern’s certification letter. If a 

concern leaves the HUBZone program 

and reapplies for certification, its 

HUBZone certification date is the date 

SBA approves the concern’s most recent 

application. 

HUBZone Map means a publicly 

accessible online tool that depicts 

HUBZones. 

HUBZone resident employee means 

an individual who meets the definition 

of an employee and who SBA has 

determined resides in a HUBZone. 

HUBZone small business concern or 

certified HUBZone small business 

concern means a small business concern 

that meets the requirements described 

in § 126.200 and that SBA has certified 

as eligible for Federal contracting 

assistance under the HUBZone program. 

* * * * * 

Indian Tribal Government means the 

governing body of any Indian Tribe, 

band, nation, pueblo, or other organized 

group or community which is 

recognized as eligible for the special 

programs and services provided by the 

United States to Indians because of their 

status as Indians, or is recognized as 

such by the State in which the Tribe, 

band, nation, group, or community 

resides. 

* * * * * 

Principal Office means the location 

where the greatest number of the 

concern’s employees at any one location 

perform their work. 

(1) In order for a location to be 

considered the principal office, the 

concern must provide a deed or an 

active lease that includes a start date 

that was at least 30 calendar days prior 

to the relevant date of review, and an 

end date that is at least 60 calendar days 

after the relevant date of review, as well 

as any other documentation requested 

by SBA; 

(2) In order for a location to be 

considered the principal office, the 

concern must conduct business at this 

location. The concern may be required 

to demonstrate that it is doing so by 

submitting evidence including but not 

limited to the following: 

(i) Photos and/or a live or virtual 

walk-through of the space; and 

(ii) For shared working spaces, 

evidence that the firm has dedicated 

space within any shared location, and 

that such dedicated space contains 


ddrumheller on DSK120RN23PROD with RULES6
Federal Register / Vol. 89, No. 242 / Tuesday, December 17, 2024 / Rules and Regulations 102497 

sufficient work surface area, furniture, 

and equipment to accommodate the 

number of employees claimed to work 

from this location; 

(3) If an employee works at multiple 

locations, then the employee will be 

deemed to work at the location where 

the employee spends more than 50% of 

his or her time. If an employee does not 

spend more than 50% of his or her time 

at any one location and at least one of 

those locations is a non-HUBZone 

location, then the employee will be 

deemed to work at a non-HUBZone 

location. 

(4) For those concerns whose 

‘‘primary industry classification’’ is 

services or construction (see § 121.201 

of this chapter), the determination of 

principal office excludes the concern’s 

employees who perform more than 50% 

of their work at job-site locations to 

fulfill specific contract obligations. If all 

of a concern’s employees perform more 

than 50% of their work at job sites, the 

concern does not comply with the 

principal office requirement. 

(i) Example 1: A business concern 

whose primary industry is construction 

has a total of 78 employees, including 

the owners. The business concern has 

one office (Office A), which is located 

in a HUBZone, with 3 employees 

working at that location. The business 

concern also has a job-site for a current 

contract, where 75 employees perform 

more than 50% of their work. The 75 

job-site employees are excluded for 

purposes of determining principal 

office. Since the remaining 3 employees 

all work at Office A, Office A is the 

concern’s principal office. Since Office 

A is in a HUBZone, the business 

concern complies with the principal 

office requirement. 

(ii) Example 2: A business concern 

whose primary industry is services has 

a total of 4 employees, including the 

owner. The business concern has one 

office located in a HUBZone (Office A), 

where 2 employees perform more than 

50% of their work, and a second office 

not located in a HUBZone (Office B), 

where 2 employees perform more than 

50% of their work. Since there is not 

one location where the greatest number 

of the concern’s employees at any one 

location perform their work, the 

business concern would not have a 

principal office in a HUBZone. 

(iii) Example 3: A business concern 

whose primary industry is services has 

a total of 6 employees, including the 

owner. Five of the employees perform 

all of their work at job-sites fulfilling 

specific contract obligations. The 

business concern’s owner performs 45% 

of her work at job-sites, and 55% of her 

work at an office located in a HUBZone 

(Office A) conducting tasks such as 

writing proposals, generating payroll, 

and responding to emails. Office A 

would be considered the principal office 

of the concern since it is the only 

location where any employees of the 

concern work that is not a job site and 

the 1 individual working there spends 

more than 50% of her time at Office A. 

Since Office A is located in a HUBZone, 

the small business concern would meet 

the principal office requirement. 

* * * * * 

Qualified Disaster Area. (1) Qualified 

Disaster Area means any census tract or 

non-metropolitan county located in an 

area where a major disaster declared by 

the President under section 401 of the 

Robert T. Stafford Disaster Relief and 

Emergency Assistance Act (42 U.S.C. 

5170) has occurred or an area in which 

a catastrophic incident has occurred if 

such census tract or non-metropolitan 

county ceased to be a Qualified Census 

Tract or Qualified Non-Metropolitan 

County during the period beginning 5 

years before the date on which the 

President declared the major disaster or 

the catastrophic incident occurred. 

(2) A census tract or non-metropolitan 

county shall be considered to be a 

Qualified Disaster Area for the period of 

time starting on the date on which the 

President declared the major disaster for 

the area in which the census tract or 

non-metropolitan county, as applicable, 

is located (or in the case of a 

catastrophic incident, on the date on 

which the catastrophic incident 

occurred in the area in which the census 

tract or non-metropolitan county, as 

applicable, is located) and ending on the 

date when SBA next updates the 

HUBZone Map in accordance with 

§ 126.104(a). 

* * * * * 

Recertification (or certification 

renewal), for purposes of this subpart, 

means the process by which a concern 

represents that it continues to meet the 

requirements of the HUBZone program. 

Redesignated Area means any census 

tract that ceases to be a Qualified 

Census Tract or any non-metropolitan 

county that ceases to be a Qualified 

Non-Metropolitan County. A 

Redesignated Area generally shall be 

treated as a HUBZone for a period of 

three years, starting from the date on 

which the area ceased to be a Qualified 

Census Tract or a Qualified NonMetropolitan County. The date on 

which the census tract or nonmetropolitan county ceases to be 

qualified is the date on which the 

official government data affecting the 

eligibility of the HUBZone is released to 

the public. 

Reside means to live at a location fulltime and for at least 90 calendar days 

immediately prior to the relevant date of 

review. 

(1) To determine residence, SBA will 

first look to an individual’s address 

identified on his or her driver’s license 

or other government-issued 

identification card. Where such 

documentation is not available (or 

where the address on the individual’s 

driver’s license does not match the 

residence claimed), SBA will require 

other specific proof of residency, such 

as deeds, leases, and/or utility bills, as 

well as an explanation as to why a 

driver’s license is unavailable or 

inconsistent. 

(2) For HUBZone purposes, SBA will 

consider individuals temporarily 

residing overseas in connection with the 

performance of a contract to reside at 

their U.S. residence. 

(i) Example 1: A person possesses the 

deed to a residential property and pays 

utilities and property taxes for that 

property. However, the person does not 

live at this property, but instead rents 

out this property to another individual. 

For HUBZone purposes, the person does 

not reside at the address listed on the 

deed and is not considered a HUBZone 

employee. 

(ii) Example 2: A person moves into 

an apartment under a month-to-month 

lease and lives in that apartment fulltime. SBA would consider the person to 

reside at the address listed on the lease 

if the person can show that he or she has 

lived at that address for at least 90 

calendar days immediately prior to the 

relevant date of review. 

(iii) Example 3: A person is working 

overseas on a contract for the small 

business and is therefore temporarily 

living abroad. The employee can 

provide documents showing he has paid 

rent for an apartment located in a 

HUBZone for at least 90 calendar days 

immediately prior to the relevant date of 

review. That person is deemed to reside 

in a HUBZone. 

* * * * * 

Small business concern means a 

concern that, with its affiliates, meets 

the size standard corresponding to any 

NAICS code listed in its profile in the 

System for Award Management (or 

successor system), pursuant to part 121 

of this chapter. 

System for Award Management (SAM) 

has the same meaning as in FAR 2.101. 

■ 41. Revise § 126.104 as follows: 

§ 126.104 How can a Governor petition for 

the designation of a Governor-designated 

cover area? 

(a) Petition. Each calendar year, the 

Governor of a State may submit a 


ddrumheller on DSK120RN23PROD with RULES6
102498 Federal Register / Vol. 89, No. 242 / Tuesday, December 17, 2024 / Rules and Regulations 

petition to the SBA Office of the 

HUBZone Program requesting that 

certain covered areas be designated as 

Governor-designated covered areas. For 

a specific covered area to receive a 

designation as a Governor-designated 

covered area, the Governor of the State 

in which the identified covered area is 

wholly contained shall include such 

area in a petition to SBA requesting 

such a designation. 

(1) A Governor may submit not more 

than one petition described in this 

section per calendar year. 

(2) The petition described in this 

section shall include all covered areas 

in a State for which the Governor seeks 

designation as a Governor-designated 

covered area. The total number of 

covered areas included in such petition 

may not exceed ten percent of the total 

number of covered areas in the State. 

(3)(i) The total number of covered 

areas in a State shall be calculated by 

aggregating the number of census tracts 

and counties that qualify as covered 

areas as described in paragraph (d) of 

this section. 

(ii) A petition need not seek SBA 

approval for those covered areas 

previously designated as Governordesignated covered areas. 

(b) SBA Review. In reviewing a 

request for designation included in such 

a petition, SBA may consider: 

(1) The potential for job creation and 

investment in the covered area; 

(2) The demonstrated interest of small 

business concerns in the covered area to 

be designated as a Governor-designated 

covered area; 

(3) How State and local government 

officials have incorporated the covered 

area into an economic development 

strategy; and 

(4) If the covered area was a HUBZone 

before becoming the subject of the 

petition, the impact on the covered area 

if the Administrator did not approve the 

petition. 

(c) SBA Decision. The AA/GCBD (or 

designee) is authorized to grant the 

petitions described in this section. If the 

AA/GCBD (or designee) grants a petition 

described in this section, SBA will issue 

a written notice to the petitioning 

Governor and add the newly designated 

Governor-designated covered areas to 

the HUBZone Map. 

(d) Length of designation. A Governordesignated covered area will be treated 

as a HUBZone until SBA next updates 

the HUBZone Map in accordance with 

§ 126.105(a), or one year after the 

petition is approved, whichever is later. 

(e) Definitions. In this section: 

(1) The term ‘‘covered area’’ means a 

census tract or county in a State— 

(i) That is located outside of an urban 

area, as determined by the Bureau of the 

Census, with a population of not more 

than 50,000; and 

(ii) For which the average 

unemployment rate is at least 120 

percent of the average unemployment 

rate of the United States or of the State 

in which the covered area is located, 

whichever is less, based on the most 

recent data available from the American 

Community Survey conducted by the 

Bureau of the Census. 

(2) The term ‘‘Governor’’ means the 

chief executive of a State. 

(3) The term ‘‘State’’ means each of 

the States of the United States, the 

District of Columbia, the 

Commonwealth of Puerto Rico, the 

United States Virgin Islands, Guam, the 

Commonwealth of the Northern Mariana 

Islands, or American Samoa. 

■ 42. Add § 126.105 to read as follows: 

§ 126.105 How often will the HUBZone Map 

be updated? 

The HUBZone Map will be updated as 

follows: 

(a) Qualified Census Tracts and 

Qualified Non-Metropolitan Counties 

will be updated every 5 years. 

(b) Redesignated Areas will be added 

to the HUBZone Map when areas cease 

to be designated as Qualified Census 

Tracts or Qualified Non-Metropolitan 

Counties, in accordance with the 5-year 

cycle described in paragraph (a) of this 

section, and will be removed after 3 

years. 

(c) Qualified Base Closure Areas will 

be added to the HUBZone Map after 

SBA receives information from the 

Department of Defense that a new base 

closure area has been created and will 

be removed after 8 years. 

(d) Qualified Disaster Areas generally 

will be added to the HUBZone Map on 

a monthly basis, based on data received 

by SBA from the Federal Emergency 

Management Agency (FEMA), and 

generally will be removed on the 

effective date of the 5-year HUBZone 

Map update following the declaration. 

(e) Governor-Designated Covered 

Areas will be added to the HUBZone 

Map after SBA approves a petition in 

accordance with § 126.104 and will be 

removed on the effective date of the 5- 

year HUBZone Map update following 

the approval, or one year after the 

petition is approved, whichever is later. 

■ 43. Amend § 126.200 by: 

■ a. Revising paragraphs (b)(1) and 

(c)(1); 

■ b. Adding a paragraph heading in 

paragraph (c)(2); 

■ c. Revising paragraph (d)(1); 

■ d. Adding a paragraph heading in 

paragraph (d)(2); 

■ e. Revising paragraph (d)(3); 

■ f. Revising paragraphs (e), (f), and (g); 

and 

The revisions and additions read as 

follows: 

§ 126.200 What requirements must a 

concern meet to be eligible as a certified 

HUBZone small business concern? 

* * * * * 

(b) * * * 

(1) In order to be eligible for 

HUBZone certification and 

recertification, a concern, together with 

its affiliates, must qualify as a small 

business concern as defined in part 121 

of this chapter under the size standard 

corresponding to any NAICS code listed 

in its profile in SAM (or successor 

system). In determining whether a 

concern qualifies as small under the size 

standard corresponding to a specific 

NAICS code, SBA will accept the 

concern’s size representation in SAM 

(or successor system), unless there is 

evidence indicating that the concern is 

other than small. SBA will request a 

formal size determination pursuant to 

§ 121.1001(b)(8) of this chapter where 

any information it possesses calls into 

question the concern’s SAM size 

representation. 

* * * * * 

(c) * * * 

(1) Long-term investment—(i) General. 

A concern that has purchased a building 

or entered a long-term lease of at least 

10 years for a property in a HUBZone 

(other than in a Redesignated Area or 

Qualified Disaster Area) will be deemed 

to have its principal office located in a 

HUBZone for up to 10 years from the 

date of the investment, as long as that 

building or property qualifies as the 

concern’s principal office and continues 

to qualify as the concern’s principal 

office, and as long as the firm maintains 

the long-term lease or continues to be 

the sole owner of the property. 

(ii) Commencement of 10-year period. 

The 10-year principal office long-term 

investment protection period starts to 

run on the firm’s HUBZone certification 

date (if the investment was made prior 

to the firm’s certification) or on the date 

of the investment (if the investment was 

made after the firm’s HUBZone 

certification date). 

Example 1 to paragraph (c)(2)(i): If a 

firm was certified on March 31, 2020, 

and purchased a building on July 20, 

2020, the 10-year clock would begin 

when the firm recertifies as of July 29, 

2020. 

(iii) Exceptions. The following do not 

qualify for this provision: 

(A) An office located in a 

Redesignated Area or Qualified Disaster 


ddrumheller on DSK120RN23PROD with RULES6
Federal Register / Vol. 89, No. 242 / Tuesday, December 17, 2024 / Rules and Regulations 102499 

Area at the time of initial HUBZone 

certification; 

(B) An office that is shared with one 

or more other concerns or individuals; 

(C) Any location being used as a 

personal residence; or 

(D) An investment made within 180 

calendar days of the expiration of an 

area’s designation as a Qualified Census 

Tract, Qualified Non-Metropolitan 

County, Governor-Designated Covered 

Area, or Qualified Base Closure Area. 

(2) Tribally-owned concerns. * * * 

* * * * * 

(d) * * * 

(1) General. In order to be eligible for 

HUBZone certification, at least 35% of 

a concern’s employees must qualify as 

HUBZone resident employees. When 

determining the percentage of 

employees that must reside in a 

HUBZone to meet the 35% HUBZone 

residency requirement, if the percentage 

results in a fraction, SBA rounds to the 

nearest whole number, except for a firm 

with only one employee. For firms with 

only one employee, that one employee 

must reside in a HUBZone. 

Example 1 to paragraph (d)(1): A 

concern has 25 employees; 35% of 25, 

or 8.75, employees must reside in a 

HUBZone. The number 8.75 rounded to 

the nearest whole number is 9. Thus, 9 

employees must reside in a HUBZone. 

Example 2 to paragraph (d)(1): A 

concern has 95 employees; 35% of 95, 

or 33.25, employees must reside in a 

HUBZone. The number 33.25 rounded 

to the nearest whole number is 33. 

Thus, 33 employees must reside in a 

HUBZone. 

(2) Tribally-owned concerns. * * * 

(3) Legacy HUBZone employees. (i) 

An individual will be considered a 

Legacy HUBZone Employee and count 

as a HUBZone resident employee, even 

if the employee subsequently moves to 

a location that is not in a HUBZone or 

the area in which the employee’s 

residence is located no longer qualifies 

as a HUBZone, if the individual: 

(A) Continues to live in a HUBZone 

for at least 180 calendar days 

immediately after the firm’s HUBZone 

certification date (or recertification 

date); and 

(B) Continues to meet the definition of 

‘‘employee’’ in § 126.103 continuously 

and without interruption. 

(ii) A certified HUBZone small 

business concern may have up to four 

Legacy HUBZone Employees at a given 

time, but must have at least one other 

HUBZone employee in order for any 

legacy employee to count as a HUBZone 

employee. 

(iii) The certified HUBZone small 

business concern must maintain records 

of the Legacy HUBZone Employee’s 

original HUBZone address, as well as 

records of any HUBZone other address 

in which the individual resided, as well 

as records of the individual’s 

continuous and uninterrupted 

employment by the HUBZone small 

business concern, for the duration of the 

concern’s participation in the HUBZone 

program. In order to demonstrate that an 

individual resided in a HUBZone for 

180 days after certification (or 

recertification), the concern must 

submit to SBA copies of leases, utility 

bills, or property tax records. 

(iv) The certification date or 

recertification date being used to 

establish the HUBZone residency of the 

employee must be after December 26, 

2019. 

(v) The following individuals do not 

qualify as Legacy HUBZone Employees: 

(A) An individual who initially 

qualified as a HUBZone Resident 

Employee by residing in a Redesignated 

Area or a Qualified Disaster Area; and 

(B) An individual who works less 

than 30 hours per week. 

Example 1 to paragraph (d)(3): As 

part of its application for HUBZone 

certification, a concern provides 

documentation showing that it has ten 

employees, four of which reside in 

HUBZones. SBA certifies the concern as 

a certified HUBZone small business 

concern. More than 180 days after being 

certified, two individuals who qualified 

as HUBZone Resident Employees, and 

were critical to the concern’s meeting 

the 35% residency requirement, move 

out of the HUBZone area but 

continuously remain employees of the 

concern. Because the business concern 

has two other employees who still live 

in a HUBZone, both of the individuals 

who may be treated as Legacy 

Employees and count as HUBZone 

Resident Employees for purposes of 

recertification. 

(e) Attempt to maintain. (1) At the 

time of application, each recertification 

required by § 126.500(a), and offer for a 

HUBZone contract, a concern must 

certify that it will ‘‘attempt to maintain’’ 

(see § 126.103) having at least 35% of its 

employees reside in a HUBZone during 

the performance of any HUBZone 

contract it receives. 

(2) At the time of recertification, a 

firm that is currently performing a 

HUBZone contract and falls below the 

35% HUBZone residency requirement 

may recertify as a HUBZone small 

business concern as long as at least 20% 

of its total employees reside in a 

HUBZone and it is making substantive 

and documented efforts to meet the 

HUBZone residency requirement. 

(3) During performance of a HUBZone 

contract, a HUBZone small business 

concern must attempt to maintain 

having at least 35% of its employees 

residing in HUBZones. 

(f) Suspension and Debarment. At the 

time of application and at all times 

while a concern is HUBZone-certified, 

such concern and any of its owners 

must not have an active exclusion in 

SAM. 

(g) Federal financial obligations. A 

business concern is ineligible to be 

certified as a HUBZone small business 

concern or to participate in the 

HUBZone program if either the concern 

or any of its principals has failed to pay 

significant financial obligations owed to 

the Federal Government, including 

unresolved tax liens and defaults on 

Federal loans or other Federally assisted 

financing. However, a small business 

concern may be eligible if the concern 

or the affected principals can 

demonstrate that they are current on an 

approved repayment plan, or the 

financial obligations owed have been 

settled and discharged/forgiven by the 

Federal Government. 

■ 44. Amend § 126.201 by revising the 

section heading, and the first sentence 

of the introductory text to read as 

follows: 

§ 126.201 Who does SBA consider to be 

an owner of a HUBZone small business 

concern? 

For purposes of qualifying for 

HUBZone certification, SBA considers 

any person who owns any legal or 

equitable interest in a concern to be an 

owner of the concern. * * * 

* * * * * 

§ 126.202 [Amended] 

■ 45. Amend § 126.202 by removing the 

word ‘‘SBC’’ in the section heading and 

in the first sentence and adding in its 

place the words ‘‘small business 

concern’’, and removing the third and 

fourth sentences. 

■ 46. Amend § 126.204 by: 

■ a. Revising paragraph (a); 

■ b. Removing the words ‘‘all 

information’’ in the introductory text of 

paragraph (c) and adding in their place 

the words ‘‘the totality of 

circumstances’’; 

■ c. Revising paragraph (c)(3); and 

■ d. Adding paragraph (c)(4). 

The revisions and addition read as 

follows: 

§ 126.204 May a HUBZone small business 

concern have affiliates? 

(a) A HUBZone small business 

concern may have affiliates, provided 

that the HUBZone small business 


ddrumheller on DSK120RN23PROD with RULES6
102500 Federal Register / Vol. 89, No. 242 / Tuesday, December 17, 2024 / Rules and Regulations 

concern, together with its affiliates, 

qualifies as a small business concern as 

defined in part 121 of this chapter under 

the size standard corresponding to any 

NAICS code listed in its profile in SAM 

(or successor system), except as 

otherwise provided for small 

agricultural cooperatives.gov in 

§ 126.103. 

* * * * * 

(c) * * * 

(3) Minimal business activity between 

the concern and its affiliate alone will 

not result in an affiliate’s employees 

being counted as employees of the 

HUBZone applicant or HUBZone small 

business concern. 

(4) SBA will not treat the employees 

of one company as employees of another 

for HUBZone program purposes if the 

two firms would not be considered 

affiliated for size purposes under Part 

121 of this chapter. 

Example 1 to paragraph (c): X owns 

100% of Company A and 51% of 

Company B. Based on X’s common 

ownership of A and B, the two 

companies are affiliated under SBA’s 

size regulations. SBA will look at the 

totality of circumstances to determine 

whether it would be reasonable to treat 

the employees of B as employees of A 

for HUBZone program purposes. If both 

companies do construction work and 

share office space and equipment, then 

SBA would find that there is not a clear 

line of fracture between the two 

concerns and would treat the employees 

of B as employees of A for HUBZone 

program purposes. In order to be eligible 

for the HUBZone program, at least 35% 

of the combined employees of A and B 

must reside in a HUBZone. 

§ 126.302 [Amended] 

■ 47. Amend § 126.302 by removing the 

last sentence. 

■ 48. Revise § 126.303 to read as 

follows: 

§ 126.303 Where must a concern submit 

its application for certification? 

A concern seeking certification as a 

HUBZone small business concern must 

submit an electronic application to 

SBA’s HUBZone Program Office via 

SBA’s website at https://SBA.gov. The 

majority owner must take responsibility 

for the accuracy of all information 

submitted on behalf of the applicant. 

■ 49. Amend § 126.304 by revising 

paragraph (e) to read as follows: 

§ 126.304 What must a concern submit to 

SBA in order to be certified as a HUBZone 

small business concern? 

* * * * * 

(e) Records maintenance. (1) 

HUBZone small business concerns must 

retain documentation demonstrating 

satisfaction of all qualifying 

requirements for 6 years from the date 

of submission of all initial and 

continuing eligibility actions. 

(2) HUBZone small business concerns 

must retain documentation related to 

‘‘Legacy HUBZone employees,’’ as 

described in § 126.200(d)(3). 

■ 50. Amend § 126.306 by: 

■ a. Revising paragraph (d); 

■ b. Removing the words ‘‘System for 

Award Management’’ in paragraph (g) 

and adding in their place the word 

‘‘SAM’’; and 

■ c. Adding paragraph (h). 

The revision and addition read as 

follows: 

§ 126.306 How will SBA process an 

application for HUBZone certification? 

* * * * * 

(d) An applicant must be eligible as of 

the date SBA issues a decision. 

* * * * * 

(h) SBA’s decision to approve or deny 

an application is the final agency 

decision. 

§ 126.308 [Amended] 

■ 51. Amend § 126.308 in paragraph (b) 

by removing the words ‘‘System for 

Award Management’’ and adding in 

their place the word ‘‘SAM’’. 

■ 52. Revise § 126.309 to read as 

follows: 

§ 126.309 May a declined or decertified 

concern apply for certification at a later 

date? 

(a) A concern that SBA has declined 

may apply for certification after ninety 

(90) calendar days from the date of 

decline if it believes that it has 

overcome all reasons for decline 

through changed circumstances and is 

currently eligible. 

(b) A concern that SBA has decertified 

may apply for certification immediately 

after the date of decertification, if it 

believes that it has overcome all reasons 

for decertification through changed 

circumstances and is currently eligible. 

(c) A concern that voluntarily 

withdraws from the HUBZone program 

may immediately re-apply for 

certification, if it believes that it is 

currently eligible. 

■ 53. Revise § 126.401 to read as 

follows: 

§ 126.401 What is a program examination? 

A program examination is an 

investigation by SBA officials, which 

verifies the accuracy of any certification 

made or information provided as part of 

the HUBZone application process, as 

part of the recertification process, or in 

connection with a HUBZone contract. 

■ 54. Amend § 126.403 by revising 

paragraphs (a) and (b) to read as follows: 

§ 126.403 What will SBA review during a 

program examination? 

(a) SBA will determine the scope of a 

program examination and may review 

any information related to the concern’s 

HUBZone eligibility including, but not 

limited to, documentation related to the 

concern’s size, principal office, 

ownership, compliance with the 35% 

HUBZone residency requirement, and 

compliance with the ‘‘attempt to 

maintain’’ (see § 126.103) requirement. 

A representative from SBA may visit 

one or more of a concern’s offices as 

part of a program examination. 

(b) SBA may require that a HUBZone 

small business concern submit 

additional information as part of the 

program examination. If SBA requests 

additional information, SBA will 

presume that written notice of the 

request was provided when SBA sends 

such request to the concern at an email 

address provided in the concern’s 

profile in DSBS or SAM (or successor 

systems). The burden of proof to 

demonstrate eligibility is on the 

concern. If a concern does not provide 

requested information within the 

allotted time provided by SBA, or if it 

submits incomplete information, SBA 

may draw an adverse inference and 

presume that the information that the 

concern failed to provide would 

demonstrate ineligibility and decertify 

the concern (or deny certification) on 

this basis. 

* * * * * 

■ 55. Amend § 126.404 by revising 

paragraphs (b) and (c) to read as follows: 

§ 126.404 What are the possible outcomes 

of a program examination and when will 

SBA make its determination? 

* * * * * 

(b) If SBA determines that the concern 

is eligible, SBA will send a written 

notice to the HUBZone small business 

concern and continue to designate the 

concern as a certified HUBZone small 

business concern in DSBS (or successor 

system). 

(c) If SBA determines that the concern 

is not eligible, the firm will be 

suspended from the HUBZone program. 

The concern will have 30 calendar days 

to submit sufficient documentation 

showing that it was in fact eligible on 

the date of review. During the 

suspension period, SBA will remove the 

firm as a certified HUBZone small 

business concern from DSBS. In 

addition, the concern may not compete 

for or be awarded a HUBZone contract 

during that suspension period and must 

provide written notice of the concern’s 


ddrumheller on DSK120RN23PROD with RULES6
Federal Register / Vol. 89, No. 242 / Tuesday, December 17, 2024 / Rules and Regulations 102501 

ineligibility to the contracting officer for 

any pending HUBZone award. If such 

concern fails to submit documentation 

sufficient to demonstrate its eligibility, 

the concern will be decertified. If SBA 

overturns its determination, SBA will 

lift the suspension and reinstate the firm 

as an eligible certified HUBZone small 

business concern in DSBS. 

■ 56. Revise § 126.500 to read as 

follows: 

§ 126.500 How does a concern maintain 

HUBZone certification? 

(a) Recertification. (1) Any concern 

seeking to remain a certified HUBZone 

small business concern in DSBS (or 

successor system) must recertify to SBA 

that it continues to meet all HUBZone 

eligibility criteria (see § 126.200) every 

three years. In order to recertify— 

(i) A certified HUBZone small 

business concern that was not awarded 

a HUBZone contract during the 12- 

month period preceding its 

recertification must represent that, at 

the time of its recertification, at least 

35% of its employees reside in 

HUBZones and the concern’s principal 

office is located in a HUBZone. 

(ii) A certified HUBZone small 

business concern that was awarded a 

HUBZone contract during the 12-month 

period preceding its recertification must 

represent that, at the time of its 

recertification, it is attempting to 

maintain compliance with the 35% 

HUBZone residency requirement and 

the concern’s principal office is located 

in a HUBZone. 

(2) The concern’s recertification must 

be submitted in the 90 calendar days 

before the triennial anniversary of its 

HUBZone certification date. 

(3) If a concern fails to recertify, SBA 

will decertify the concern at the end of 

its eligibility period. However, if a 

concern is able to recertify its eligibility 

within 30 days of the end of its 

eligibility period, SBA will reinstate the 

firm as a certified HUBZone small 

business concern. 

(4) For a certified HUBZone small 

business concern that is also a certified 

WOSB or SDVOSB, the firm may have 

to recertify less than three years after its 

previous recertification in order to align 

certification date. 

(b) Program examinations. SBA will 

conduct a program examination of each 

certified HUBZone small business 

concern at least once every three years 

to ensure continued program eligibility, 

but may conduct more frequent program 

examinations using a risk-based analysis 

to select which concerns are examined. 

■ 57. Revise § 126.501 to read as 

follows: 

§ 126.501 What are a certified HUBZone 

small business concern’s ongoing 

obligations to SBA? 

A certified HUBZone small business 

concern that acquires, is acquired by, or 

merges with another business entity 

must provide evidence to SBA, within 

30 calendar days of the transaction 

becoming final, that the concern 

continues to meet the HUBZone 

eligibility requirements. A concern that 

no longer meets the requirements may 

voluntarily withdraw from the program 

or it will be removed by SBA pursuant 

to program decertification procedures. 

§ 126.502 [Amended] 

■ 58. Amend § 126.502 by removing the 

words ‘‘§§ 126.200, 126.500, and 

126.501’’ and adding in their place the 

words ‘‘§§ 126.200, 126.500, and 

126.501, and all other requirements 

described in this part’’. 

■ 59. Amend § 126.503 by: 

■ a. Revising paragraphs (a) and (c); 

■ b. Redesignating paragraph (d) as 

paragraph (e); 

■ c. Adding new paragraph (d); and 

■ d. Revising the first sentence of 

redesignated paragraph (e). 

The revisions and addition read as 

follows: 

§ 126.503 What happens if SBA is unable 

to verify a HUBZone small business 

concern’s eligibility or determines that a 

concern is no longer eligible for the 

program? 

(a) Proposed decertification—(1) 

Bases for proposed decertification. SBA 

may propose a certified HUBZone small 

business concern for decertification 

from the HUBZone program if: 

(i) SBA has found the concern to be 

ineligible based on a program 

examination; 

(ii) The concern failed to respond to 

a program examination; 

(iii) SBA has information indicating 

that the concern is performing a 

HUBZone but is not attempting to 

maintain (see § 126.103) compliance 

with the 35% HUBZone residency 

requirement; or 

(iv) SBA is unable to verify the 

concern’s eligibility or otherwise has 

information indicating that the concern 

may not meet the eligibility 

requirements of this part, 

(2) Notice of proposed decertification. 

SBA will notify the HUBZone small 

business concern by email that SBA is 

proposing to decertify it and state the 

reason(s) for the proposed 

decertification. The notice of proposed 

decertification will notify the concern 

that it has 30 calendar days from the 

date SBA emails the letter to submit a 

written response to SBA explaining why 

the proposed ground(s) should not 

justify decertification. SBA will 

consider that written notice was 

provided if SBA sends the notice of 

proposed decertification to the concern 

at the email address provided in the 

concern’s profile in DSBS (or successor 

system). 

(3) Response to notice of proposed 

decertification. The HUBZone small 

business concern must submit a written 

response to the notice of proposed 

decertification within the timeframe 

specified in the notice. In this response, 

the concern must rebut each of the 

reasons set forth by SBA in the notice 

of proposed decertification, and where 

appropriate, the rebuttal must include 

documents showing that the concern is 

eligible for the HUBZone program as of 

the date specified in the notice. 

(4) Adverse inference. If a HUBZone 

small business concern fails to 

cooperate with SBA or fails to provide 

the information requested, SBA may 

draw an adverse inference and assume 

that the information that the concern 

failed to provide would demonstrate 

ineligibility. 

(5) SBA’s decision. SBA will 

determine whether the HUBZone small 

business concern remains eligible for 

the program within 90 calendar days 

after receiving all requested 

information, when practicable. SBA will 

provide written notice to the concern 

stating the basis for the determination. 

(i) If SBA finds that the concern is not 

eligible, SBA will decertify the concern 

and remove its designation as a certified 

HUBZone small business concern in 

DSBS (or successor system). 

(ii) If SBA finds that the concern is 

eligible, the concern will continue to be 

designated as a certified HUBZone small 

business concern in DSBS (or successor 

system). 

* * * * * 

(c) Decertification based on false or 

misleading information. (1) If SBA 

discovers that a certified HUBZone 

small business concern or its 

representative submitted false or 

misleading information, SBA will 

propose the firm for decertification. In 

addition, SBA will refer the matter to 

the SBA Office of Inspector General for 

review and may recommend that 

Government-wide debarment or 

suspension proceedings be initiated. 

(2) A firm that is decertified from the 

HUBZone program due to the 

submission of false or misleading 

information may be removed from 

SBA’s other small business contracting 

programs, including the 8(a) Business 

Development Program, the WomenOwned Small Business (WOSB) 


ddrumheller on DSK120RN23PROD with RULES6
102502 Federal Register / Vol. 89, No. 242 / Tuesday, December 17, 2024 / Rules and Regulations 

Program, the Veteran Small Business 

Certification (VetCert) Program, and 

SBA’s Mentor-Prote ́ge ́ Program. 

(3) A firm that is decertified or 

terminated from the 8(a) BD Program, 

the WOSB Program, or the VetCert 

Program due to the submission of false 

or misleading information may be 

decertified from the HUBZone Program. 

(4) SBA may require a firm that is 

decertified or terminated from the 

HUBZone Program, 8(a) BD Program, 

the WOSB Program, or the VetCert 

Program due to the submission of false 

or misleading information to enter into 

an administrative agreement with SBA 

as a condition of admission or readmission to the HUBZone program. 

(d) Decertification due to debarment. 

If a certified HUBZone small business 

concern is debarred from Federal 

contracting, SBA will decertify the 

HUBZone small business concern 

immediately and change the concern’s 

status in DSBS (or successor system) to 

reflect that it no longer qualifies as a 

certified HUBZone small business 

concern, without first proposing it for 

decertification. 

(e) * * * Once SBA has decertified a 

concern, the concern is ineligible for the 

HUBZone program and may not submit 

an offer or quote for a HUBZone 

contract. * * * 

■ 60. Amend § 126.504 by: 

■ a. Removing the word ‘‘or’’ at the end 

of paragraph (a)(2); 

■ b. Redesignating paragraph (a)(3) as 

(a)(4); 

■ c. Adding new paragraph (a)(3); 

■ d. Removing the words ‘‘pursuant to 

§ 126.501(b)’’ in newly redesignated 

paragraph (a)(4); and 

■ e. Removing paragraph (c). 

The addition reads as follows: 

§ 126.504 When will SBA remove the 

designation of a concern in DSBS (or 

successor system) as a certified HUBZone 

small business concern? 

(a) * * * 

(3) Been debarred pursuant to the 

procedures in FAR 9.4; or 

* * * * * 

■ 61. Revise § 126.600 to read as 

follows: 

§ 126.600 What are HUBZone contracts? 

HUBZone contracts are prime 

contracts awarded to a certified 

HUBZone small business concern (or a 

HUBZone joint venture that complies 

with the requirements of § 126.616), 

regardless of the place of performance, 

through any of the following 

procurement methods: 

(a) Sole source awards awarded 

pursuant to § 126.612 to certified 

HUBZone small business concerns (or 

HUBZone joint ventures that comply 

with the requirements of § 126.616); 

(b) Set-aside awards (including partial 

set-asides and set-aside multiple award 

contracts) based on competition 

restricted to certified HUBZone small 

business concerns; 

(c) Awards through full and open 

competition after the HUBZone price 

evaluation preference is applied to an 

other than small business in favor of a 

certified HUBZone small business; 

(d) Awards based on a reserve for 

certified HUBZone small business in an 

unrestricted solicitation; 

(e) Orders awarded to certified 

HUBZone small business concerns 

under a multiple award contract that 

was set-aside for certified HUBZone 

small business concerns; 

(f) Orders set-aside for certified 

HUBZone small business concerns 

under a multiple award contract that 

was awarded using full and open 

competitive procedures; 

(g) Orders set-aside for certified 

HUBZone small business concerns 

under a multiple award contract that 

was awarded as a small business setaside. 

■ 62. Amend § 126.601 by revising 

paragraphs (a), (b)(1), and (e), and 

adding paragraph (f) to read as follows: 

§ 126.601 What additional requirements 

must a certified HUBZone small business 

concern meet to submit an offer on a 

HUBZone contract? 

(a) Only certified HUBZone small 

business concerns are eligible to submit 

offers for a HUBZone contract or to 

receive a price evaluation preference 

under § 126.613. 

(1) An offeror for a HUBZone contract 

must be identified as a certified 

HUBZone small business concern in 

DSBS (or successor system) and meet 

the HUBZone requirements in § 126.200 

as of the date it submits its initial offer 

that includes price. 

(2) A certified HUBZone small 

business concern that was awarded a 

HUBZone contract during the 12-month 

period prior to submitting an offer 

relating to the award of another 

HUBZone contract may submit an offer 

and be eligible as a certified HUBZone 

small business concern as long as at 

least 20% of its total employees reside 

in a HUBZone and it is making 

substantive and documented efforts to 

meet the HUBZone residency 

requirement. 

(3) For a multiple award contract, 

where concerns are not required to 

submit price as part of the offer for the 

contract, an offeror must be identified as 

a certified HUBZone small business 

concern in DSBS (or successor system) 

and meet the HUBZone requirements in 

§ 126.200 as of the date it submits its 

initial offer, which may not include 

price. 

(4) A HUBZone joint venture must 

have its joint venture agreement in place 

that complies with the requirements in 

§ 126.616 as of its final offer. 

(5) As long as a concern was a 

certified HUBZone small business and 

met the HUBZone requirements as of 

the date of its initial offer for a 

HUBZone contract, it may be awarded a 

HUBZone contract even if it no longer 

appears as a certified HUBZone small 

business concern on DSBS, or successor 

system, or no longer qualifies as an 

eligible HUBZone small business on the 

date of award. 

(b) * * * 

(1) Is a certified HUBZone small 

business concern in DSBS (or successor 

system) and meets the HUBZone 

requirements in § 126.200, including 

having 35% of its employees residing in 

HUBZones and having its principal 

office located in a HUBZone; 

* * * * * 

(e) For two-step procurements to be 

awarded as HUBZone contracts (e.g., 

architect-engineering and design-build 

procurements), a certified HUBZone 

small business concern must be eligible 

as of the date that it submits its initial 

bid or proposal (which may or may not 

include price) during phase one. 

(f) In general, an offeror on a 

HUBZone contract is not required to be 

HUBZone-certified on the date the 

contract is awarded. However, for 

HUBZone sole source contracts, the 

concern must be a certified HUBZone 

small business concern and meet the 

requirements in § 126.200 at the time of 

award and must qualify as small as of 

that date under the size standard 

corresponding to the NAICS code 

assigned to the procurement. 

■ 63. Revise § 126.602 to read as 

follows: 

§ 126.602 Must a certified HUBZone small 

business concern maintain the HUBZone 

employee residency percentage during 

contract performance? 

(a) A certified HUBZone small 

business concern that has been awarded 

a HUBZone contract must ‘‘attempt to 

maintain’’ (see § 126.103) having 35% of 

its employees residing in a HUBZone 

during the performance of any 

HUBZone contract. If a certified 

HUBZone small business concern is 

awarded a HUBZone contract within 12 

months prior to the due date for its 

triennial recertification, then such 

concern must attempt to maintain 

compliance with the 35% HUBZone 


ddrumheller on DSK120RN23PROD with RULES6
Federal Register / Vol. 89, No. 242 / Tuesday, December 17, 2024 / Rules and Regulations 102503 

residency requirement at the time of 

such recertification. However, such a 

concern must have at least 35% of its 

employees residing in HUBZones at the 

time of each recertification thereafter, 

even if the concern is still performing 

that HUBZone contract. 

(b) For orders under indefinite 

delivery, indefinite quantity contracts 

(including orders under multiple award 

contracts), a certified HUBZone small 

business concern must ‘‘attempt to 

maintain’’ the HUBZone residency 

requirement during the performance of 

each order that is set aside for HUBZone 

small business concerns. 

(c) A certified HUBZone small 

business concern that is tribally-owned, 

and made the certification in 

§ 126.200(c)(2)(ii) at the time of its 

HUBZone certification (or at the time of 

its most recent recertification), must 

have at least 35% of its employees 

engaged in performing a HUBZone 

contract residing within any Indian 

reservation governed by one or more of 

the concern’s Indian Tribal Government 

owners, or residing within any 

HUBZone adjoining any such Indian 

reservation. 

(d) A certified HUBZone small 

business concern that has less than 20% 

of its total employees residing in a 

HUBZone during the performance of a 

HUBZone contract has failed to attempt 

to maintain the HUBZone residency 

requirement. Such failure will result in 

proposed decertification pursuant to 

§ 126.503. 

§ 126.603 [Amended] 

■ 64. Amend § 126.603 by removing the 

word ‘‘concernwill’’ and adding in its 

place the words ‘‘concern will’’. 

§ 126.604 [Amended] 

■ 65. Amend § 126.604 by removing the 

words ‘‘makes this decision’’ and 

adding in their place the words 

‘‘determines if a contract opportunity 

for HUBZone set-aside competition 

exists’’. 

§ 126.605 [Amended] 

■ 66. Amend § 126.605 by removing the 

word ‘‘may’’ in the introductory text 

and adding in its place the word 

‘‘shall’’. 

§ 126.607 [Amended] 

■ 67. Amend § 126.607 by: 

■ a. Removing the word ‘‘must’’ in the 

section heading and adding in its place 

the word ‘‘may’’; 

■ b. Removing the words ‘‘SDVO SBC’’ 

wherever they appear in paragraphs 

(b)(1) and (b)(2) and adding in their 

place the words ‘‘Veteran Small 

Business Certification’’; and 

■ c. Removing the words ‘‘qualified 

HUBZone SBCs’’ in paragraph (c)(1) and 

adding in their place the words 

‘‘certified HUBZone small business 

concerns’’. 

■ 68. Revise § 126.612 to read as 

follows: 

§ 126.612 When may a contracting officer 

award sole source contracts to HUBZone 

small business concerns? 

(a) A contracting officer may award a 

sole source contract to a HUBZone small 

business concern only when the 

contracting officer determines that: 

(1) None of the provisions of 

§§ 126.605 or 126.607 apply; 

(2) The anticipated award price of the 

contract, including options, will not 

exceed: (i) $7,000,000 for a contract 

assigned a manufacturing NAICS code, 

or 

(ii) $4,500,000 for all other contracts. 

(3) Two or more HUBZone small 

business concerns are not likely to 

submit offers; 

(4) A HUBZone small business 

concern is a responsible contractor able 

to perform the contract; and 

(5) In the estimation of the contracting 

officer, contract award can be made at 

a fair and reasonable price. 

(6) The intended awardee is a 

certified HUBZone small business 

concern at the time of its initial offer 

and continues to be eligible on the date 

of award. 

(b) A contracting officer may rely on 

the firm’s status as a certified HUBZone 

small business concern in awarding a 

sole source HUBZone contract. 

However, if there is a status protest 

relating to the apparent successful 

offeror, SBA will determine eligibility as 

of the intended date of award. 

■ 69. Amend § 126.613 by revising 

paragraph (a), adding paragraph 

headings in paragraphs (b) through (d), 

and adding a new paragraph (e). 

The revisions and additions read as 

follows: 

§ 126.613 How does a price evaluation 

preference affect the bid of a certified 

HUBZone small business concern in full 

and open competition? 

(a) General. (1) 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 certified HUBZone small 

business concern to be lower than the 

price offered by an offeror that is not a 

small business concern if: the other than 

small business initially is the lowest 

responsive and responsible offeror, and 

the price offered by the certified 

HUBZone small business concern is not 

more than 10% higher than the price 

offered by the other than small business. 

(2) The HUBZone price evaluation 

preference does not apply where the 

initial lowest responsive and 

responsible offeror is a small business 

concern. 

(3) The HUBZone price evaluation 

preference does not apply to the portion 

of a multiple award contract that is 

reserved for certified HUBZone small 

business concerns. However, the 

HUBZone price evaluation preference 

does apply to the non-reserved portion 

of a multiple award contract. 

(4) To apply the HUBZone price 

evaluation preference, the contracting 

officer must add 10% to the offer of the 

otherwise successful other than small 

business offeror. If the certified 

HUBZone small business concern’s offer 

is lower than that of the other than 

small business after the preference is 

applied, the certified HUBZone small 

business concern must be deemed the 

lowest-priced offeror. For a best value 

procurement, the contracting officer 

must first apply the 10% price 

preference to the offers of any other than 

small businesses and then determine 

which offeror represents the best value 

to the Government, in accordance with 

the terms of the solicitation. Where, 

after considering the price evaluation 

adjustment, the offer of a certified 

HUBZone small business concern is 

determined to be the best value to the 

Government, award shall be made to the 

certified HUBZone small business 

concern. 

Example 1 to paragraph (a): In a full 

and open competition procurement, a 

certified HUBZone small business 

concern submits an offer of $98, a nonHUBZone small business concern 

submits an offer of $95, and a large 

business submits an offer of $93. The 

initial lowest, responsive, responsible 

offeror is the large business. The 

contracting officer must then apply the 

HUBZone price evaluation preference 

because an offer was received from a 

certified HUBZone small business 

concern. After the application of the 

price preference, the HUBZone small 

business concern’s offer is considered to 

be lower than the offer of the large 

business (i.e., $98 is lower than $102.3 

($93 × 110%)). Since the certified 

HUBZone small business concern’s offer 

is not more than 10% higher than the 

large business’ offer, the certified 

HUBZone small business concern 

displaces the large business as the 

lowest, responsive, and responsible 

offeror. The non-HUBZone small 

business concern is unaffected by the 

preference because it was not the lowest 

offeror prior to the application of the 

preference. 


ddrumheller on DSK120RN23PROD with RULES6
102504 Federal Register / Vol. 89, No. 242 / Tuesday, December 17, 2024 / Rules and Regulations 

Example 2 to paragraph (a): In a full 

and open competition procurement, a 

certified HUBZone small business 

concern submits an offer of $103, a nonHUBZone small business concern 

submits an offer of $100, and a large 

business submits an offer of $93. The 

initial lowest responsive and 

responsible offeror is the large business. 

The contracting officer must then apply 

the HUBZone price evaluation 

preference. After the application of the 

price preference, the HUBZone small 

business concern’s offer is not lower 

than the offer of the large business (i.e., 

$103 is not lower than $102.3 ($93 × 

110%)). Since the certified HUBZone 

small business concern’s offer is more 

than 10% higher than the large 

business’ offer, the certified HUBZone 

small business concern does not 

displace the large business as the lowest 

offeror. In addition, the non-HUBZone 

small business concern’s offer at $100 

does not displace the large business’ 

offer because a price evaluation 

preference is not applied to change an 

offer and benefit a non-HUBZone small 

business concern. 

Example 3 to paragraph (a): In a full 

and open competition procurement, a 

certified HUBZone small business 

concern submits an offer of $98, a large 

business submits an offer of $95, and a 

non-HUBZone small business concern 

submits an offer of $93. The contracting 

officer would not apply the price 

evaluation preference in this 

procurement because the lowest, 

responsive, responsible offeror is a 

small business concern. 

Example 4 to paragraph (a): In a full 

and open competition procurement, a 

certified HUBZone small business 

concern submits an offer of $98 and a 

large business submits an offer of $93. 

The contracting officer has stated in the 

solicitation that one contract will be 

reserved for a certified HUBZone small 

business concern. The contracting 

officer would not apply the price 

evaluation preference when determining 

which HUBZone small business concern 

would receive the contract reserved for 

HUBZone small business concerns but 

would apply the price evaluation 

preference when determining the 

awardees for the non-reserved portion. 

(b) Agricultural commodities. * * * 

(c) International food aid operations. 

* * * 

(d) Not treated as partial set-aside. 

* * * 

(e) Applicability to HUBZone joint 

ventures. The HUBZone price 

evaluation preference applies only to a 

joint venture consisting of a certified 

HUBZone small business concern and a 

small business concern that complies 

with the requirements of § 125.9. The 

HUBZone price evaluation preference 

does not apply to a joint venture 

consisting of a certified HUBZone small 

business concern and its other than 

small mentor. 

■ 70. Revise § 126.615 to read as 

follows: 

§ 126.615 May an other than small 

business participate on a HUBZone 

contract? 

Except as provided in §§ 125.9 and 

126.618, an other than small business 

may not participate as a prime 

contractor on a HUBZone award but 

may participate as a subcontractor to a 

certified HUBZone small business 

concern, subject to the limitations on 

subcontracting set forth in § 125.6. 

■ 71. Amend § 126.616 by revising 

paragraphs (a)(1) and (e)(1)(i), and 

adding paragraph (l) to read as follows: 

§ 126.616 What requirements must a joint 

venture satisfy to submit an offer and be 

eligible for award of a HUBZone contract? 

(a) * * * 

(1) SBA does not certify HUBZone 

joint ventures, but the joint venture 

should be designated as a HUBZone 

joint venture in SAM (or successor 

system) with the HUBZone-certified 

joint venture partner identified. 

* * * * * 

(e) * * * 

(1) * * * 

(i) It is a certified HUBZone small 

business concern that appears in DSBS 

(or successor system) as a certified 

HUBZone small business concern and it 

meets the eligibility requirements in 

§ 126.200; 

* * * * * 

(l) Non-HUBZone contracts. On a 

non-HUBZone contract, for an award to 

a joint venture to be considered 

awarded to a certified HUBZone small 

business concern (i.e., for a procuring 

agency to receive HUBZone credit for 

goaling purposes), the joint venture 

awardee must comply with the 

requirements of this section and § 125.8. 

■ 72. Revise § 126.619 to read as 

follows: 

§ 126.619 When must a certified HUBZone 

small business concern recertify its status 

for a HUBZone contract? 

A prime contractor that receives an 

award as a certified HUBZone small 

business concern must comply with the 

recertification requirements set forth in 

§ 125.12 of this chapter regarding its 

status as a certified HUBZone small 

business. 

■ 73. Revise the subpart heading for 

subpart G to read as follows: 

Subpart G—Limitations on 

Subcontracting Requirements 

§ 126.701 [Amended] 

■ 74. Amend § 126.701 by: 

■ a. Removing the words ‘‘these 

subcontracting percentages’’ in the 

section heading and adding in their 

place the words ‘‘the limitations on 

subcontracting’’. 

■ b. Removing the words ‘‘the 

subcontracting percentage’’ in the 

paragraph and adding in their place the 

words ‘‘the limitations on 

subcontracting’’. 

■ 75. Revise § 126.800 to read as 

follows: 

§ 126.800 Who may protest the status of a 

certified HUBZone small business concern? 

(a) For a HUBZone sole source 

procurement, SBA or the contracting 

officer may protest the intended 

awardee’s status as a certified HUBZone 

small business concern. 

(b) For HUBZone contracts other than 

sole source procurements, including 

multiple award contracts (see § 125.1 of 

this chapter), SBA, the contracting 

officer, or any other interested party 

may protest the apparent successful 

offeror’s status as a certified HUBZone 

small business concern (or the 

HUBZone joint venture offeror’s 

compliance with § 126.616). 

(c) For other than HUBZone contracts, 

any offeror for that contract, the 

contracting officer or SBA may protest 

an apparent successful offeror’s status as 

a certified HUBZone small business 

concern. 

§ 126.801 [Amended] 

■ 76. Amend § 126.801 by revising 

paragraphs (b), (c) and paragraph (d) 

introductory text to read as follows: 

§ 126.801 How does an interested party file 

a HUBZone status protest? 

* * * * * 

(b) Format and specificity. (1) Protests 

must be in writing and must state all 

specific grounds as to why the protestor 

believes the protested concern did not 

qualify as a certified HUBZone small 

business concern. Specifically, a 

protestor must explain why: 

(i) The protested concern did not meet 

the HUBZone eligibility requirements 

set forth in § 126.200; 

(ii) The protested joint venture does 

not meet the requirements set forth in 

§ 126.616; 

(iii) The protested concern, as a 

HUBZone prime contractor, is unduly 

reliant on one or more small 

subcontractors that are not HUBZonecertified, or subcontractors that are not 

HUBZone-certified will perform the 


ddrumheller on DSK120RN23PROD with RULES6
Federal Register / Vol. 89, No. 242 / Tuesday, December 17, 2024 / Rules and Regulations 102505 

primary and vital requirements of the 

contract; and/or 

(iv) The protested concern that was 

awarded a HUBZone contract during the 

12-month period prior to submitting the 

offer at issue has less than 20% of its 

total employees that reside in a 

HUBZone and/or is not making 

substantive and documented efforts to 

meet the HUBZone residency 

requirement. 

(2) Specificity requires more than 

conclusions of ineligibility. A protest 

merely asserting that the protested 

concern did not qualify as a HUBZone 

small business concern, or that it did 

not meet the principal office and/or 

35% residency requirements, without 

setting forth specific facts or allegations, 

is insufficient and will be dismissed. 

(3) For a protest filed against a 

HUBZone joint venture, the protest 

must state all specific grounds as to 

why: 

(i) The HUBZone small business 

partner to the joint venture did not meet 

the HUBZone eligibility requirements 

set forth in § 126.200 at the time of offer; 

and/or 

(ii) The protested HUBZone joint 

venture does not meet the requirements 

set forth in § 126.616 as of the date of 

its final proposal revision. 

(4) For a protest alleging that the 

prime contractor has an ostensible 

subcontractor, the protest must state all 

specific grounds as to why: 

(i) The protested concern is unduly 

reliant on one or more small 

subcontractors that are not HUBZonecertified, or 

(ii) One or more subcontractors that 

are not HUBZone-certified will perform 

the primary and vital requirements of 

the contract. 

(5) For a protest alleging that the 

protested concern failed to attempt to 

maintain compliance with the 35% 

HUBZone residency requirement during 

the performance of a HUBZone contract, 

the protest must state all specific 

grounds explaining why the protester 

believes that at least 20% of the 

protested firm’s employees do not reside 

in a HUBZone and/or that the protested 

firm has not made any substantive and 

documented efforts to meet the 

HUBZone residency requirement. 

(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 must submit 

his/her protest and forward an 

interested party’s protest to SBA at 

hzprotests@sba.gov. 

(d) Timeliness. A protest by an 

interested party challenging the 

HUBZone status of an apparent 

successful offeror on a HUBZone 

contract must be timely, or it will be 

dismissed. A protest by a contracting 

officer or SBA challenging the HUBZone 

status of an apparent successful offeror 

on a HUBZone contract or of an awardee 

on a HUBZone contract is always 

timely. 

* * * * * 

■ 77. Amend § 126.803 by: 

■ a. Revising paragraph (a); 

■ b. Redesignating paragraphs (c), (d), 

and (e) as paragraphs (d), (e), and (f), 

respectively; 

■ c. Adding new paragraph (c); and 

■ d. Revising newly redesignated 

paragraph (f)(3). 

The revisions and additions read as 

follows: 

§ 126.803 How will SBA process a 

HUBZone status protest and what are the 

possible outcomes? 

(a) Date at which eligibility 

determined. (1) For competitively 

awarded HUBZone contracts, SBA will 

determine the eligibility of a concern 

subject to a HUBZone status protest as 

of the date of its initial offer that 

includes price. 

(2) For sole source HUBZone 

contracts, SBA will determine the 

eligibility of a concern subject to a 

HUBZone status protest as of the date of 

the award or intended award. 

(3) For protests filed against a 

HUBZone joint venture alleging that the 

joint venture does not comply with the 

requirements in § 126.616, SBA will 

determine the eligibility of the joint 

venture as of its final proposal revision 

for the procurement. 

(4) For protests alleging undue 

reliance on one or more non-HUBZone 

subcontractors or alleging that such 

subcontractor(s) will perform the 

primary and vital requirements of the 

contract, SBA will determine the 

HUBZone small business concern’s 

eligibility as of the date of its final 

proposal revision for the procurement. 

(5) For two-step or two-phase 

procurements, SBA will determine the 

HUBZone small business concern’s 

eligibility as of the date that it submits 

its initial bid or proposal (which may or 

may not include price) during phase 

one. 

* * * * * 

(c) Burden of proof. In the event of a 

protest, the burden of proof to 

demonstrate eligibility is on the 

protested concern. If a concern does not 

provide requested information within 

the allotted time provided by SBA, or if 

it submits incomplete information, SBA 

may draw an adverse inference and 

presume that the information that the 

concern failed to provide would 

demonstrate ineligibility and sustain the 

protest on that basis. 

* * * * * 

(f) * * * 

(3) A concern found to be ineligible 

may apply for HUBZone certification 

immediately after its decline if it 

believes that it has overcome all reasons 

for ineligibility through changed 

circumstances and is currently eligible. 

■ 78. Amend § 126.900 by: 

■ a. Removing the word ‘‘SBCs’’ in 

paragraphs (a) and (b)(1) and adding in 

its place the phrase ‘‘small business 

concerns’’; 

■ b. Removing the word ‘‘SBC’’ in 

paragraphs (a), (b)(2), (b)(3), (d), and 

(e)(1) and adding in its place the phrase 

‘‘small business concern’’; 

■ c. Removing the word ‘‘SBC’’ in the 

introductory text of paragraph (b) and in 

paragraph (c); 

■ d. Removing the phrase ‘‘agency 

suspension’’ in paragraph (e)(1) and 

adding in its place the phrase 

‘‘procuring agency’s suspension’’; 

■ e. Adding paragraph (e)(4). 

The addition reads as follows: 

§ 126.900 What are the requirements for 

representing HUBZone status, and what are 

the penalties for misrepresentation? 

* * * * * 

(e) * * * 

(4) If SBA discovers that false or 

misleading information has been 

knowingly submitted by a small 

business concern in order to obtain or 

maintain HUBZone certification, SBA 

will propose the firm for decertification. 

In addition, SBA will refer the matter to 

the SBA Office of Inspector General for 

review and may recommend that 

Government-wide debarment or 

suspension proceedings be initiated. 

PART 127—WOMEN-OWNED SMALL 

BUSINESS FEDERAL CONTRACT 

PROGRAM 

■ 79. The authority citation for part 127 

continues to read as follows: 

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

637(m), 644 and 657r. 

■ 80. Amend § 127.200 by: 

■ a. Revising paragraphs (a)(2) and 

(b)(2); 

■ b. Redesignating paragraph (d) as 

paragraph (f); and 

■ c. Adding new paragraphs (d) and (e). 

The revisions and additions read as 

follows: 

§ 127.200 What are the requirements a 

concern must meet to qualify as an 

EDWOSB or WOSB? 

(a) * * * 

(2) Not less than 51 percent 

unconditionally and directly owned and 


ddrumheller on DSK120RN23PROD with RULES6
102506 Federal Register / Vol. 89, No. 242 / Tuesday, December 17, 2024 / Rules and Regulations 

controlled by one or more economically 

disadvantaged women who are citizens 

of and reside in the United States. 

(b) * * * 

(2) Not less than 51 percent 

unconditionally and directly owned and 

controlled by one or more women who 

are citizens of and reside in the United 

States. 

* * * * * 

(d) Size. In determining whether a 

concern qualifies as small for WOSB/ 

EDWOSB certification and 

recertification under the size standard 

corresponding to a specific NAICS code, 

SBA will accept the concern’s size 

representation in the System for Award 

Management (SAM), or successor 

system, unless there is evidence 

indicating that the concern is other than 

small. SBA will request a formal size 

determination pursuant to 

§ 121.1001(b)(7) of this chapter where 

any information it possesses calls into 

question the concern’s SAM size 

representation. 

(e) Federal financial obligations. A 

business concern is ineligible to be 

certified as a WOSB or EDWOSB or to 

participate in the WOSB program if 

either the concern or any of its 

principals has failed to pay significant 

financial obligations owed to the 

Federal Government, including 

unresolved tax liens and defaults on 

Federal loans or other Federally assisted 

financing. However, a small business 

concern may be eligible if the concern 

or the affected principals can 

demonstrate that they are current on an 

approved repayment plan, or the 

financial obligations owed have been 

settled and discharged/forgiven by the 

Federal Government. 

* * * * * 

■ 81. Amend § 127.201 by revising 

paragraph (b) and adding paragraph (g) 

to read as follows: 

§ 127.201 What are the requirements for 

ownership of an EDWOSB and WOSB? 

* * * * * 

(b) Unconditional ownership. To be 

considered unconditional, ownership 

must not be subject to any conditions, 

executory agreements, voting trusts, 

restrictions on or assignments of voting 

rights, or other arrangements causing or 

potentially causing ownership benefits 

to go to another (other than after death 

or incapacity). 

(1) The pledge or encumbrance of 

stock or other ownership interest as 

collateral, including seller-financed 

transactions, does not affect the 

unconditional nature of ownership if 

the terms follow normal commercial 

practices and the owner retains control 

absent violations of the terms. 

(2) In determining unconditional 

ownership, SBA will disregard any 

unexercised stock options or similar 

agreements held by qualifying women. 

However, any unexercised stock options 

or similar agreements (including rights 

to convert non-voting stock or 

debentures into voting stock) held by 

men or other entities will be treated as 

exercised, except for any ownership 

interests which are held by investment 

companies licensed under 15 U.S.C. 681 

et. seq. 

(3) A right of first refusal granting a 

man or other entity the contractual right 

to purchase the ownership interests of 

the qualifying woman, does not affect 

the unconditional nature of ownership, 

if the terms follow normal commercial 

practices. If those rights are exercised by 

a man or other entity after certification, 

the WOSB/EDWOSB must notify SBA. If 

the exercise of those rights results in 

qualifying women owning less than 

51% of the concern, SBA will initiate 

decertification pursuant to § 127.405. 

* * * * * 

(g) Dividends and distributions. One 

or more qualifying women must be 

entitled to receive: 

(1) At least 51 percent of any 

distribution of profits paid to the 

owners of a corporation, partnership, or 

limited liability company concern, and 

a qualifying woman’s ability to share in 

the profits of the concern must be 

commensurate with the extent of her 

ownership interest in that concern; 

(2) 100 percent of the value of each 

share of stock owned by them in the 

event that the stock is sold; and 

(3) At least 51 percent of the retained 

earnings of the concern and 100 percent 

of the unencumbered value of each 

share of stock or member interest owned 

in the event of dissolution of the 

corporation, partnership, or limited 

liability company. 

■ 82. Amend § 127.202 by revising 

paragraphs (d) and (g) and adding 

paragraph (h) to read as follows: 

§ 127.202 What are the requirements for 

control of an EDWOSB or WOSB? 

* * * * * 

(d) Ownership of a partnership. In the 

case of a concern which is a 

partnership, one or more qualifying 

women, or in the case of an EDWOSB, 

economically disadvantaged women, 

must serve as general partners, with 

control over all partnership decisions. 

At least 51 percent of every class of 

partnership interest must be 

unconditionally owned by one or more 

qualifying women or economically 

disadvantaged women. The ownership 

must be reflected in the concern’s 

partnership agreement. 

* * * * * 

(g) Involvement in the concern by 

other individuals or entities. Men or 

other entities may be involved in the 

management of the concern and may be 

stockholders, partners or limited 

liability members of the concern. 

However, no males or other entities 

may: 

(1) Exercise actual control or have the 

power to control the concern; 

(2) Have business relationships that 

cause such dependence that the 

qualifying woman cannot exercise 

independent business judgment without 

great economic risk; 

(3) Control the concern through loan 

arrangements (which does not include 

providing a loan guaranty on 

commercially reasonable terms); 

(4) Provide critical financial or 

bonding support or a critical license to 

the concern, which directly or indirectly 

allows the male or other entity to 

significantly influence business 

decisions of the qualifying woman. 

(5) Be a former employer, or a 

principal of a former employer, of any 

qualifying woman, unless the concern 

demonstrates that the relationship 

between the former employer or 

principal and the qualifying woman 

does not give the former employer 

actual control or the potential to control 

the concern and such relationship is in 

the best interests of the concern; or 

(6) Receive compensation from the 

concern in any form as a director, 

officer, or employee, that exceeds the 

compensation to be received by the 

qualifying woman who holds the 

highest officer position (usually Chief 

Executive Officer or President), unless 

the concern demonstrates that the 

compensation to be received by nonqualifying woman is commercially 

reasonable or that the qualifying woman 

has elected to take lower compensation 

to benefit the concern. A certified 

WOSB or EDWOSB must notify SBA 

within 30 calendar days if the 

compensation paid to the highestranking officer falls below that paid to 

a man. In such a case, SBA must 

determine that that the compensation to 

be received by the man is commercially 

reasonable or that the highest-ranking 

officer has elected to take lower 

compensation to benefit the WOSB or 

EDWOSB before SBA may determine 

that the concern is eligible for a WOSB/ 

EDWOSB award. 

(h) Exception for extraordinary 

circumstances. SBA will not find that a 

lack of control exists where a woman or 

an economically disadvantaged woman 


ddrumheller on DSK120RN23PROD with RULES6
Federal Register / Vol. 89, No. 242 / Tuesday, December 17, 2024 / Rules and Regulations 102507 

does not have the unilateral power and 

authority to make decisions regarding 

the following extraordinary 

circumstances: 

(1) Adding a new equity stakeholder 

or increasing the investment amount of 

an equity stakeholder; 

(2) Dissolution of the company; 

(3) Sale of the company or all assets 

of the company; 

(4) The merger of the company; 

(5) The company declaring 

bankruptcy; 

(6) Amendment of the company’s 

corporate governance documents to 

remove the shareholder’s authority to 

block any of the actions in paragraphs 

(h)(1) through (5) of this section; and 

(7) Any other extraordinary action 

that is crafted solely to protect the 

investment of the minority 

shareholders, and not to impede the 

majority’s ability to control the 

concern’s operations or to conduct the 

concern’s business as it chooses. 

§ 127.301 [Amended] 

■ 83. Amend § 127.301 by removing the 

last sentence. 

■ 84. Revise § 127.302 to read as 

follows: 

§ 127.302 Where can a concern apply for 

certification? 

A concern seeking certification as a 

WOSB or EDWOSB must submit an 

electronic application to SBA via 

https://certifications.sba.gov or any 

successor system. The majority woman 

or economically disadvantaged woman 

owner must take responsibility for the 

accuracy of all information submitted 

on behalf of the applicant. 

■ 85. Amend § 127.304 by revising 

paragraph (d) to read as follows: 

§ 127.304 How is an application for 

certification processed? 

* * * * * 

(d) An applicant must be eligible as of 

the date SBA issues a decision. An 

applicant’s eligibility will be based on 

the totality of circumstances, including 

facts set forth in the application, 

supporting documentation, any 

information received in response to any 

SBA request for clarification, and any 

changed circumstances. 

* * * * * 

■ 86. Revise § 127.305 to read as 

follows: 

§ 127.305 May declined or decertified 

concerns apply for certification at a later 

date? 

(a) A concern that SBA or a thirdparty certifier has declined may apply 

for certification after ninety (90) 

calendar days from the date of decline 

if it believes that it has overcome all of 

the reasons for decline and is currently 

eligible. A concern that has been 

declined may seek certification by any 

of the certification options listed in 

§ 127.300. 

(b) A concern that SBA has decertified 

may apply for certification immediately 

after the date of decertification, if it 

believes that it has overcome all reasons 

for decertification through changed 

circumstances and is currently eligible. 

(c) A concern that voluntarily 

withdraws from the WOSB program 

may immediately apply for certification, 

if it believes that it is currently eligible. 

■ 87. Amend § 127.400 by revising 

paragraph (b) to read as follows: 

§ 127.400 How does a concern maintain its 

WOSB or EDWOSB certification? 

* * * * * 

(b) The concern must either recertify 

with SBA or notify SBA that it has 

completed a program examination from 

a third party certifier within 90 calendar 

days of the end of its eligibility period. 

If a concern fails to so, SBA will 

decertify the concern at the end of its 

eligibility period. However, if a concern 

is able to recertify its eligibility within 

30 days of the end of its eligibility 

period, SBA will reinstate the firm as a 

certified WOSB or EDWOSB. 

Example 1 to paragraph (b). On July 

20, 2024, concern B is certified as a 

WOSB under the WOSB Program by a 

third-party certifier. Concern B is 

considered a certified WOSB that is 

eligible to receive WOSB contracts (as 

long as it is small for the size standard 

corresponding to the NAICS code 

assigned to the contract) through July 

19, 2027. Concern B must request a 

program examination from SBA or 

notify SBA that it has completed a 

program examination from a third-party 

certifier, by April 21, 2027, to continue 

participating in the WOSB Program after 

July 19, 2027. 

* * * * * 

■ 88. Amend § 127.405 by revising 

paragraph (d) to read as follows: 

§ 127.405 What happens if SBA 

determines that the concern is no longer 

eligible for the program? 

* * * * * 

(d) Decertification due to submission 

of false or misleading information. If 

SBA discovers that a WOSB or 

EDWOSB or its representative 

knowingly submitted false or 

misleading information, SBA will 

propose the firm for decertification. In 

addition, SBA will refer the matter to 

the SBA Office of Inspector General for 

review and may recommend that 

Government-wide debarment or 

suspension proceedings be initiated. 

(1) A firm that is decertified from the 

WOSB program due to the submission 

of false or misleading information may 

be removed from SBA’s other small 

business contracting programs, 

including the 8(a) Business 

Development Program, the HUBZone 

Program, the Veteran Small Business 

Certification (VetCert) Program, and 

SBA’s Mentor-Prote ́ge ́ Program. 

(2) A firm that is decertified or 

terminated from the 8(a) BD Program, 

the HUBZone Program, or the VetCert 

Program due to the submission of false 

or misleading information may be 

decertified from the WOSB Program. 

(3) SBA may require a firm that is 

decertified or terminated from the 

WOSB Program, 8(a) BD Program, the 

HUBZone Program, or the VetCert 

Program due to the submission of false 

or misleading information to enter into 

an administrative agreement with SBA 

as a condition of admission or readmission to the WOSB program. 

* * * * * 

■ 89. Amend § 127.504 by: 

■ a. Revising paragraph (a); 

■ b. Removing the words ‘‘under 

paragraph (f) of this section’’ in 

paragraph (d)(1) and adding in their 

place the words ‘‘under § 125.12 of this 

chapter’’; and 

■ c. Revising paragraph (h). 

The revisions read as follows: 

§ 127.504 What requirements must an 

EDWOSB or WOSB meet to be eligible for 

an EDWOSB or WOSB requirement? 

(a) General. In order for a concern to 

submit an offer on a specific EDWOSB 

or WOSB set-aside requirement, the 

concern must, at the time of its initial 

offer that includes price: 

(1) Qualify as a small business 

concern under the size standard 

corresponding to the NAICS code 

assigned to the contract; 

(2) Meet the eligibility requirements 

of an EDWOSB or WOSB in § 127.200; 

and 

(3) Either be a certified EDWOSB or 

WOSB pursuant to § 127.300, or 

represent that the concern has 

submitted a complete application for 

WOSB or EDWOSB certification to SBA 

or a third-party certifier and has not 

received a negative determination 

regarding that application from SBA or 

the third party certifier. 

(i) If a concern becomes the apparent 

successful offeror while its application 

for WOSB or EDWOSB certification is 

pending, either at SBA or a third-party 

certifier, the contracting officer for the 

particular contract must immediately 

inform SBA’s D/GC. SBA will then 


ddrumheller on DSK120RN23PROD with RULES6
102508 Federal Register / Vol. 89, No. 242 / Tuesday, December 17, 2024 / Rules and Regulations 

prioritize the concern’s WOSB or 

EDWOSB application and make a 

determination regarding the firm’s 

status as a WOSB or EDWOSB within 15 

calendar days from the date that SBA 

received the contracting officer’s 

notification. Where the application is 

pending with a third-party certifier, 

SBA will immediately contact the thirdparty certifier to require the third-party 

certifier to complete its determination 

within 15 calendar days. 

(ii) If the contracting officer does not 

receive an SBA or third-party certifier 

determination within 15 calendar days 

after the SBA’s receipt of the 

notification, the contracting officer may 

presume that the apparently successful 

offeror is not an eligible WOSB or 

EDWOSB and may make award 

accordingly, unless the contracting 

officer grants an extension to the 15-day 

response period. 

* * * * * 

(h) Recertification. A prime contractor 

that receives an award as a certified 

WOSB or EDWOSB must comply with 

the recertification requirements set forth 

in § 125.12 of this chapter regarding its 

status as a certified WOSB or EDWOSB. 

PART 128—VETERAN SMALL 

BUSINESS CERTIFICATION PROGRAM 

■ 90. The authority citation for part 128 

continues to read as follows: 

Authority: 15 U.S.C. 632(q), 634(b)(6), 644, 

645, 657f, 657f–1. 

§ 128.100 [Amended] 

■ 91. Amend § 128.100 by removing the 

words ‘‘Veteran Small Business 

Certification Program’’ and adding in 

their place the words ‘‘Veteran Small 

Business Certification Program 

(VetCert)’’. 

■ 92. Amend § 128.200 by revising 

paragraphs (a)(2) and (b)(2) to read as 

follows: 

§ 128.200 What are the requirements a 

concern must meet to qualify as a VOSB or 

SDVOSB? 

(a) * * * 

(2) Not less than 51 percent owned 

and controlled by one or more veterans 

who reside in the United States. 

(b) * * * 

(2) Not less than 51 percent owned 

and controlled by one or more servicedisabled veterans who reside in the 

United States or, in the case of a veteran 

with a disability that is rated by the 

Secretary of Veterans Affairs as a 

permanent and total disability who are 

unable to manage the daily business 

operations of such concern, the spouse 

or permanent caregiver of such veteran 

who resides in the United States. 

* * * * * 

■ 93. Amend § 128.201 by revising 

paragraph (b) to read as follows: 

§ 128.201 What other eligibility 

requirements apply for certification as a 

VOSB or SDVOSB? 

* * * * * 

(b) Federal financial obligations. A 

business concern is ineligible to be 

certified as a VOSB or SDVOSB or to 

participate in the VetCert program if 

either the concern or any of its 

principals has failed to pay significant 

financial obligations owed to the 

Federal Government, including 

unresolved tax liens and defaults on 

Federal loans or other Federally assisted 

financing. However, a small business 

concern may be eligible if the concern 

or the affected principals can 

demonstrate that they are current on an 

approved repayment plan, or the 

financial obligations owed have been 

settled and discharged/forgiven by the 

Federal Government. 

■ 94. Amend § 128.202 by 

■ a. Revising paragraph (c); and 

■ b. In paragraph (g)(1), removing the 

words ‘‘the annual distribution’’ and 

adding in their place the words ‘‘any 

distribution’’. 

The revision reads as follows: 

§ 128.202 Who does SBA consider to own 

a VOSB or SDVOSB? 

* * * * * 

(c) Ownership of a partnership. In the 

case of a concern which is a 

partnership, one or more qualifying 

veterans must serve as general partners, 

with control over all partnership 

decisions. At least 51 percent of every 

class of partnership interest must be 

unconditionally owned by one or more 

qualifying veterans. The ownership 

must be reflected in the concern’s 

partnership agreement. 

* * * * * 

■ 95. Amend § 128.203 by: 

■ a. Removing the second and third 

sentences in paragraph (f); 

■ b. Revising paragraphs (g) and (h); 

■ c. Revising paragraph (j)(1); 

■ d. Removing the word ‘‘and’’ at the 

end of paragraph (j)(4); 

■ e. Removing the punctuation mark ‘‘.’’ 

at the end of paragraph (j)(5) and adding 

in its place punctuation mark ‘‘;’’; and 

■ e. Adding paragraphs (j)(6) and (7). 

The revision and addition read as 

follows: 

§ 128.203 Who does SBA consider to 

control a VOSB or SDVOSB? 

* * * * * 

(g) Unexercised rights. Except as set 

forth in paragraph (e)(1) of this section, 

a qualifying veteran’s unexercised right 

to cause a change in the control or 

management of the concern does not in 

itself constitute control, regardless of 

how quickly or easily the right could be 

exercised. 

(h) Limitations on control by nonqualifying-veterans. Non-qualifyingveterans may be involved in the 

management of the concern and may be 

stockholders, partners or limited 

liability members of the concern. 

However, no non-qualifying veteran 

may: 

(1) Exercise actual control or have the 

power to control the concern; 

(2) Have business relationships that 

cause such dependence that the 

qualifying veteran cannot exercise 

independent business judgment without 

great economic risk; 

(3) Control the concern through loan 

arrangements (which does not include 

providing a loan guaranty on 

commercially reasonable terms); 

(4) Provide critical financial or 

bonding support or a critical license to 

the concern, which directly or indirectly 

allows the non-qualifying veteran to 

significantly influence business 

decisions of the qualifying veteran. 

(5) Be a former employer, or a 

principal of a former employer, of any 

qualifying veteran, unless the concern 

demonstrates that the relationship 

between the former employer or 

principal and the qualifying veteran 

does not give the former employer 

actual control or the potential to control 

the concern and such relationship is in 

the best interests of the concern; or 

(6) Receive compensation from the 

concern in any form as a director, 

officer, or employee, that exceeds the 

compensation to be received by the 

qualifying veteran who holds the 

highest officer position (usually Chief 

Executive Officer or President), unless 

the concern demonstrates that the 

compensation to be received by nonqualifying veteran is commercially 

reasonable or that the qualifying veteran 

has elected to take lower compensation 

to benefit the concern. A certified 

SDVOSB must notify SBA within 30 

calendar days if the compensation paid 

to the highest-ranking officer falls below 

that paid to a non-qualifying veteran. In 

such a case, SBA must determine that 

that the compensation to be received by 

the non-qualifying veteran is 

commercially reasonable or that the 

highest-ranking officer has elected to 

take lower compensation to benefit the 

SDVOSB before SBA may determine 

that the concern is eligible for a 

SDVOSB award. 

* * * * * 


ddrumheller on DSK120RN23PROD with RULES6
Federal Register / Vol. 89, No. 242 / Tuesday, December 17, 2024 / Rules and Regulations 102509 

(j) * * * 

(1) Adding a new equity stakeholder 

or increasing the investment amount of 

an equity stakeholder; 

* * * * * 

(6) Amendment of the company’s 

corporate governance documents to 

remove the shareholder’s authority to 

block any of the actions in paragraphs 

(j)(1) through (5) of this section; and 

(7) Any other extraordinary action 

that is crafted solely to protect the 

investment of the minority 

shareholders, and not to impede the 

majority’s ability to control the 

concern’s operations or to conduct the 

concern’s business as it chooses. 

* * * * * 

■ 96. Amend § 128.204 by revising 

paragraph (a) to read as follows: 

§ 128.204 What size standards apply to 

VOSBs and SDVOSBs? 

(a) Time of certification. At the time 

of certification or recertification, a 

VOSB or SDVOSB must be a small 

business under the size standard 

corresponding to any NAICS code listed 

in its System for Award Management 

(SAM), or successor system, profile. In 

determining whether a concern qualifies 

as small for VOSB/SDVOSB certification 

or recertification under the size 

standard corresponding to a specific 

NAICS code, SBA will accept the 

concern’s size representation in SAM, 

unless there is evidence indicating that 

the concern is other than small. SBA 

will request a formal size determination 

pursuant to § 121.1001(b)(12) of this 

chapter where any information it 

possesses calls into question the 

concern’s SAM size representation. 

* * * * * 

■ 97. Revise § 128.301 to read as 

follows: 

§ 128.301 Where must an application be 

filed? 

An application for certification as a 

VOSB or SDVOSB must be 

electronically filed according to the 

instructions on SBA’s website at 

www.sba.gov. The qualifying veteran 

must take responsibility for the accuracy 

of all information submitted on behalf of 

the applicant. 

■ 98. Amend § 128.302 by: 

■ a. Adding a sentence to the end of 

paragraph (a); and 

■ b. Removing from the introductory 

text to paragraph (d) the phrase ‘‘any 

independent research conducted by 

SBA,’’. 

The addition reads as follows: 

§ 128.302 How does SBA process 

applications for certification? 

(a) * * * An applicant must be 

eligible as of the date SBA issues a 

decision. 

* * * * * 

■ 99. Revise § 128.305 to read as 

follows: 

§ 128.305 May declined or decertified 

concerns apply for recertification at a later 

date? 

(a) A concern that SBA has declined 

may apply for certification after ninety 

(90) calendar days from the date of 

decline, if it believes that it has 

overcome all of the reasons for decline 

and is currently eligible. 

(b) A concern that SBA has decertified 

may apply for certification immediately 

after the date of decertification, if it 

believes that it has overcome all reasons 

for decertification through changed 

circumstances and is currently eligible. 

(c) A concern that voluntarily 

withdraws from the VetCert program 

may immediately apply for certification, 

if it believes that it is currently eligible. 

■ 100. Amend § 128.306 by revising 

paragraph (a) to read as follows: 

§ 128.306 How does a concern maintain its 

VOSB or SDVOSB certification? 

(a) Any Participant seeking to remain 

certified must recertify its eligibility 

every 3 years. There is no limitation on 

the number of times a business may 

recertify. Participants may recertify 

within 90 calendar days prior to the 

termination of their eligibility period. If 

a concern fails to recertify, SBA will 

decertify the concern at the end of its 

eligibility period. However, if a concern 

is able to recertify its eligibility within 

30 days of the end of its eligibility 

period, SBA will reinstate the concern 

as a certified VOSB or SDVOSB. 

* * * * * 

§ 128.309 [Amended] 

■ 101. Amend § 128.309 by removing 

the third and fourth sentences of 

paragraph (a), the second and third 

sentences of paragraph (b), and the 

second and third sentences of paragraph 

(c). 

■ 102. Amend § 128.310 by revising 

paragraph (d) to read as follows: 

§ 128.310 What are the procedures for 

decertification? 

* * * * * 

(d) Decertification based on false or 

misleading information. (1) If SBA 

discovers that a VOSB/SDVOSB or its 

representative knowingly submitted 

false or misleading information, SBA 

will propose the firm for decertification. 

In addition, SBA will refer the matter to 

the SBA Office of Inspector General for 

review and may recommend that 

Government-wide debarment or 

suspension proceedings be initiated. 

(2) A firm that is decertified from the 

VetCert Program due to the submission 

of false or misleading information may 

be removed from SBA’s other small 

business contracting programs, 

including the 8(a) Business 

Development Program, the HUBZone 

Program, the Women-Owned Small 

Business (WOSB) Program, and SBA’s 

Mentor-Prote ́ge ́ Program. 

(3) A firm that is decertified or 

terminated from the 8(a) BD Program, 

the HUBZone Program, or the WOSB 

Program due to the submission of false 

or misleading information may be 

decertified from the VetCert Program. 

(4) SBA may require a firm that is 

decertified or terminated from the 

VetCert Program, the 8(a) BD Program, 

the HUBZone Program, or the WOSB 

Program due to the submission of false 

or misleading information to enter into 

an administrative agreement with SBA 

as a condition of admission or readmission to the VetCert program. 

* * * * * 

■ 103. Amend § 128.401 by: 

■ a. Revising paragraph (a); 

■ b. In paragraph (d)(1)(i) removing the 

words ‘‘under paragraph (e) of this 

section’’ and adding in their place the 

words ‘‘under § 125.12 of this chapter’’; 

and 

■ c. Revising paragraph (e). 

The revisions read as follows: 

§ 128.401 What requirements must a VOSB 

or SDVOSB meet to submit an offer on a 

contract? 

(a) Certification requirement. Only 

certified VOSBs and SDVOSBs are 

eligible to submit an offer on a specific 

VOSB or SDVOSB requirement. For a 

competitively awarded VOSB/SDVOSB 

contract, order, or agreement, the 

concern must qualify as a small 

business concern under the size 

standard corresponding to the NAICS 

code assigned to the contract, order or 

agreement, and be a certified VOSB or 

SDVOSB and meet the eligibility 

requirements of a VOSB or SDVOSB in 

§ 128.200 at the time of initial offer or 

response which includes price. For any 

sole source VOSB or SDVOSB award, 

the concern must qualify as a small 

business concern under the size 

standard corresponding to the 

applicable NAICS code and be a 

certified VOSB or SDVOSB and meet 

the eligibility requirements of a VOSB 

or SDVOSB in § 128.200 on the date of 

award. 

* * * * * 


ddrumheller on DSK120RN23PROD with RULES6
102510 Federal Register / Vol. 89, No. 242 / Tuesday, December 17, 2024 / Rules and Regulations 

(e) Recertification. A prime contractor 

that receives an award as a certified 

SDVOSB must comply with the 

recertification requirements set forth in 

§ 125.12 of this chapter regarding its 

status as a certified SDVOSB. 

* * * * * 

■ 104. Amend § 128.402 by revising the 

second sentence of the introductory text 

of paragraph (a) and adding paragraph 

(k) to read as follows: 

§ 128.402 When may a joint venture submit 

an offer on a VOSB or SDVOSB contract? 

(a) * * * SBA does not certify VOSB 

or SDVOSB joint ventures, but the joint 

venture should be designated as a VOSB 

or SDVOSB joint venture in SAM with 

the VOSB or SDVOSB-certified joint 

venture partner identified. * * * 

* * * * * 

(k) Non-VOSB/SDVOSB contracts. On 

a non-VOSB/SDVOSB contract, for an 

award to a joint venture to be 

considered awarded to a VOSB or 

SDVOSB (i.e., for a procuring agency to 

receive VOSB or SDVOSB credit for 

goaling purposes), the joint venture 

awardee must comply with the 

requirements of this section and § 125.8. 

§ 128.500 [Amended] 

■ 105. Amend § 128.500 by removing 

the text ‘‘128.402(c)’’ in paragraph (c) 

and adding in its place ‘‘128.402’’. 

PART 134—RULES OF PROCEDURE 

GOVERNING CASES BEFORE THE 

OFFICE OF HEARINGS AND APPEALS 

■ 106. The authority citation for part 

134 continues to read as follows: 

Authority: 5 U.S.C. 504; 15 U.S.C. 632, 

634(b)(6), 634(i), 637(a), 648(l), 656(i), 657t 

and 687(c); E.O. 12549, 51 FR 6370, 3 CFR, 

1986 Comp., p. 189. 

Subpart J issued under 15 U.S.C. 657f. 

Subpart K issued under 15 U.S.C. 657f. 

Subpart L issued under 15 U.S.C. 

636(a)(36); Pub. L. 116–136, 134 Stat. 281; 

Pub. L. 116–139, 134 Stat. 620; Pub. L. 116– 

142, 134 Stat. 641; and Pub. L. 116–147, 134 

Stat. 660. 

Subpart M issued under 15 U.S.C. 657a; 

Pub. L. 117–81, 135 Stat. 1541. 

■ 107. Amend § 134.1003 by revising 

the first sentence of paragraph (e)(1) to 

read as follows: 

§ 134.1003 Grounds for filing a VOSB or 

SDVOSB status protest. 

* * * * * 

(e) * * * 

(1) If the VOSB or SDVOSB status 

protest pertains to a procurement, the 

Judge will determine a protested 

concern’s eligibility as a VOSB or 

SDVOSB as of the date of its initial offer 

or response which includes price for a 

competitively awarded VOSB/SDVOSB 

contract, order, or agreement, and as of 

the date of award for any sole source 

VOSB or SDVOSB award. * * * 

* * * * * 

§ 134.1104 [Amended] 

■ 108. Amend § 134.1104 by removing 

the words ‘‘10 business days’’ in 

paragraph (a) and adding in their place 

the words ‘‘45 business days’’. 

Isabella Casillas Guzman, 

Administrator. 

[FR Doc. 2024–29393 Filed 12–16–24; 8:45 am] 

BILLING CODE 8026–09–P 


ddrumheller on DSK120RN23PROD with RULES6