`[Federal Register Volume 89, Number 242 (Tuesday, December 17, 2024)]
[Rules and Regulations]
[Pages 102448-102510]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-29393]



[[Page 102447]]

Vol. 89

Tuesday,

No. 242

December 17, 2024

Part VI





 Small Business Administration





-----------------------------------------------------------------------





13 CFR Parts 121, 124, 125, et al.





 HUBZone Program Updates and Clarifications, and Clarifications to 
Other Small Business Programs; Final Rule

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

[[Page 102448]]


-----------------------------------------------------------------------

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, [email protected].

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 Sec.  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 Sec.  121.103(a)(3) (for affiliation 
relating to size), Sec.  124.106(h) (for control in the 8(a) BD 
program) and Sec.  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 Sec.  
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 decision-

[[Page 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 
Carntribe-Clement 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 Sec.  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 
prot[eacute]g[eacute] and mentor must have an underlying joint venture 
agreement that meets the requirements of Sec.  125.8(b), the 
prot[eacute]g[eacute] will direct and have ultimate responsibility for 
the contract, and the performance of work requirements set forth in 
Sec.  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 Sec.  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 Sec.  
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 Sec.  121.103(h). 
Twelve commenters supported deleting the joint venture language from 
the introductory language of Sec.  121.103(h)(3). Two commenters 
opposed the language in proposed Sec.  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 Sec.  
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 Sec.  121.702(c)(7). The commenter 
recommended that SBA add language to Sec.  121.702(c)(7) to safeguard 
the SBIR and STTR programs from foreign capture. SBA believes that the 
language of proposed Sec.  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 Sec.  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

[[Page 102450]]

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 Sec.  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 Sec.  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 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 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 set-
aside, 8(a) small business, service-disabled veteran-owned small 
business, HUBZone small business, or women-owned/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 long-term 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 
Sec.  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 Sec.  121.404(g) 
to a new Sec.  125.12. The effect of disqualifying recertifications is 
addressed in new

[[Page 102451]]

Sec.  125.12. As such, the comments to Sec.  121.404 pertaining to the 
effect of a disqualifying recertification will be addressed with other 
comments to Sec.  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 
Sec.  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 Sec.  121.1001(b)(2)(ii), SBA could not then request a formal size 
determination because the wording of Sec.  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 Sec.  
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 Sec.  121.1001(b)(12) to 
specifically authorize requests for formal size determinations relating 
to size recertifications required by Sec.  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 Sec.  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 re-certifies 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 Sec.  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 Sec.  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 
Sec.  121.1001(a) as opposed to a request for a formal size 
determination in Sec.  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 
Sec. Sec.  121.1001(b)(12) and (13) to a new Sec.  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 Sec.  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 Sec.  121.1001(a)(11).

[[Page 102452]]

    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 Sec.  
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 Sec.  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 Sec.  
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 
Sec.  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 Sec.  121.1010(b) to make 
clear that size recertification is not required and the prohibition 
against future self-certification 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 non-compliance 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 Sec.  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 Sec.  
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

[[Page 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 non-disadvantaged 
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 non-
disadvantage 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 non-disadvantaged 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 non-disadvantaged 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 Sec.  124.105(f)(1) 
(for the 8(a) BD program) with that appearing in Sec.  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 Sec.  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 Sec.  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 
Sec.  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 Sec.  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 Sec.  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

[[Page 102454]]

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 Sec.  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 Sec.  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 Sec.  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 non-disadvantaged 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 Sec.  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 highest-
ranking 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 non-disadvantaged 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

[[Page 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 potential-for-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

[[Page 102456]]

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 Sec. Sec.  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

[[Page 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 Sec.  124.303(c) (for the 
8(a) BD program), to Sec.  126.503 (for the HUBZone program), to Sec.  
127.405(f) (for the WOSB program), and to Sec.  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 Sec.  
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 
Sec.  127.405(d) (for the WOSB program) instead of adding a new Sec.  
127.405(f), and amends to Sec.  128.310(d) (for the VetCert program) 
instead of adding a new Sec.  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 self-marketing 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 Sec. Sec.  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 Sec.  
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

[[Page 102458]]

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 on-going 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 Sec.  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 Sec.  
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 
Sec.  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 Sec.  
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 non-8(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 non-8(a) BAT for 
program year six (and continue doing so for the contract's

[[Page 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 Sec.  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 non-8(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 Sec.  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 Sec.  [thinsp]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 
non-8(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 Sec.  
[thinsp]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 
Sec.  [thinsp]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

[[Page 102460]]

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 Sec.  [thinsp]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 
Sec.  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. Sec.  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 Sec.  124.604. While SBA did not specifically propose any changes 
to Sec.  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 Sec.  
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, Sec.  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 Sec.  126.609, for the WOSB 
program in Sec.  127.503(e), and for the VetCert program in Sec.  
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 Sec.  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 set-aside or reserved for a specific 
type of small business (i.e., 8(a), HUBZone,

[[Page 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 Sec.  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 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. 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 Sec.  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 
Sec.  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 entity-owned 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,

[[Page 102462]]

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-prot[eacute]g[eacute] joint ventures. For SBA mentor-
prot[eacute]g[eacute] joint ventures, section 125.8(e) provides that a 
procuring activity may not require the prot[eacute]g[eacute] firm to 
individually meet the same evaluation or responsibility criteria as 
that required of other offerors generally. This provision recognizes 
that prot[eacute]g[eacute]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 
prot[eacute]g[eacute]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 prot[eacute]g[eacute] 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-prot[eacute]g[eacute] program 
is designed to enhance the capabilities of prot[eacute]g[eacute] firms 
by requiring approved mentors to provide business development 
assistance to prot[eacute]g[eacute] firms and to improve the 
prot[eacute]g[eacute] 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 prot[eacute]g[eacute] firm and a 
large business mentor to qualify as small to allow 
prot[eacute]g[eacute] 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 
prot[eacute]g[eacute] 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 
prot[eacute]g[eacute] 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 prot[eacute]g[eacute] 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 prot[eacute]g[eacute] joint venture partner to 
demonstrate one or two contracts valued at $10 million or $8 million. 
In addition, if a procuring activity requires a prot[eacute]g[eacute] 
joint venture partner to demonstrate successful performance on two 
contracts valued at $10 million or more, successful performance by the 
prot[eacute]g[eacute] 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 
Sec.  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 prot[eacute]g[eacute] joint venture 
members as they do of other offerors generally. This logically means 
that if a procuring activity requires past performance of a 
prot[eacute]g[eacute] 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[acute] member of a joint venture to demonstrate some level of 
past performance and/or experience, although one commenter recommended 
that prot[eacute]g[eacute]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 
prot[eacute]g[eacute] 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 prot[eacute]g[eacute] 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 prot[eacute]g[eacute] 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 prot[eacute]g[eacute] 
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, Sec.  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 Sec.  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

[[Page 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 mentor-
prot[eacute]g[eacute] 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 mentor-prot[eacute]g[eacute] 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 Sec.  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 Sec.  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 prot[eacute]g[eacute] small business concerns where the purchasing 
mentor commits to honoring the obligations under the seller's mentor-
prot[eacute]g[eacute] agreement. Paragraph 125.9(b)(3)(i) provides that 
a mentor that has more than one prot[eacute]g[eacute] cannot submit 
competing offers in response to a solicitation for a specific 
procurement through separate joint ventures with different 
prot[eacute]g[eacute]s. However, it is possible that the initial or 
selling mentor may be a contract holder as a joint venture with a 
prot[eacute]g[eacute] on the same multiple award contract where the 
acquiring mentor is also a contract holder as a joint venture with its 
prot[eacute]g[eacute]. In such a case, after the purchase and the 
purchasing mentor committing to fulfill the obligations of the selling 
mentor's mentor-prot[eacute]g[eacute] 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 prot[eacute]g[eacute] 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 
prot[eacute]g[eacute] small business and the mentor is also a contract 
holder with a prot[eacute]g[eacute] 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 prot[eacute]g[eacute] firms involved in a joint venture. To 
alleviate harm to a prot[eacute]g[eacute], the proposed rule also 
permitted the prot[eacute]g[eacute] 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 
prot[eacute]g[eacute] 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 Sec.  
125.9(d)(1)(iv) to give a prot[eacute]g[eacute] firm a right of first 
refusal to purchase a mentor's interest in a mentor-
prot[eacute]g[eacute] joint venture where the mentor seeks to sell its 
interest in the joint venture.
    SBA received 14 comments on the proposed changes to Sec.  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 prot[eacute]g[eacute] 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 prot[eacute]g[eacute] 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 prot[eacute]g[eacute]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 
prot[eacute]g[eacute] cannot submit competing offers in response to a 
solicitation for a specific procurement through separate joint ventures 
with different prot[eacute]g[eacute]s. Because of that regulatory 
provision, SBA believes that current regulations require a firm that 
becomes the mentor of two prot[eacute]g[eacute]s on the same multiple 
award contract to end one of those mentor-prot[eacute]g[eacute] 
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 prot[eacute]g[eacute] firm where the second relationship 
will not compete or otherwise conflict with the first mentor-
prot[eacute]g[eacute] relationship. If a prot[eacute]g[eacute] 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 prot[eacute]g[eacute] 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-prot[eacute]g[eacute] joint venture. The 
commenter recommended that the SBA provide that any financing that the 
prot[eacute]g[eacute] receives from another entity in order to purchase 
the mentor's interest in a multiple award contract or mentor-
prot[eacute]g[eacute] 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

[[Page 102464]]

sought clarification as to whether the time needed to find a substitute 
mentor would be tacked on to the new mentor-prot[eacute]g[eacute] 
agreement to give the protege its full six years. Under SBA's 
regulations, a small business may generally have a total of two mentor-
prot[eacute]g[eacute] agreements with different mentors. Each mentor-
prot[eacute]g[eacute] 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-prot[eacute]g[eacute] relationship 
is terminated. SBA does not believe that the time it takes a 
prot[eacute]g[eacute] small business to find a new mentor should be 
subtracted from the six-year authorized mentor-prot[eacute]g[eacute] 
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 Sec.  125.9(e)(6) as 
Sec.  125.9(c)(4). This provision relates to rules affecting 
prot[eacute]g[eacute] firms and SBA believes it should more 
appropriately be located in Sec.  125.9(c), which has a heading 
entitled ``Proteges.'' The proposed rule added clarifying language to 
redesignated Sec.  125.9(c)(4)(iv) to make clear that a concern cannot 
be a prot[eacute]g[eacute] for a total of more than 12 years. There has 
been some confusion that if a prot[eacute]g[eacute] elects to extend 
its mentor-prot[eacute]g[eacute] relationship with the same mentor for 
an additional six-year period that the prot[eacute]g[eacute] could 
somehow be able to participate in the mentor-prot[eacute]g[eacute] 
program as a prot[eacute]g[eacute] 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 prot[eacute]g[eacute] for up to 12 years, whether the concern has 
a mentor-prot[eacute]g[eacute] 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 Sec.  125.9(c)(5). Within 
the provisions relating to mentors in Sec.  125.9(b), the current 
regulations authorize a firm to purchase another firm that is currently 
an approved mentor in SBA's mentor-prot[eacute]g[eacute] program and to 
continue that mentor-prot[eacute]g[eacute] relationship if the 
purchasing firm commits to honoring the obligations under the seller's 
mentor-prot[eacute]g[eacute] agreement. The regulations do not, 
however, currently address any rights a prot[eacute]g[eacute] may have 
where such a sale occurs. There are times that the former mentor-
prot[eacute]g[eacute] 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 mentor-prot[eacute]g[eacute] agreements as written, SBA 
believes that the prot[eacute]g[eacute] firm should be able to either 
negotiate a revised mentor-prot[eacute]g[eacute] agreement with the 
buying concern or terminate the mentor-prot[eacute]g[eacute] agreement 
if the prot[eacute]g[eacute] believes the buying concern is not a good 
fit for it. This right of the prot[eacute]g[eacute] is limited to where 
the new mentor would not fulfill the former mentor-
prot[eacute]g[eacute] agreement. SBA would have to approve any revised 
mentor-prot[eacute]g[eacute] agreement. If the mentor-
prot[eacute]g[eacute] agreement is terminated, the 
prot[eacute]g[eacute] firm could seek another business concern to enter 
a mentor-prot[eacute]g[eacute] relationship for a duration not to 
exceed six years minus the length of the mentor-prot[eacute]g[eacute] 
relationship with the former mentor.
    SBA received four comments regarding this proposal. All four 
supported the language generally. Two commenters sought clarification 
that the prot[eacute]g[eacute] could terminate its mentor-
prot[eacute]g[eacute] relationship only where the purchasing business 
concern (i.e., the new mentor) and the prot[eacute]g[eacute] cannot 
agree on either continuing with the previous mentor-
prot[eacute]g[eacute] agreement or negotiating a new mentor-
prot[eacute]g[eacute] 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 Sec.  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 service-disabled 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

[[Page 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 
Sec.  125.12(a) or Sec.  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 pre-existing 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 Sec. Sec.  125.12(a) and (b) as well as those 
requested by a contracting officer as set forth in Sec.  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 
Sec.  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 long-term 
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 Sec.  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 Sec.  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 Sec.  124.4 for the 8(a) BD 
program. The proposed rule took the language currently contained in 
Sec.  124.4 for the 8(a) BD program and adds it to a new Sec.  125.13 
that will be applicable to the 8(a) BD, HUBZone, WOSB, and VetCert 
programs. SBA

[[Page 102466]]

considered making revisions to part 126, 127 and 128 of this title 
adopting the same language contained in Sec.  124.4 for the WOSB, 
HUBZone, and VetCert programs. Instead, SBA believes that it is more 
expedient to add a new Sec.  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 Sec.  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-the-job 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, Sec.  
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 non-
driving 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

[[Page 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 in-kind 
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 Sec.  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.

[[Page 102468]]

    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 long-
term 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 Sec.  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 tribally-owned 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 non-HUBZone 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 non-
eligible 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

[[Page 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 owner-
occupied. 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 Sec.  
126.104(a). This is SBA's current interpretation of the statutory 
definition of ``Qualified

[[Page 102470]]

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 Sec.  
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 Sec.  126.103 and Sec.  126.200(b)(1). In 2023, SBA 
amended Sec.  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 Sec.  126.103. 
Thus, SBA proposed to amend Sec.  126.103 to be consistent with Sec.  
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 Sec.  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 Governor-
designated covered areas. Third, SBA proposed to specify that a 
Governor-designated covered area will be treated as a HUBZone until SBA 
next updates the HUBZone Map in accordance with Sec.  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

[[Page 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 Sec.  126.104(d)(1). The HUBZone 
statute and the current regulations provide that only certain areas are 
eligible to become Governor-Designated 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 Sec.  126.104 and adopts it as final in this rule.

Section 126.105

    SBA proposed to add a new Sec.  126.105, explaining when the 
HUBZone Map will be updated in accordance with statutory requirements. 
Proposed Sec.  126.105 provided that Qualified Census Tracts and 
Qualified Non-Metropolitan 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 Sec.  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 
Sec.  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 Sec.  
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 Sec.  
127.200(e) and to VOSB/SDVOSB certifications by revising Sec.  
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.

[[Page 102472]]

Section 126.200

    SBA proposed to revise Sec.  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 high-
unemployment 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 Non-Metropolitan County, Governor-Designated 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 Sec.  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 non-
compliance 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 long-term 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 Sec.  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 Sec.  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

[[Page 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 one-year 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 Sec.  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 Sec.  
126.103 by specifying that the requirement applies only during the 
performance of a

[[Page 102474]]

HUBZone contract as defined in Sec.  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 Sec.  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 Sec.  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 Sec.  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 Sec.  
126.200(g) to Sec.  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 Sec.  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 Sec.  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 Sec.  
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 Sec.  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 inter-dependence 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 inter-dependence 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,

[[Page 102475]]

current Sec.  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 Sec.  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 Sec.  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 Sec.  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 long-standing 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 Sec.  
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 Sec.  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 Sec.  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 Sec.  127.305 
for the WOSB program and in Sec.  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 Sec.  126.401, which describes program 
examinations. The proposed rule explained that a

[[Page 102476]]

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 Sec.  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 Sec.  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 Sec.  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 Sec. Sec.  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 Sec.  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 Sec.  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 Sec.  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

[[Page 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 Sec.  126.602.
    SBA received thirty comments on proposed Sec. Sec.  
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 Sec.  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 Sec.  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 Sec.  
128.306(d) to provide that same 90-day period for the VetCert program.
    Proposed Sec.  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

[[Page 102478]]

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 Sec.  127.400(b) and Sec.  128.306(a) for the 
WOSB and VetCert programs, respectively, to ensure consistency between 
the programs.
    SBA proposed to revise Sec.  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 Sec.  
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 Sec.  126.500(b) as 
proposed.

Section 126.501

    SBA proposed to revise Sec.  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 Sec.  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 Sec.  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 Sec.  
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 Sec.  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 [email protected] 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 Sec.  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 Sec.  126.501(b) in this final rule.

Section 126.503

    SBA proposed to add a new paragraph (d) to Sec.  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 Sec.  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 Sec.  
126.503, discussed above. In addition, SBA proposed to revise Sec.  
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

[[Page 102479]]

DSBS, as well as potential errors in updates to DSBS. SBA believes that 
the effect of decertification should more properly be contained in 
Sec.  126.503. As such, the final rule moves proposed Sec.  
126.504(c)(1) to redesignated Sec.  126.503(e) in this final rule. In 
addition, the final rule moves proposed Sec.  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 Sec.  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 Sec.  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 set-aside 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 Sec.  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 ``one-year 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 Sec.  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 Sec.  126.200 on the date of 
initial offer, which may not include price. This is consistent with 
SBA's size regulations at Sec.  121.404(a)(1)(iv). SBA did not receive 
any comments on this particular provision and is implementing it as 
proposed.
    Proposed Sec.  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.

[[Page 102480]]

Proposed Sec.  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 HUBZone-certified 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 Sec.  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 Sec.  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 Sec.  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 
Sec.  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 Sec.  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 Sec.  126.612, with proposed Sec.  126.612(f) becoming 
Sec.  126.612(a)(6) in the final rule.

Section 126.613

    SBA proposed to amend Sec.  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 lowest-priced 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 non-reserved 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 non-HUBZone 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 x 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

[[Page 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-
prot[eacute]g[eacute] 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 Sec.  126.615 by adding a reference to Sec.  
125.9 to clarify that large businesses may participate in HUBZone 
procurements by serving as SBA-approved mentors under SBA's mentor-
prot[eacute]g[eacute] 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 Sec.  126.616, which describes the 
circumstances under which a joint venture can be awarded a HUBZone 
contract. The proposed rule deleted language from current Sec.  
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 Sec.  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 Sec.  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 Sec.  125.12. 
Section 126.619 refers to the requirements set forth in Sec.  125.12 as 
applying to recertifications of HUBZone status.

Section 126.701

    SBA proposed to amend Sec.  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 Sec.  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 
non-HUBZone 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 Sec.  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 Sec.  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 [email protected]. 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 Sec.  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 Sec.  
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

[[Page 102482]]

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 Sec.  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 Sec.  
126.601(e), which addresses two-step procurements.

Section 126.900

    SBA proposed to amend Sec.  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 Sec.  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, Sec.  
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

[[Page 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 Governor-designated 
covered areas, a change in the negative-control rule in SBA's 
affiliation rule, deletion of program-specific 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 newly-
designated HUBZone.
    The restatement of Sec.  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 minority-share 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 Sec.  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 Sec.  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

[[Page 102484]]

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

[[Page 102485]]

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

PART 121--SMALL BUSINESS SIZE REGULATIONS

0
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).


0
2. Amend Sec.  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:


Sec.  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 Sec.  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.
* * * * *


0
 3. Amend Sec.  121.104 by revising paragraph (a)(1) to read as 
follows:


Sec.  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 self-certification 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.
* * * * *


0
4. Revise Sec.  121.404 to read as follows:


Sec.  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 Sec.  
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 Sec.  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 veteran-owned small business, HUBZone small business, 
or women-owned/economically-disadvantaged women-owned 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

[[Page 102486]]

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 Sec.  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 Sec. Sec.  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 Sec.  125.12(c). This 
exception applies to all provisions of Sec. Sec.  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 Sec.  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 Sec.  121.406(b)(1), the ostensible subcontractor rule set forth in 
Sec.  121.103(h)(3), and the joint venture agreement requirements in 
Sec. Sec.  124.513(c) and (d), Sec. Sec.  126.616(c) and (d), 
Sec. Sec.  127.506(c) and (d), and Sec. Sec.  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 Sec.  121.410 and which is in effect at the time the concern 
self-certifies 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 self-certification.
    (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 Sec.  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 Sec.  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.

0
5. Amend Sec.  [thinsp]121.702 by revising paragraph (c)(7) to read as 
follows:


Sec.  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.
* * * * *


0
6. Amend Sec.  [thinsp]121.1001 by adding paragraphs (a)(10) through 
(12), and (b)(2)(iii) to read as follows:


Sec.  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 procurement-related reason, such as non-
responsiveness, 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

[[Page 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 Sec.  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 Sec.  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.
* * * * *

0
7. Amend Sec.  121.1010 by revising paragraph (b) to read as follows:


Sec.  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 non-compliance with the 
nonmanufacturer rule.
* * * * *

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

0
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.


0
9. Amend Sec.  124.3 by revising the definition of ``Community 
Development Corporation or CDC'' to read as follows:


 Sec.  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.
* * * * *


Sec.  124.4  [Removed]

0
10. Remove Sec.  124.4.

0
11. Amend Sec.  124.102 by adding the following sentences to the end of 
paragraph (a)(1) to read as follows:


Sec.  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 Sec.  121.1001(b)(8) of this 
chapter where any information it possesses calls into question the 
concern's SAM size representation.
* * * * *

0
12. Amend Sec.  124.105 by:
0
 a. Revising paragraph (b);
0
 b. Revising paragraph (f)(1);
0
c. Removing the words ``10 percent'' wherever they appear in paragraph 
(h)(1) and adding in their place the words ``20 percent'';
0
d. Removing the words ``20 percent'' in paragraph (h)(1) and adding in 
their place the words ``30 percent''; and
0
e. Revising paragraphs (h)(2), (i)(2), and (k).
    The revisions read as follows:


Sec.  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 Sec.  125.9 
of this chapter may own up to 40 percent of its 8(a) Participant 
prot[eacute]g[eacute] as set forth in Sec.  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

[[Page 102488]]

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 non-disadvantaged 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 Sec.  124.3, as well as any individuals who are 
affiliated based on an identity of interest under Sec.  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. Non-disadvantaged owner B is not involved in the transaction 
and non-disadvantaged 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 non-disadvantaged 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 non-disadvantaged 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 non-disadvantaged 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; non-disadvantaged 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 non-disadvantaged 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 Sec. Sec.  
124.303 and 124.304.

0
13. Amend Sec.  124.106 by:
0
a. Removing paragraph (d)(3);
0
b. Redesignating paragraphs (d)(4) and (d)(5) as paragraphs (d)(3) and 
(d)(4), respectively;
0
c. Revising paragraph (e)(3);
0
d. Removing the text ``director, or key employee'' in paragraph (f) and 
adding in its place the text ``or director'';
0
e. Redesignating paragraph (h) as paragraph (i); and
0
f. Adding new paragraph (h).
    The revision and addition to read as follows:


Sec.  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 non-disadvantaged 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 
non-disadvantaged individual. In such a case, SBA must determine that 
that the compensation to be received by the non-disadvantaged 
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.
* * * * *

0
 14. Amend Sec.  124.107 by:
0
a. Revising the first sentence of the introductory text;
0
b. Revising paragraph (a);
0
c. Removing paragraph (e); and
0
d. Redesignating paragraph (f) as paragraph (e).
    The revisions read as follows:


Sec.  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. * * *

[[Page 102489]]

    (a) Income tax returns for each of the two previous tax years must 
show operating revenues.
* * * * *

0
15. Amend Sec.  124.108 by:
0
a. Removing paragraph (a)(1);
0
b. Redesignating paragraphs (a)(2), (3), (4) and (5) as paragraphs 
(a)(1), (2), (3), and (4), respectively; and
0
c. Revising newly redesignated paragraph (a)(3) and paragraph (e).
    The revision to read as follows:


Sec.  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.

0
16. Amend Sec.  124.203 by removing the last three sentences and adding 
a sentence in their place to read as follows:


Sec.  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.

0
 17. Amend Sec.  124.204 by revising paragraph (d) to read as follows:


Sec.  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.
* * * * *

0
 18. Revise Sec.  124.207 to read as follows:


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

    A concern which has been declined for 8(a) BD program 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.

0
19. Amend Sec.  124.303 by adding paragraph (c) to read as follows:


Sec.  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-
Prot[eacute]g[eacute] 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.

0
20. Amend Sec.  124.503 by revising paragraph (g)(1)(iii) to read as 
follows:


Sec.  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
* * * * *

0
 21. Amend Sec.  124.504 by revising paragraph (a) to read as follows:


Sec.  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.
* * * * *

0
 22. Amend Sec.  124.509 by redesignating paragraph (d)(1)(ii) as 
paragraph (d)(1)(iii), and adding new paragraph (d)(1)(ii) to read as 
follows:


Sec.  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

[[Page 102490]]

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 non-8(a) revenue during program year 6. X failed to meet its 
applicable non-8(a) business activity target (BAT) of 25% ($20M x 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).
* * * * *

0
23. Amend Sec.  124.514 by revising paragraph (a)(1) to read as 
follows:


Sec.  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.
* * * * *

0
 24. Amend Sec.  124.518 by revising the section heading and paragraph 
(c), and adding paragraph (d) to read as follows:


Sec.  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.


Sec.  124.602  [Amended]

0
25. Amend Sec.  124.602 by:
0
a. Removing the word ``$10,000,000'' in paragraphs (a)(1) and (a)(2) 
and adding in its place the word ``$20,000,000'';
0
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
0
c. Removing the word ``$2,000,000'' in paragraph (c) and adding in its 
place the word ``$7,500,000''.


Sec.  124.603  [Amended]

0
26. Amend Sec.  124.603 by removing the word ``Former'' and adding in 
its place

[[Page 102491]]

the words ``If requested by the SBA, former''.

0
27. Revise Sec.  124.604 to read as follows:


Sec.  124.604  Report of benefits for firms owned by Tribes, ANCs, NHOs 
and CDCs.

    (a) As part of its annual financial statement submission (see Sec.  
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

0
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.


0
29. Amend Sec.  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:


Sec.  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.
* * * * *

0
30. Amend Sec.  125.2 by:
0
a. Redesignating paragraph (c)(6) as paragraph (c)(7);
0
b. Adding new paragraph (c)(6);
0
c. Redesignating paragraph (e)(7) as paragraph (e)(8); and
0
d. Adding new paragraph (e)(7).
    The additions read as follows:


Sec.  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 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 where appropriate.
* * * * *

0
 31. Amend Sec.  125.3 by:
0
a. Adding paragraphs (a)(4) and (b)(4);
0
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
0
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:


Sec.  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 self-certification.
* * * * *

0
 32. Amend Sec.  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:


Sec.  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 self-performance. The work performed by employees 
leased to the small business prime contractor will therefore not count 
against the applicable limitation on subcontracting.
* * * * *

0
 33. Amend Sec.  125.8 by revising paragraphs (e) and (f) to read as 
follows:

[[Page 102492]]

Sec.  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 
prot[eacute]g[eacute] 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 
non-similarly situated joint venture partner, or it may require some 
level of past performance and/or experience of the 
prot[eacute]g[eacute] or lead small business member. Where it requires 
some level of past performance and/or experience of the 
prot[eacute]g[eacute] 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 prot[eacute]g[eacute] 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 prot[eacute]g[eacute] 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 prot[eacute]g[eacute] 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 prot[eacute]g[eacute] joint venture partner to demonstrate 
some past performance. The procuring activity may require a 
prot[eacute]g[eacute] joint venture partner to demonstrate one or two 
contracts valued at $10 million or $8 million, but may not require the 
prot[eacute]g[eacute] to demonstrate successful performance on five 
similar contracts and may not require the prot[eacute]g[eacute] to 
demonstrate successful performance on contracts valued at $20 million. 
In addition, if a procuring activity requires a prot[eacute]g[eacute] 
joint venture partner to demonstrate successful performance on two 
contracts valued at $10 million or more, successful performance by the 
prot[eacute]g[eacute] 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-prot[eacute]g[eacute] joint venture, as appropriate.
* * * * *

0
 34. Amend Sec.  125.9 by:
0
a. Revising paragraph (b) introductory text;
0
b. Revising paragraph (b)(2);
0
c. Adding the word ``a'' after the words ``more than one 
prot[eacute]g[eacute] at'' and before the word ``time'' in paragraph 
(b)(3) introductory text;
0
d. Adding paragraph (b)(4);
0
e. Revising paragraph (c)(2);
0
f. Redesignating paragraph (e)(6) as paragraph (c)(4);
0
g. Revising newly redesignated paragraphs (c)(4)(iii) and (iv);
0
h. Adding paragraph (c)(5);
0
i. Adding paragraph (d)(1)(iv); and
0
j. Redesignating paragraphs (e)(7), (8) and (9) as paragraphs (e)(6), 
(7) and (8), respectively.
    The revisions and additions read as follows:


Sec.  125.9  What are the rules governing SBA's small business mentor-
prot[eacute]g[eacute] 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 prot[eacute]g[eacute], or is otherwise affiliated with the 
prot[eacute]g[eacute].
    (ii) SBA may terminate the mentor-prot[eacute]g[eacute] 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 
prot[eacute]g[eacute] at the time of application or becomes affiliated 
with the prot[eacute]g[eacute] for reasons other than the mentor-
prot[eacute]g[eacute] agreement or assistance provided under the 
agreement; or
    (C) Key managers or personnel become employees of both the mentor 
and prot[eacute]g[eacute] firms at the same time.
* * * * *
    (4) A mentor cannot be a contract holder through joint ventures 
with two prot[eacute]g[eacute] 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 SBA-approved mentor that is a contract holder as a joint venture 
with a prot[eacute]g[eacute] small business and the mentor is also a 
contract holder with a prot[eacute]g[eacute] small business on that 
same multiple award contract, the mentor must exit one of those joint 
venture relationships.
    (ii) The prot[eacute]g[eacute] 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 prot[eacute]g[eacute] 
obtains financing under normal commercial terms in order to purchase 
the mentor's interest in a multiple award contract.
* * * * *
    (c) * * *
    (2) A prot[eacute]g[eacute] firm may generally have only one mentor 
at a time.
    (i) SBA may approve a second mentor for a particular 
prot[eacute]g[eacute] firm where the second relationship will not 
compete or otherwise conflict with the first mentor-
prot[eacute]g[eacute] relationship, and:
    (A) The second relationship pertains to an unrelated NAICS code; or

[[Page 102493]]

    (B) The prot[eacute]g[eacute] firm is seeking to acquire a specific 
expertise that the first mentor does not possess.
    (ii) Where SBA has approved two mentor-prot[eacute]g[eacute] 
relationships for the same prot[eacute]g[eacute] small business, the 
prot[eacute]g[eacute] 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-prot[eacute]g[eacute] 
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-prot[eacute]g[eacute] agreement or 
that the quality of the assistance provided was not satisfactory, SBA 
may terminate the mentor-prot[eacute]g[eacute] relationship. Where SBA 
or the parties themselves terminate a mentor-prot[eacute]g[eacute] 
relationship, SBA may allow the prot[eacute]g[eacute] to substitute 
another mentor for the time remaining in the mentor-
prot[eacute]g[eacute] agreement without counting against the two-mentor 
limit.
    Example to paragraph (c)(4)(iii). 8(a) Participant X enters an SBA 
approved mentor-prot[eacute]g[eacute] relationship with A. After 3 
years, X and A decide to terminate the mentor-prot[eacute]g[eacute] 
relationship. After 8 months of searching for a new mentor, X and B 
submit a mentor-prot[eacute]g[eacute] agreement to SBA for review. Once 
SBA determines that the mentor-prot[eacute]g[eacute] 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-prot[eacute]g[eacute] 
relationship.
    (iv) Instead of having a six-year mentor-prot[eacute]g[eacute] 
relationship with two separate mentors, a prot[eacute]g[eacute] may 
seek to extend or renew a mentor-prot[eacute]g[eacute] relationship 
with the same mentor for a second six-year term. In order for SBA to 
approve an extension or renewal of a mentor-prot[eacute]g[eacute] 
relationship with the same mentor, the mentor must commit to providing 
additional business development assistance to the 
prot[eacute]g[eacute]. Whether a prot[eacute]g[eacute] has a mentor-
prot[eacute]g[eacute] relationship with two different mentors or the 
same mentor for a second six-year period, a concern cannot be a 
prot[eacute]g[eacute] for a total of more than 12 years.
    (5) Where a business concern purchases another business concern 
that is currently the mentor of a prot[eacute]g[eacute] firm, that 
business concern shall become the new mentor of the 
prot[eacute]g[eacute] if it commits to honoring the obligations under 
the seller's mentor-prot[eacute]g[eacute] agreement or the purchasing 
business concern and the prot[eacute]g[eacute] negotiate a new mentor-
prot[eacute]g[eacute] agreement that SBA approves. Where that occurs, 
that new mentor-prot[eacute]g[eacute] relationship will be effective 
for no longer than six years minus the length of the mentor-
prot[eacute]g[eacute] relationship with the seller mentor.
    (i) The prot[eacute]g[eacute] firm can terminate its mentor-
prot[eacute]g[eacute] relationship only if the purchasing business 
concern and the prot[eacute]g[eacute] firm cannot agree on either 
continuing with the previous mentor-prot[eacute]g[eacute] agreement or 
negotiating a new mentor-prot[eacute]g[eacute] agreement that is 
acceptable to SBA.
    (ii) Where a mentor-prot[eacute]g[eacute] relationship is 
terminated, the prot[eacute]g[eacute] firm may seek another business 
concern to enter a mentor-prot[eacute]g[eacute] relationship for a 
duration not to exceed six years minus the length of the mentor-
prot[eacute]g[eacute] relationship with the former mentor.
    Example 1 to paragraph (c)(5). 8(a) Participant A enters a mentor-
prot[eacute]g[eacute] relationship with business concern X. After 3 
years, business concern Y purchases X. A and Y agree to continue to 
abide by the mentor-prot[eacute]g[eacute] agreement between A and X. 
The mentor-prot[eacute]g[eacute] relationship between A and Y can last 
no longer than 3 years (6 years minus the length of the A and X mentor-
prot[eacute]g[eacute] relationship). At the end of that agreement A and 
Y could seek to renew the mentor-prot[eacute]g[eacute] relationship for 
another 6 years if this is A's first mentor-prot[eacute]g[eacute] 
relationship.
    Example 2 to paragraph (c)(5). 8(a) Participant Z enters a mentor-
prot[eacute]g[eacute] 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 mentor-prot[eacute]g[eacute] agreement or 
Z does not want to extend a mentor prot[eacute]g[eacute] relationship 
with C and the mentor-prot[eacute]g[eacute] agreement is terminated, Z 
may seek a new business concern to enter a mentor-prot[eacute]g[eacute] 
relationship. If business concern D agrees to enter into a mentor-
prot[eacute]g[eacute] relationship with Z and SBA approves that 
relationship, the Z-D mentor-prot[eacute]g[eacute] relationship can 
last for no longer than 3 years (6 years minus the length of the Z/B 
mentor-prot[eacute]g[eacute] relationship). If that was Z's first 
mentor-prot[eacute]g[eacute] relationship, Z may seek to extend the Z-D 
mentor-prot[eacute]g[eacute] relationship for an additional 6 years or 
may seek a new mentor-prot[eacute]g[eacute] relationship with another 
firm for up to 6 years. In no case can a prot[eacute]g[eacute] firm 
have mentor-prot[eacute]g[eacute] relationships lasting more than 12 
years.
    (d) * * *
    (1) * * *
    (iv) Where a mentor seeks to sell its interest in a mentor-
prot[eacute]g[eacute] joint venture, the prot[eacute]g[eacute] firm 
shall have a right of first refusal to purchase that interest. SBA will 
not find affiliation where a prot[eacute]g[eacute] obtains financing 
under normal commercial terms in order to purchase the mentor's 
interest in a mentor-prot[eacute]g[eacute] joint venture.
* * * * *

0
35. Add Sec.  125.12 to read as follows:


Sec.  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, non-manufacturer 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

[[Page 102494]]

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 entity-owned 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 veteran-owned small business, HUBZone small 
business, or women-owned/economically disadvantaged women-owned 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 prot[eacute]g[eacute] small business in a still active mentor-
prot[eacute]g[eacute] 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

[[Page 102495]]

is not considered a new contract award under Sec.  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 set-asides, 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.

0
36. Add Sec.  125.13 to read as follows:


Sec.  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 Sec.  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

0
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.


Sec.  126.100  [Amended]

0
38. Amend Sec.  126.100 by removing the words ``qualified SBCs'' and 
adding in their place the words ``small business concerns''.


Sec.  126.102  [Amended]

0
39. Amend Sec.  126.102 by removing the words ``qualified HUBZone 
SBCs'' and adding in their place the words ``certified HUBZone small 
business concerns''.

0
40. Amend Sec.  126.103 by:
0
a. Removing the definition for ``AA/BD'';
0
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'';
0
c. Adding in alphabetical order definitions for ``HUBZone certification 
date'', ``HUBZone Map'', and ``HUBZone resident employee'';
0
d. Revising the definitions for ``HUBZone small business concern or 
certified HUBZone small business concern'', ``Indian Tribal 
Government'', and ``Principal office'';
0
e. Removing paragraph (3) in the definition of ``Qualified Census 
Tract'';
0
f. Revising the definition of ``Qualified Disaster Area'';
0
g. Removing paragraph (4) in the definition of ``Qualified Non-
Metropolitan County'';
0
h. Adding in alphabetical order the definition for ``Recertification 
(or certification renewal)'';
0
i. Revising the definitions for ``Redesignated Area'', ``Reside'', and 
``Small business concern''; and
0
j. Adding in alphabetical order the definition for ``System for Award 
Management (SAM)''.
    The revisions and additions read as follows:


Sec.  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 Sec.  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

[[Page 102496]]

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 Sec.  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, post-meeting 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 Governor-generated petition 
pursuant to the procedures described in Sec.  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 Sec.  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

[[Page 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 Sec.  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 Sec.  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 Non-Metropolitan County. The date on which the census 
tract or non-metropolitan 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 full-time 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 full-time. 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.


0
41. Revise Sec.  126.104 as follows:


Sec.  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

[[Page 102498]]

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 Governor-designated 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 Governor-designated covered area will 
be treated as a HUBZone until SBA next updates the HUBZone Map in 
accordance with Sec.  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.


0
42. Add Sec.  126.105 to read as follows:


Sec.  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 Sec.  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.


0
43. Amend Sec.  126.200 by:
0
a. Revising paragraphs (b)(1) and (c)(1);
0
b. Adding a paragraph heading in paragraph (c)(2);
0
c. Revising paragraph (d)(1);
0
d. Adding a paragraph heading in paragraph (d)(2);
0
e. Revising paragraph (d)(3);
0
f. Revising paragraphs (e), (f), and (g); and
    The revisions and additions read as follows:


Sec.  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 Sec.  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

[[Page 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 Sec.  
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 Sec.  126.500(a), and offer for a HUBZone 
contract, a concern must certify that it will ``attempt to maintain'' 
(see Sec.  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.


0
44. Amend Sec.  126.201 by revising the section heading, and the first 
sentence of the introductory text to read as follows:


Sec.  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. * * *
* * * * *


Sec.  126.202  [Amended]

0
45. Amend Sec.  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.


0
46. Amend Sec.  126.204 by:
0
a. Revising paragraph (a);
0
b. Removing the words ``all information'' in the introductory text of 
paragraph (c) and adding in their place the words ``the totality of 
circumstances'';
0
c. Revising paragraph (c)(3); and
0
d. Adding paragraph (c)(4).
    The revisions and addition read as follows:


Sec.  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

[[Page 102500]]

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 Sec.  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.


Sec.  126.302  [Amended]

0
47. Amend Sec.  126.302 by removing the last sentence.

0
48. Revise Sec.  126.303 to read as follows:


Sec.  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.

0
49. Amend Sec.  126.304 by revising paragraph (e) to read as follows:


Sec.  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 Sec.  
126.200(d)(3).


0
50. Amend Sec.  126.306 by:
0
a. Revising paragraph (d);
0
b. Removing the words ``System for Award Management'' in paragraph (g) 
and adding in their place the word ``SAM''; and
0
c. Adding paragraph (h).
    The revision and addition read as follows:


Sec.  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.


Sec.  126.308  [Amended]

0
51. Amend Sec.  126.308 in paragraph (b) by removing the words ``System 
for Award Management'' and adding in their place the word ``SAM''.


0
52. Revise Sec.  126.309 to read as follows:


Sec.  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.


0
53. Revise Sec.  126.401 to read as follows:


Sec.  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.


0
54. Amend Sec.  126.403 by revising paragraphs (a) and (b) to read as 
follows:


Sec.  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 Sec.  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.
* * * * *


0
55. Amend Sec.  126.404 by revising paragraphs (b) and (c) to read as 
follows:


Sec.  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

[[Page 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.


0
56. Revise Sec.  126.500 to read as follows:


Sec.  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 Sec.  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.


0
57. Revise Sec.  126.501 to read as follows:


Sec.  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.


Sec.  126.502  [Amended]

0
58. Amend Sec.  126.502 by removing the words ``Sec. Sec.  126.200, 
126.500, and 126.501'' and adding in their place the words ``Sec. Sec.  
126.200, 126.500, and 126.501, and all other requirements described in 
this part''.


0
59. Amend Sec.  126.503 by:
0
a. Revising paragraphs (a) and (c);
0
b. Redesignating paragraph (d) as paragraph (e);
0
c. Adding new paragraph (d); and
0
d. Revising the first sentence of redesignated paragraph (e).
    The revisions and addition read as follows:


Sec.  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 Sec.  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 Women-Owned Small Business (WOSB)

[[Page 102502]]

Program, the Veteran Small Business Certification (VetCert) Program, 
and SBA's Mentor-Prot[eacute]g[eacute] 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 re-admission 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. * * *


0
60. Amend Sec.  126.504 by:
0
a. Removing the word ``or'' at the end of paragraph (a)(2);
0
b. Redesignating paragraph (a)(3) as (a)(4);
0
c. Adding new paragraph (a)(3);
0
d. Removing the words ``pursuant to Sec.  126.501(b)'' in newly 
redesignated paragraph (a)(4); and
0
e. Removing paragraph (c).
    The addition reads as follows:


Sec.  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
* * * * *


0
61. Revise Sec.  126.600 to read as follows:


Sec.  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 Sec.  126.616), regardless of the 
place of performance, through any of the following procurement methods:
    (a) Sole source awards awarded pursuant to Sec.  126.612 to 
certified HUBZone small business concerns (or HUBZone joint ventures 
that comply with the requirements of Sec.  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 
set-aside.


0
62. Amend Sec.  126.601 by revising paragraphs (a), (b)(1), and (e), 
and adding paragraph (f) to read as follows:


Sec.  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 Sec.  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 Sec.  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 Sec.  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 Sec.  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 Sec.  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 Sec.  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.


0
63. Revise Sec.  126.602 to read as follows:


Sec.  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 Sec.  
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

[[Page 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 Sec.  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 Sec.  126.503.


Sec.  126.603  [Amended]

0
64. Amend Sec.  126.603 by removing the word ``concernwill'' and adding 
in its place the words ``concern will''.


Sec.  126.604  [Amended]

0
65. Amend Sec.  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''.


Sec.  126.605  [Amended]

0
66. Amend Sec.  126.605 by removing the word ``may'' in the 
introductory text and adding in its place the word ``shall''.


Sec.  126.607  [Amended]

0
67. Amend Sec.  126.607 by:
0
a. Removing the word ``must'' in the section heading and adding in its 
place the word ``may'';
0
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
0
c. Removing the words ``qualified HUBZone SBCs'' in paragraph (c)(1) 
and adding in their place the words ``certified HUBZone small business 
concerns''.

0
68. Revise Sec.  126.612 to read as follows:


Sec.  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 Sec. Sec.  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.

0
69. Amend Sec.  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:


Sec.  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 non-HUBZone 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 x 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.

[[Page 102504]]

    Example 2 to paragraph (a): In a full and open competition 
procurement, a certified HUBZone small business concern submits an 
offer of $103, a non-HUBZone 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 x 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 Sec.  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.

0
 70. Revise Sec.  126.615 to read as follows:


Sec.  126.615  May an other than small business participate on a 
HUBZone contract?

    Except as provided in Sec. Sec.  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 Sec.  125.6.

0
71. Amend Sec.  126.616 by revising paragraphs (a)(1) and (e)(1)(i), 
and adding paragraph (l) to read as follows:


Sec.  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 Sec.  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 Sec.  125.8.

0
72. Revise Sec.  126.619 to read as follows:


Sec.  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 Sec.  125.12 of this chapter regarding its 
status as a certified HUBZone small business.

0
73. Revise the subpart heading for subpart G to read as follows:

Subpart G--Limitations on Subcontracting Requirements


Sec.  126.701  [Amended]

0
74. Amend Sec.  126.701 by:
0
a. Removing the words ``these subcontracting percentages'' in the 
section heading and adding in their place the words ``the limitations 
on subcontracting''.
0
b. Removing the words ``the subcontracting percentage'' in the 
paragraph and adding in their place the words ``the limitations on 
subcontracting''.

0
75. Revise Sec.  126.800 to read as follows:


Sec.  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 Sec.  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 Sec.  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.


Sec.  126.801  [Amended]

0
76. Amend Sec.  126.801 by revising paragraphs (b), (c) and paragraph 
(d) introductory text to read as follows:


Sec.  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 Sec.  126.200;
    (ii) The protested joint venture does not meet the requirements set 
forth in Sec.  126.616;
    (iii) The protested concern, as a HUBZone prime contractor, is 
unduly reliant on one or more small subcontractors that are not 
HUBZone-certified, or subcontractors that are not HUBZone-certified 
will perform the

[[Page 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 Sec.  126.200 at 
the time of offer; and/or
    (ii) The protested HUBZone joint venture does not meet the 
requirements set forth in Sec.  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 HUBZone-certified, 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 [email protected].
    (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.
* * * * *

0
77. Amend Sec.  126.803 by:
0
a. Revising paragraph (a);
0
b. Redesignating paragraphs (c), (d), and (e) as paragraphs (d), (e), 
and (f), respectively;
0
c. Adding new paragraph (c); and
0
d. Revising newly redesignated paragraph (f)(3).
    The revisions and additions read as follows:


Sec.  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 Sec.  
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.

0
78. Amend Sec.  126.900 by:
0
a. Removing the word ``SBCs'' in paragraphs (a) and (b)(1) and adding 
in its place the phrase ``small business concerns'';
0
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'';
0
c. Removing the word ``SBC'' in the introductory text of paragraph (b) 
and in paragraph (c);
0
d. Removing the phrase ``agency suspension'' in paragraph (e)(1) and 
adding in its place the phrase ``procuring agency's suspension'';
0
e. Adding paragraph (e)(4).
    The addition reads as follows:


Sec.  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

0
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.


0
80. Amend Sec.  127.200 by:
0
a. Revising paragraphs (a)(2) and (b)(2);
0
b. Redesignating paragraph (d) as paragraph (f); and
0
c. Adding new paragraphs (d) and (e).
    The revisions and additions read as follows:


Sec.  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

[[Page 102506]]

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 Sec.  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.
* * * * *

0
81. Amend Sec.  127.201 by revising paragraph (b) and adding paragraph 
(g) to read as follows:


Sec.  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 Sec.  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.

0
82. Amend Sec.  127.202 by revising paragraphs (d) and (g) and adding 
paragraph (h) to read as follows:


Sec.  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 non-qualifying 
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 highest-ranking 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

[[Page 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.


Sec.  127.301  [Amended]

0
83. Amend Sec.  127.301 by removing the last sentence.

0
84. Revise Sec.  127.302 to read as follows:


Sec.  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.

0
 85. Amend Sec.  127.304 by revising paragraph (d) to read as follows:


Sec.  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.
* * * * *

0
 86. Revise Sec.  127.305 to read as follows:


Sec.  127.305  May declined or decertified concerns apply for 
certification at a later date?

    (a) A concern that SBA or a third-party 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 Sec.  
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.

0
87. Amend Sec.  127.400 by revising paragraph (b) to read as follows:


Sec.  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.
* * * * *

0
88. Amend Sec.  127.405 by revising paragraph (d) to read as follows:


Sec.  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-Prot[eacute]g[eacute] 
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 re-admission to the WOSB program.
* * * * *

0
89. Amend Sec.  127.504 by:
0
a. Revising paragraph (a);
0
b. Removing the words ``under paragraph (f) of this section'' in 
paragraph (d)(1) and adding in their place the words ``under Sec.  
125.12 of this chapter''; and
0
c. Revising paragraph (h).
    The revisions read as follows:


Sec.  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 Sec.  
127.200; and
    (3) Either be a certified EDWOSB or WOSB pursuant to Sec.  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

[[Page 102508]]

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 third-party 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 Sec.  125.12 of this chapter regarding its 
status as a certified WOSB or EDWOSB.

PART 128--VETERAN SMALL BUSINESS CERTIFICATION PROGRAM

0
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.


Sec.  128.100  [Amended]

0
91. Amend Sec.  128.100 by removing the words ``Veteran Small Business 
Certification Program'' and adding in their place the words ``Veteran 
Small Business Certification Program (VetCert)''.

0
92. Amend Sec.  128.200 by revising paragraphs (a)(2) and (b)(2) to 
read as follows:


Sec.  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 
service-disabled 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.
* * * * *

0
93. Amend Sec.  128.201 by revising paragraph (b) to read as follows:


Sec.  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.

0
94. Amend Sec.  128.202 by
0
a. Revising paragraph (c); and
0
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:


Sec.  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.
* * * * *

0
95. Amend Sec.  128.203 by:
0
a. Removing the second and third sentences in paragraph (f);
0
b. Revising paragraphs (g) and (h);
0
c. Revising paragraph (j)(1);
0
d. Removing the word ``and'' at the end of paragraph (j)(4);
0
e. Removing the punctuation mark ``.'' at the end of paragraph (j)(5) 
and adding in its place punctuation mark ``;''; and
0
e. Adding paragraphs (j)(6) and (7).
    The revision and addition read as follows:


Sec.  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 non-qualifying-veterans. Non-
qualifying-veterans 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 non-
qualifying 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.
* * * * *

[[Page 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.
* * * * *

0
96. Amend Sec.  128.204 by revising paragraph (a) to read as follows:


Sec.  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 Sec.  
121.1001(b)(12) of this chapter where any information it possesses 
calls into question the concern's SAM size representation.
* * * * *

0
 97. Revise Sec.  128.301 to read as follows:


Sec.  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.

0
98. Amend Sec.  128.302 by:
0
a. Adding a sentence to the end of paragraph (a); and
0
b. Removing from the introductory text to paragraph (d) the phrase 
``any independent research conducted by SBA,''.
    The addition reads as follows:


Sec.  128.302  How does SBA process applications for certification?

    (a) * * * An applicant must be eligible as of the date SBA issues a 
decision.
* * * * *

0
99. Revise Sec.  128.305 to read as follows:


Sec.  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.

0
100. Amend Sec.  128.306 by revising paragraph (a) to read as follows:


Sec.  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.
* * * * *


Sec.  128.309  [Amended]

0
101. Amend Sec.  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).

0
 102. Amend Sec.  128.310 by revising paragraph (d) to read as follows:


Sec.  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-Prot[eacute]g[eacute] 
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 re-admission to the VetCert program.
* * * * *

0
103. Amend Sec.  128.401 by:
0
a. Revising paragraph (a);
0
b. In paragraph (d)(1)(i) removing the words ``under paragraph (e) of 
this section'' and adding in their place the words ``under Sec.  125.12 
of this chapter''; and
0
c. Revising paragraph (e).
    The revisions read as follows:


Sec.  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 Sec.  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 Sec.  128.200 on the 
date of award.
* * * * *

[[Page 102510]]

    (e) Recertification. A prime contractor that receives an award as a 
certified SDVOSB must comply with the recertification requirements set 
forth in Sec.  125.12 of this chapter regarding its status as a 
certified SDVOSB.
* * * * *

0
 104. Amend Sec.  128.402 by revising the second sentence of the 
introductory text of paragraph (a) and adding paragraph (k) to read as 
follows:


Sec.  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 Sec.  125.8.


Sec.  128.500  [Amended]

0
 105. Amend Sec.  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

0
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.

0
107. Amend Sec.  134.1003 by revising the first sentence of paragraph 
(e)(1) to read as follows:


Sec.  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. * * *
* * * * *


Sec.  134.1104  [Amended]

0
108. Amend Sec.  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`