3280 Federal Register / Vol. 61, No. 21 / Wednesday, January 31, 1996 / Rules and Regulations

SBA of the claim for reimbursement, or

as of such later date as additional

information requested by SBA is

received. Subject to the offset provisions

of part 140, SBA pays its share of Loss

within 90 days of receipt of the requisite

information. Claims for reimbursement

and any additional information

submitted are subject to review and

audit by SBA.

(b) Surety responsibilities. The PSB

Surety must take all necessary steps to

mitigate Losses when legal action

against a bond has been instituted,

when the Obligee has declared a default,

and when the Surety has established a

claim reserve. The Surety may dispose

of collateral at fair market value only.

Unless SBA notifies the Surety

otherwise, the Surety must take charge

of all claims or suits arising from a

defaulted bond, and compromise, settle

or defend the suits. The Surety must

handle and process all claims under the

bond and all settlements and recoveries

in the same manner as it does on nonguaranteed bonds.

(c) Reservation of SBA’s rights. The

payment by SBA of a PSB Surety’s claim

does not waive or invalidate any of the

terms of the PSB Agreement, the

regulations in this part 115, or any

defense SBA may have against the

Surety. Within 30 days of receipt of

notification that a claim or any portion

of a claim should not have been paid by

SBA, the Surety must repay the

specified amounts to SBA.

§ 115.71 Denial of liability.

In addition to the grounds set forth in

§ 115.19, SBA may deny liability to a

PSB Surety if:

(a) The PSB Surety’s guaranteed bond

was in an amount which, together with

all other guaranteed bonds, exceeded

the allotment for the period during

which the bond was approved, and no

prior SBA approval had been obtained;

(b) The PSB Surety’s loss was

incurred under a bond which was not

listed on the bordereau for the period

when it was approved; or

(c) The loss incurred by the PSB

Surety is not attributable to the

particular Contract for which an SBA

guaranteed bond was approved.

Dated: January 22, 1996.

John T. Spotila,

Acting Administrator.

[FR Doc. 96–1347 Filed 1–30–96; 8:45 am]

BILLING CODE 8025–01–P

13 CFR Part 121

Small Business Size Standards

AGENCY: Small Business Administration.

ACTION: Final rule.

SUMMARY: In response to President

Clinton’s government-wide regulatory

reform initiative, the Small Business

Administration (SBA) has completed a

page-by-page, line-by-line review of all

of its existing regulations. As a result,

SBA is clarifying and streamlining its

regulations. This final rule improves the

Agency’s size program by simplifying

and clarifying language in the existing

rules, conforming these rules to present

SBA policies and practices, and

providing some substantive

modifications to streamline the delivery

of services to the public. The revised

regulations will be more understandable

and much easier to use, and will reduce

the number of sections comprising Part

121 from eighteen to thirteen. The rule

improves language, but does not change

the existing size standards which apply

to particular industries.

EFFECTIVE DATE: This rule is effective on

March 1, 1996.

FOR FURTHER INFORMATION CONTACT: John

W. Klein, Chief Counsel for Special

Programs, Office of General Counsel, at

(202) 205–6645.

SUPPLEMENTARY INFORMATION: On

November 24, 1995, SBA published a

proposed rule in the Federal Register

(60 FR 57982) to completely revise its

regulations governing the size

determination program. SBA’s intent in

finalizing that rule is to streamline the

size standards operation by simplifying

and clarifying existing regulatory

language and by eliminating

unnecessary, irrelevant, or obsolete

provisions. The final rule amends office

titles to reflect a previous reorganization

of functions within the structure of

SBA. SBA has attempted to rewrite Part

121 in plain English in order to make

the regulations more readable and less

confusing.

The proposed rule contained

eligibility requirements for

organizations for the handicapped to

receive awards of contracts set aside for

small business and procedures for filing

protests regarding the status of

handicapped organizations (proposed

§§ 121.1201–121.1206). Those sections

have been removed from this final rule

because the authority for such eligibility

has expired. As a consequence,

§§ 121.1301–121.1305 of the proposed

rule have been renumbered as

§§ 121.1201–121.1205 in this final rule.

SBA received and considered 25

timely comments in response to the

proposed rule. The comments, as well

as SBA’s response to them, are

discussed below. Other than the

changes identified below in response to

the comments and the elimination of

proposed §§ 121.1201–121.1206 (as

discussed above), the regulatory text of

Part 121 has not been changed from the

proposed rule. For a section by section

analysis of the revised Part 121 and

SBA’s rationale for any changes from

the pre-existing regulations, see the

supplementary information published

as part of the proposed rule (60 FR

57982).

Analysis of Comments Received

SBA received and considered eight

comments to the proposed text for its

affiliation regulation (proposed

§ 121.103). Six of these comments

responded to the proposed exclusion

from affiliation coverage afforded

certain private investors that are

engaged in the business of providing

equity and/or debt financing to third

parties. In addition to the existing

exclusion from affiliation for Small

Business Investment Companies (SBICs)

and Development Companies, the

proposed rule added an exclusion, for

purposes of SBIC assistance only, for

concerns owned by certain venture

capital firms, pension funds, and

charitable entities exempt from federal

taxation under § 501(c) of the Internal

Revenue Code. The proposed rule

imposed the same control limitations on

these investors as those imposed by

SBA on SBICs under 13 CFR Part 107.

While the commenters supported

SBA’s intent to add an exclusion from

affiliation for the listed investors, they

thought that the proposal did not go far

enough. One commenter agreed with the

proposal to include venture capital

operating companies (VCOCs) in the list

of investors which would not be

affiliated with applicant concerns, but

felt that limiting the exception to

financial investors that technically

qualify as VCOCs might not achieve the

desired goal. The commenter pointed

out that a fund which resembles a VCOC

because it has at least 50% of its

portfolio in ‘‘qualified venture capital

investments’’ and it obtains and

exercises certain ‘‘management rights’’

with respect to those investments may

nevertheless fail to qualify as a VCOC if

its first investment was a passive

investment. The commenter suggested

that the affiliation exemption should be

made available to any investing

company that (1) has 50% of its

portfolio in ‘‘qualified venture capital

investments’’ at the time size is

determined, or (2) would qualify as a

VCOC but for its first investment.

SBA has considered the suggestion

but has decided to limit

§ 121.103(b)(5)(i) to VCOCs, as

proposed. SBA understands that other

investors may exist whose investment

goals, policies and activities are
Federal Register / Vol. 61, No. 21 / Wednesday, January 31, 1996 / Rules and Regulations 3281

identical to those of a VCOC, but who

for one reason or another are not

considered VCOCs. However, to

properly administer a regulation that

refers to the type of investments of a

private entity would demand resources

far in excess of those available to SBA.

If, on the other hand, the private

investor’s status as a VCOC is the

criteria for exemption from affiliation,

SBA examiners need look no farther

than a statement from the entity that it

is a VCOC. SBA believes a statement of

this type is likely to be reliable, since

any company that is a VCOC is subject

to certain requirements under

Department of Labor regulations.

Another commenter recommended

that the exclusion from affiliation be

broadened to include any non-registered

investment company beneficially owned

by less than 100 persons if such

company’s sales literature or

organization documents indicate that its

principal purpose is investment in

securities rather than the operation of

commercial enterprises. The commenter

felt that a concern that meets the

definition of an ‘‘investment company’’

under the Investment Company Act of

1940, as amended (the 1940 Act), has

the necessary investment characteristics

even though it is not registered under

the 1940 Act due to the number of its

beneficial owners. SBA agrees and has

added a new paragraph (vi) to

§ 121.103(b)(5).

Three commenters argued that lack of

control over the small concern should

not be a requirement for an investor to

benefit from the exclusion from

affiliation. SBA disagrees. A small

concern must be independently owned

and operated, in addition to being small,

in order to be eligible for SBIC

assistance. See 15 USC 632 and 15 USC

662. Generally, a business that is

controlled by its large investors does not

satisfy this statutory requirement. In

Part 107, however, SBA has identified

certain special circumstances under

which SBICs are permitted to assume

control over a small concern. See 13

CFR § 107.865(c) and (d). In the

proposed rule covering Part 121, SBA

proposed to extend those exceptions to

the private firms listed in

§ 121.103(b)(5). SBA is finalizing that

proposal, but would like to clarify two

points regarding the application of the

control test to those private investors:

First, ‘‘control’’ will be determined

under § 107.865, which incorporates the

definition of Control under § 107.50.

Second, the requirement in § 107.865(e)

for an SBIC assuming temporary control

over a concern to file a control

certification with SBA would not apply

to non-SBIC investors in the concern.

SBA is also taking this opportunity to

correct a drafting error in current

§ 121.401(b), which was repeated in

proposed § 121.103(b)(1). Both sections

provide an unconditional exclusion

from the affiliation rules for the entities

listed therein, and both sections

mention investment companies

registered under the 1940 Act. However,

it was never SBA’s intent to provide an

exclusion from affiliation for all

investment companies registered under

the 1940 Act. The regulation was

intended to cover only those registered

investment companies that are also

SBICs. See 54 FR 52634 (December 21,

1989). In the final rule adopted today,

registered investment companies are

treated the same as non-registered

investment companies—they will not be

considered affiliated with the applicant

concern if they satisfy the control test

under § 107.865. Registered investment

companies are listed under new

§ 121.103(b)(5)(v) in the final rule.

Finally, one commenter

recommended expanding the exclusion

from affiliation in § 121.103(b)(5) to

include all investors primarily engaged

in the business of providing equity and/

or debt financing to third parties. SBA

believes that such an exclusion is too

broad, and does not adopt it in this final

rule.

One commenter expressed concern

that ‘‘common facilities’’ had been

eliminated as a separate basis for

finding affiliation in the proposed rule,

and recommended that it be reinserted

in the final rule. Although the proposed

rule eliminated ‘‘common facilities’’ as

a separate basis for finding affiliation, it

was not SBA’s intent to prohibit SBA

from considering all appropriate factors,

including ‘‘common facilities,’’ in

determining whether affiliation exists.

Section 121.103(a)(2) lists certain factors

that may be considered by SBA in

determining whether affiliation exists. It

states that SBA considers factors such as

ownership, management, and

contractual relationships, but does not

intend that list to be exhaustive. SBA

believes that the flexibility to make an

appropriate affiliation determination

was in the proposed regulation, and

does not add another separate basis for

finding affiliation in this rule.

Another commenter objected to the

language of proposed § 121.103(c)(1)

that eliminated the ‘‘presumption’’ of

control for persons that own, control, or

have the power to control 50 percent or

more of a concern’s voting stock

contained in the predecessor regulation

at § 121.401(e)(1). The commenter felt

that the regulation should provide only

for a presumption of control which can

be negated by specific facts in a

particular case (e.g., person may own

over 50% of voting stock, but through

voting agreements or proxies may have

divested control of the company). SBA

disagrees. SBA believes that a person

owning 50 percent of a concern should

be deemed to control that concern

regardless of any voting agreements. A

person that has voting control of 50

percent of a concern, even if he or she

does not own the stock associated with

the voting rights, would also be deemed

to control the concern, but that does not

do away with the interests attendant to

a 50 percent owner.

SBA received 12 comments to its

proposed revision to the definition of

‘‘annual receipts’’ (proposed § 121.104).

Ten commenters enthusiastically

supported the revision of annual

receipts that eliminated the requirement

that businesses operating on a cash basis

maintain a separate set of accrual basis

books. They noted that such a change

will reduce paper work and expense. No

change in the final rule is made to that

provision.

One commenter strongly supported

the exclusion from annual receipts for

amounts collected by another by a

conference management services

provider. Again, SBA concurs, and no

change is made in this final rule.

One commenter recommended that

custom brokers (businesses that collect

customs duties and federal revenues)

should be able to exclude ‘‘passthrough’’ amounts from their annual

receipts in determining their size. The

commenter felt that this added income

distorts their status as a small business.

Pass-through amounts for custom

brokers was not an issue before the

public in SBA’s November 24, 1995

proposed rule. As such, SBA cannot add

such an exclusion in this final rule. In

addition, SBA has not performed an

analysis of this industry to determine

whether such an exclusion is warranted.

In order for such a review to be done,

interested parties must submit a request

to the Assistant Administrator of SBA’s

Size Standards Staff in Washington, DC.

Finally, SBA has clarified what the

term ‘‘receipts’’ encompasses in this

final rule. There was some internal

confusion that the proposed rule would

have required a double counting of

certain amounts by requiring the

inclusion of ‘‘gross or total income’’

plus ‘‘cost of goods sold.’’ No double

counting was intended, nor will it occur

under this regulation. The terms ‘‘total

income,’’ ‘‘gross income,’’ and ‘‘cost of

goods sold’’ come directly from the

definitions of those terms as set forth in

applicable Internal Revenue Service

(IRS) Federal tax return forms. For a

corporation (IRS Form 1120, line 11), a
3282 Federal Register / Vol. 61, No. 21 / Wednesday, January 31, 1996 / Rules and Regulations

sub-chapter S corporation (IRS Form

1120S, line 6), or a partnership (IRS

Form 1065, line 8), the applicable term

is ‘‘total income.’’ For a sole

proprietorship (Schedule C, IRS Form

1040, line 7), the applicable term is

‘‘gross income.’’ To this amount, the

‘‘cost of goods sold’’ (IRS Form 1120,

line 2; IRS Form 1120S, line 2; IRS Form

1065, line 2; IRS Form 1040, Schedule

C, line 4) is added to determine

‘‘receipts’’ for SBA purposes. SBA never

intended to add ‘‘cost of goods sold’’ to

the ‘‘gross receipts or sales’’ figures

identified in these IRS forms, which

would have resulted in some double

counting.

One commenter believed that

proposed § 121.105(c) needed to be

clarified in the final rule. The proposed

rule added that provision to make it

clear that if one entity is replaced by

another having the same assets and

liabilities, the successor firm would not

be treated as a new entity for purposes

of calculating annual receipts or

employees. SBA’s regulations have

historically required a concern that has

acquired or been acquired as an affiliate

during the applicable averaging period

to include the receipts of both concerns

in determining size. See 13 CFR

121.402(e)(1) (1995). That provision is

retained in this final rule at

§ 121.104(d). This new provision is not

intended to repeat that rule. It is

intended to apply to the situation where

a business entity ceases and a ‘‘new’’

business entity emerges with basically

the same assets and liabilities as the

previous entity. In such a case, instead

of treating the successor business entity

as a ‘‘new’’ concern, with

§ 121.104((b)(2) or § 121.106(b)(3)

applying as appropriate, the revenues or

employees of the predecessor concern

will be counted for the full averaging

period. A business entity cannot

reorganize and be able to avoid the full

application of SBA’s size requirements.

One commenter recommended that

the $6 million net worth and $2 million

net income size standards for the

Development Company program should

be increased for inflation because they

have not changed since their inception

in 1980. The numerical value of specific

size standards was not an item proposed

for change in the November 24, 1995

proposed rule. As such, any change at

this time would be contrary to the

requirements of the Administrative

Procedures Act and inappropriate.

Anyone believing that specific size

standards should be altered should

write to the Assistant Administrator of

SBA’s Size Standards Staff at SBA’s

Headquarters, giving detailed reasons

for the desired change.

Two commenters recommended that

the reference to ‘‘net worth’’ in

proposed § 121.301(b)(1) should be to

‘‘tangible net worth,’’ because items

such as goodwill have no tangible value

and should not be taken into account

during calculation of net worth for loan

approval purposes. SBA concurs and

makes that revision in this final rule.

Four commenters opposed the

elimination of a size standard

differential for Redevelopment Areas in

the context of SBA financial assistance

(proposed § 121.301(e)). They supported

keeping the differential for

Redevelopment Areas for concerns

seeking such financial assistance.

Alternatively, if the differential is

eliminated, they proposed increasing all

receipt-based size standards by 25%.

SBA disagrees. The reason for the

differential was to assist distressed

geographical areas needing

development, not to increase all size

standards by 25% for purposes of SBA

financial assistance. Because

Redevelopment Areas have become so

common, however, that is effectively

what has occurred. In addition, unlike

Labor Surplus Areas, which are

reviewed on a regular basis, a

Redevelopment Area remains so

designated once it receives the

designation. Thus, areas that are no

longer distressed remain eligible for the

increased size standards. Given these

circumstances, SBA continues to believe

that the Redevelopment Area

differential should be eliminated and

the final rule reflects that.

One commenter disagreed with the

provision of § 121.302 establishing size

for financial assistance at the time the

application for assistance is received by

SBA, stating that concerns do not make

applications directly to SBA. The

commenter recommended that size

should be determined as of the date of

the funding or commitment to fund.

SBA believes that the date of funding or

commitment to fund is too far along in

the process to determine a concern’s

size. SBA should not use its limited

resources to determine loan-worthiness

of a concern that is ineligible to receive

the financial assistance because of its

size. Thus, SBA believes that size must

be determined when SBA starts its

analysis. That, however, may not occur

when the application is first received by

SBA. Sometimes an application is not

acted on immediately because it is not

complete. In response to this comment

and SBA’s re-evaluation of its position,

the final rule makes the date that an

application is accepted for processing

by SBA as the date that a concern’s size

is determined.

One commenter objected to the

provision of proposed § 121.304 which

permits a business concern with an

existing SBA loan to be considered

small for purposes of refinancing that

loan even though it exceeds the

applicable size standard at the time of

the refinancing. This is a pre-existing

SBA policy that was not changed by the

November 24, 1995 proposed rule. That

policy has existed for many years in

order to protect the Government’s

investment. SBA has added a sentence

to this section in this final rule to clarify

that such refinancing would occur only

where SBA determines that it is

necessary to protect the Government’s

financial interest.

SBA received three comments

regarding waivers to its

nonmanufacturer rule (§ 121.406(b)).

One comment recommended that the

local SBA district office be empowered

with the authority to approve or

disapprove requests for waivers of the

non-manufacturer rule. SBA disagrees.

The statutory authority for such waivers

is given to SBA’s Administrator. This

authority has been delegated to SBA’s

Associate Administrator for Government

Contracting. While SBA has moved

more and more authority to local district

offices wherever possible, SBA believes

that the authority to waive the

nonmanufacturer rule needs to remain

at this level to ensure consistency and

fairness in all SBA offices.

Two commenters responded to SBA’s

proposed implementation of the

nonmanufacturer rule under Simplified

Acquisition Procedures (SAP) (proposed

§ 121.406(d)). One commenter

supported the provision as written and

applauded SBA’s effort to consider the

dilemma of regular dealers, suppliers

and distributors under SAP. The other

commenter recommended that the

$25,000 ceiling below which a

nonmanufacturer need not supply the

product of a small business (provided

that the product is manufactured or

produced in the United States) should

be increased to $100,000. That

commenter reasoned that the ceiling

was $25,000 when the Small Purchase

amount was $25,000. Since SAP have

replaced Small Purchase Procedures

and the threshold for SAP is $100,000,

the commenter believed that the

nonmanufacturer ceiling should

similarly be raised to $100,000.

Existing SBA regulations (13 CFR

121.906 and 121.1106) implement

amendments made in 1988 to the Small

Business Act (15 U.S.C. 637(a)(17)).

Those regulations specify that to qualify

for a small business set-aside or section

8(a) procurement of a manufactured or

processed product, a small
Federal Register / Vol. 61, No. 21 / Wednesday, January 31, 1996 / Rules and Regulations 3283

nonmanufacturer must provide the

product of a domestic small

manufacturer. Specifically, an offeror

that is not the manufacturer of the

product (1) must itself be a small

business concern, and (2) must also

supply a product manufactured by a

domestic small business concern. This

requirement is commonly referred to as

the ‘‘nonmanufacturer rule.’’ SBA may

waive the nonmanufacturer rule if one

of the following conditions exists: (1)

SBA determines that no small business

manufacturer can reasonably be

expected to offer a product meeting the

specifications required by a solicitation

(individual waiver); or (2) SBA

determines that no small business

manufacturer of an item is available to

participate in the federal market

generally (class waiver).

On May 26, 1995 SBA published in

the Federal Register (60 FR 27924) a

proposed rule that would require a

small business dealer or

nonmanufacturer to provide the product

of a small manufacturer on all small

business set-aside or section 8(a) supply

contracts over $2,500, including those

processed under SAP. This proposed

rule was not finalized, and the

comments received by SBA and further

study of the issue persuaded SBA that

the May 26th proposed rule should not

be adopted as final. As indicated above,

the section in the November 24th

proposed rule dealing with this issue

resulted in only two comments. SBA

has decided to finalize the rule as

proposed on November 24th. In order to

set forth its reasoning on this matter,

SBA discusses below the comments

earlier received in response to its May

26th proposed rule.

SBA’s May 26th proposed rule would

have extended the nonmanufacturer

rule to all procurements processed

under the SAP established by the

Federal Acquisition Streamlining Act

(FASA) of 1994. SBA offered two

alternatives to this proposal, and invited

comments on both along with the

proposal. SBA’s first alternative was to

exempt from the nonmanufacturer rule

contracts of $100,000 or less. The

second alternative was to exempt

contracts of $25,000 or less. (Contracts

below the micro-purchases level of

$2,500 would be exempt regardless of

the approach in the proposed rule or

either alternative.) This second

alternative was the one proposed as part

of SBA’s November 24, 1995 proposed

revision to the entire Part 121.

After considering the forty comments

received in response to the May 26th

proposed rule, as well as the two

received in response to the November

24th proposed rule, SBA has concluded

that applying the nonmanufacturer rule

to all procurements reserved for small

business, including those handled

under SAP, would place inappropriate

and substantial administrative burdens

on a great number of small-dollar value

contracts. Given the large volume of

contracts of $25,000 or less (98 percent

of procurement actions), contracting

officers would likely experience

burdensome delays in order to identify

small manufacturer sources and to

verify that small dealers were supplying

the product of domestic small

manufacturers. The likely significant

increase in requests for waivers of the

nonmanufacturer rule would overly

burden contracting agencies and the

SBA, creating further delays in the

procurement process. SBA also has

concluded that adoption of the

proposed rule could have an

undesirable effect of diminishing

opportunities for small dealers in the

federal market. For many products

purchased in small-dollar quantities,

there often appears to be few or no small

business manufacturers participating in

the federal market. Consequently, many

dealers who have been supplying the

federal government with products on

contracts of $25,000 or less would,

under the May 26th proposed rule, not

be eligible for an award of a set-aside

contract since they do not have or could

not obtain products of a small

manufacturer.

At the same time, SBA strongly

believes that an exemption from the

nonmanufacturer rule for contracts

greater than $25,000 would have a

substantial damaging effect on domestic

small manufacturers. In fiscal years

1991 through 1993, small manufacturers

averaged over $500 million in set-aside

and 8(a) contracts ranging between

$25,000 and $100,000. An exemption

from the nonmanufacturer rule for these

procurements would potentially shift

much of this contracting from small to

large manufacturers, and would defeat

the very purpose of the

nonmanufacturer rule.

The selection of the $25,000 level for

applying the nonmanufacturer rule to

contracts reserved for small business is

consistent with the threshold formerly

established for small purchase

procedures (discontinued under FASA)

and balances the important objectives of

simplifying the procurement process

with continuing to ensure that most of

the benefits of procurements reserved

for small business actually flow to small

business. Utilizing this threshold of

$25,000 will continue the level of

competition between small and large

manufacturers that existed under small

purchase procedures. A higher

threshold would introduce a new level

of competition that would adversely

affect small manufacturing enterprises.

At the same time, small business dealers

will continue to have the same level of

contract opportunities at $25,000 and

below that they formerly had under

small purchase procedures. That is, they

will continue to be able to provide the

products of large manufacturers on

procurements of $25,000 or less.

Selecting this threshold will add no new

requirements to the vast majority of

smaller-sized procurements.

SBA received 40 comments in

response to the May 26th proposed rule.

Of the 40 comments, ten were from

federal contracting activities, one from a

State University Economic Development

Institute (EDI), 28 from businesses (27

dealers and 1 manufacturer), and one

was from a trade association. All but

one of the commenters opposed

applying the nonmanufacturer rule as

the May 26th rule proposed to do. The

one, a federal contracting activity,

indicated its commitment to supporting

the rule however implemented. Thirtysix commenters supported the first

alternative of the proposed rule (a

$100,000 threshold), and three indicated

some support for the second alternative

(a $25,000 threshold).

The ten federal contracting activities

and one EDI that commented on the

proposed rule favored exempting

procurements of $100,000 or less from

the nonmanufacturer rule. They believe

that applying the rule to all

procurements reserved for small

business will place additional

administrative burdens on contracting

personnel, which is contrary to the

intent of FASA. They pointed out that

the proposed policy could result in a

reluctance on the part of some

contracting personnel to set aside

procurements for small business, thus

actually reducing small business

participation and increasing government

costs because of lessened cost

competitiveness. They also anticipated a

need to request more waivers, causing

administrative burdens and processing

delays at the SBA. Two of the federal

contracting activities indicated that they

would support retaining the $25,000

threshold as a practical alternative to

requiring the application of the

nonmanufacturer rule to all contracts

over $2,500. The EDI’s comments, while

supporting some of the above, more

fully describe the effects of the proposed

rule upon small dealers and

distributors. (SBA addresses the effects

upon dealers later in this discussion.)

SBA recognizes that these points are

legitimate concerns of federal

procurement personnel with regard to
3284 Federal Register / Vol. 61, No. 21 / Wednesday, January 31, 1996 / Rules and Regulations

the proposed rule. Therefore, SBA has

decided that the nonmanufacturer rule

shall apply only to those contracts set

aside for small business that are above

$25,000. The exemption from the

nonmanufacturer rule for contracts

processed under small purchase

procedures of $25,000 and below had

proven quite workable in the past. SBA

agrees that establishing a $100,000

threshold for the nonmanufacturer rule

would certainly further simplify the

procurement process and reduce the

administrative burden on contracting

officers. However, this administrative

relief would come at significant expense

to domestic small manufacturers who

have traditionally provided products in

response to procurements set aside for

small business. With this final rule,

administrative burdens will be no more

and no less than they had been under

small purchase procedures. Also, small

business set-aside opportunities would

not be diminished as a result of

extending the nonmanufacturer rule to

previously exempted procurements.

SBA has concluded that the adverse

effect of a $100,000 threshold upon such

a significant part of the market for small

manufacturers is not appropriate, and

that the $25,000 threshold strikes a

proper balance with the FASA goal of

reducing administrative matters

associated with federal procurement.

To alleviate the potential delays in the

procurement process by applying the

nonmanufacturer rule to procurements

reserved for small business, two federal

contracting activities recommended that

SBA delegate waiver authority to

contracting officers for these

procurements. The SBA does not agree

with this recommendation. Delegating

this decision to literally thousands of

contracting offices would likely lead to

an inconsistent application of the

nonmanufacturer rule. However, to

address concerns regarding delays in the

procurement process, SBA will attempt

to complete the processing of individual

waiver requests in connection with

procurements processed under

simplified acquisition procedures

within five (5) business days of the

receipt of a complete waiver request

instead of the normal fifteen (15)

business days. Generally, a contracting

office submits, and SBA processes, a

waiver request before it issues its

solicitation. The markedly reduced time

involved should lessen significantly any

direct negative impact on small

manufacturers or dealers or on the

procurement process.

All but one of the 28 business

commenters and the sole trade

association commenting are associated

with one affected industry, namely

military surplus aircraft parts, and all

supported the adoption of the $100,000

threshold. Firms in this industry

purchase at auction military surplus

aircraft parts from the Department of

Defense (DoD), inventory them, and

resell them to U.S. and friendly foreign

military services. Items they purchase

are generally new and unused, and are

products almost exclusively of large

manufacturers. As suppliers of products

they do not manufacture, they would be

unable to compete on small business

set-aside and section 8(a) procurements

if the nonmanufacturer rule were

applicable.

Uniformly these commenters favored

adoption of the alternative that would

establish a $100,000 threshold instead

of the proposed rule. They stated that

the May 26, 1995 proposal to apply the

nonmanufacturer rule to all

procurements reserved for small

business would harm small dealers of

military surplus aircraft parts by

effectively rendering them unable to

compete on most procurements reserved

for small business. This diminished

opportunity to compete would result

because there are few DoD approved

small manufacturers of military aircraft

parts, and most procurements are below

the $100,000 simplified acquisition

threshold. With few or no small

manufacturers to supply products for

these dealers, more federal solicitations

would likely become open and

unrestricted. On unrestricted

procurements, these dealers believe they

are at a competitive disadvantage when

placed into direct competition with the

same large manufacturers whose

products they would propose to supply.

Therefore, they believe such an

application of the nonmanufacturer rule

would in fact harm small businesses,

and benefit large defense contractors.

SBA shares the concern about the

impact of the proposed rule on the

opportunities for small dealers in the

federal market. As these comments

point out, as well as comments received

from several of the federal contracting

activities, small dealers find it difficult

to comply with the nonmanufacturer

rule on small-dollar contracts due to the

limited number of small manufacturer

sources. To address this concern, the

final rule re-establishes an exemption of

the nonmanufacturer rule on contracts

of $25,000 or less. The SBA, however,

does not believe that a higher threshold

is in the best interests of all small

businesses.

As stated in this final rule as well as

the May 26th proposed rule, SBA is

particularly concerned about the impact

on small business manufacturers of an

exemption to the nonmanufacturer rule.

Participation of small business in the

federal procurement of aircraft parts

offers an excellent example of the

reasons for the SBA’s concerns. In fiscal

year 1993, small manufacturers of

aircraft parts received direct awards of

over $20 million in set-aside and 8(a)

contracts that ranged between $25,000

and $100,000. (This figure does not

include set-aside and 8(a) contracts for

products that small manufacturers

provided through small dealers.) An

exemption of the nonmanufacturer rule

to small business set-aside

procurements between $25,000 and

$100,000 could significantly reduce the

opportunities for small business

manufacturers. The SBA has found that

a number of other industries would be

affected in a similar manner if the

$100,000 threshold were adopted. In

recognition of the business practices of

small dealers in the federal market,

while at the same time protecting

opportunities for small manufacturers

and ensuring that the substantial value

of small business set-asides flow to

small business, the SBA believes that

this final rule is in the overall best

interest of small business.

The commenting membership of the

association of dealers in military

surplus aircraft parts also emphasized

the unique character of their

commodity, and they requested that it

be treated as such. As a minimum

alternative to the proposed rule, they

requested that SBA grant a class waiver

for military aircraft spare parts. As a

response to this alternative, the Agency

notes that §§ 121.1201–121.1205 of this

final rule provide the policies and

procedures that apply to all class

waivers of the nonmanufacturer rule.

SBA will consider a request for a class

waiver for military surplus aircraft parts

that is submitted with adequate support

in accordance with the procedures laid

out in the preceding reference.

The only business commenter not

associated with the military surplus

aircraft parts industry believes that the

proposed rule would be inconsistent

with U.S. policy regarding free trade

barriers with its global trading partners.

SBA disagrees. In accordance with the

General Agreement on Tariffs and

Trade, the North American Free Trade

Agreement and the Canadian Free Trade

Agreement, governments may establish

procurement preference programs to

assist small business, and this rule

pertains to policies concerning the

eligibility of business concerns who

may participate in U.S. small business

procurement programs.

SBA received three comments to

§ 121.603 of the November 24th

proposed rule. The first comment
Federal Register / Vol. 61, No. 21 / Wednesday, January 31, 1996 / Rules and Regulations 3285

recommended that the section be

revised to include the time at which size

is determined for specific 8(a)

subcontracts, believing that SBA must

have inadvertently omitted this

requirement from the November 24th

proposed rule. That requirement was

not omitted from the proposed rule, but,

rather, appeared in proposed § 121.404.

Proposed § 121.401 stated that the

requirements set forth in §§ 121.401–

121.412 applied to procurement

programs including SBA’s Minority

Enterprise Development (i.e., the 8(a))

program. Proposed § 121.404 set forth

the time at which size is determined for

these procurement programs. While the

time at which size is determined for 8(a)

subcontracts continues to be contained

in § 121.404, the final rule adds a cross

reference in § 121.603 to § 121.404 for

clarification.

The second comment believed that

notification of size verification by SBA

(proposed § 121.603(b)) is an

unnecessary burden on SBA. SBA

believes that such notification is needed

to ensure fairness and the integrity of

the program, and that any self-imposed

burden is outweighed by this benefit.

The last comment suggested that

§ 121.603(c) be eliminated as

unnecessary and redundant. This

provision does not appear elsewhere in

Part 121, and SBA believes that it is

needed within the size provisions

specifically relating to the 8(a) program.

As part of the supplementary

information to the November 24, 1995

proposed rule, SBA published a table of

statutory and regulatory size standards

established by agencies other than SBA.

That table is not repeated in this final

rule. Anyone with an interest in size

standards established by other agencies

for specific programs within their

authority should consult the table

published with the proposed rule. 60 FR

57982, 57988.

Compliance With Executive Orders

12612, 12778, and 12866, the

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

et seq.), and the Paperwork Reduction

Act (44 U.S.C. Ch. 35)

SBA believes that this final rule will

have a significant impact on a

substantial number of small entities

within the meaning of the Regulatory

Flexibility Act, 5 U.S.C. 601, et seq. In

addition, this rule constitutes a

significant regulatory action for the

purpose of Executive Order 12866. A

regulatory assessment and a regulatory

flexibility analysis follow:

(1) Description of Entities to Which This

Rule Applies

This rule will primarily apply to

small business nonmanufacturers

(wholesale trade and retail trade firms)

and will allow them to furnish the

product of any manufacturer on

procurements of $25,000 or less. Also,

small business manufacturers will have

to compete on certain procurements

with small nonmanufacturers supplying

products of large manufacturers. The

lack of detailed data on contracts of

$25,000 or less precludes an estimate of

the number of small nonmanufacturers

and small manufacturers this rule will

affect. However, comments on the

proposed rule suggest that a

significantly greater number of small

nonmanufacturers will be impacted by

this rule than small manufacturers.

(2) Description of Potential Benefits of

This Rule

The benefits of this rule are threefold.

First, small business nonmanufacturers

will maintain the same procurement

opportunities for contracts of $25,000

and below as they had under small

purchase procedures. Although the

amount of contracting cannot be

estimated, it does represent a significant

proportion of the $7.9 billion awarded

to small businesses under small

purchase procedures in FY 1993.

Second, small manufacturers will have

the same or greater level of procurement

opportunities under the simplified

acquisition threshold as they had under

small business set-aside and 8(a)

procurements of $25,000 to $100,000.

As discussed in the proposed rule, small

manufacturers have received over $500

million annually in set-aside and 8(a)

contracts within this dollar range.

Finally, administrative burdens to small

nonmanufacturers and contracting

officers will be reduced since there will

be no need to determine the size status

of a manufacturing source on thousands

of small-dollar contracts.

(3) Description of Potential Costs of This

Rule

SBA believes there will be minimal

costs to the federal government by

reserving procurements of $25,000 or

less to small nonmanufacturers. All

small business set-aside and section 8(a)

contracts are expected to be awarded at

no more than fair-market value.

Contracting officers, who determine that

on a given procurement there will not

be two or more small businesses

competitive in market price, quality and

delivery, may issue an unrestricted

procurement. Therefore, there should be

no significant increased costs to the

government.

(4) Description of the Potential Net

Benefits of the Rule

SBA believes that the benefits to small

business exceed any costs to federal

procurement as a result of this final

rule. In the May 26th proposed rule,

SBA expressed its belief that small

business opportunities would be greater

if small nonmanufacturers were

required to supply the product of a

domestic small business manufacturer.

In light of the comments received, SBA

has concluded that small

nonmanufacturers participate much

more significantly in small-dollar

procurements than do small

manufacturers. Thus, the net benefits of

this final rule to small dealers, in terms

of federal contracting opportunities for

small business, would be substantially

greater than the net benefits to small

manufacturers from the proposed rule.

(5) Legal Basis for This Rule

The legal basis for this rule is sections

3(a), 5(a), 8(a) and 15(a) of the Small

Business Act, 15 U.S.C. 632(a),

634(b)(6), 637(a) and 644(a).

(6) Federal Rules

There are no federal rules that

duplicate, overlap or conflict with this

final rule. SBA has exclusive statutory

jurisdiction in establishing size

standards. In establishing the $100,000

threshold for simplified acquisition

procedures under which all

procurements are reserved exclusively

for small business, FASA did not

address the application of the

nonmanufacturer rule.

(7) Significant Alternatives to This Rule

In compliance with the Regulatory

Flexibility Act, SBA considered two

alternatives in its proposed rule of May

26, 1995. One alternative is the

proposed rule itself, which would have

the nonmanufacturer rule apply to all

small business set-aside and section 8(a)

procurements over $2,500. In proposing

that rule, SBA offered and requested

comments on two alternatives. The

proposed rule, together with the

alternatives, are discussed in the

‘‘Supplementary Information,’’ above.

SBA has concluded for the reasons more

fully presented above to adopt the

second alternative.

For purposes of the Paperwork

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

certifies that this final rule contains no

new reporting or recordkeeping

requirements.

For purposes of Executive Order

12612, SBA certifies that this rule does
3286 Federal Register / Vol. 61, No. 21 / Wednesday, January 31, 1996 / Rules and Regulations

not have any federalism implications

warranting the preparation of a

Federalism Assessment.

For purposes of Executive Order

12778, SBA certifies that this rule is

drafted, to the extent practicable, in

accordance with the standards set forth

in Section 2 of that Order.

List of Subjects in 13 CFR Part 121

Government procurement,

Government property, Grant programs—

business, Individuals with disabilities,

Loan programs—business, Small

businesses.

Accordingly, pursuant to the

authority set forth in sections 3(a) and

5(b)(6) of the Small Business Act, 15

U.S.C. 632(a) and 634(b)(6), SBA hereby

revises part 121 of Title 13, Code of

Federal Regulations (CFR), to read as

follows:

PART 121—SMALL BUSINESS SIZE

REGULATIONS

Subpart A—Size Eligibility Provisions and

Standards

Provisions of General Applicability

Sec.

121.101 What are SBA size standards?

121.102 How does SBA establish size

standards?

121.103 What is affiliation?

121.104 How does SBA calculate annual

receipts?

121.105 How does SBA define ‘‘business

concern or concern’’?

121.106 How does SBA calculate number of

employees?

121.107 How does SBA determine a

concern’s ‘‘primary industry’’?

121.108 What are the penalties for

misrepresentation of size status?

Size Standards Used to Define Small

Business Concerns

121.201 What size standards has SBA

identified by Standard Industrial

Classification codes?

Size Eligibility Requirements for SBA

Financial Assistance

121.301 What size standards are applicable

to financial assistance programs?

121.302 When does SBA determine the size

status of an applicant?

121.303 What size procedures are used by

SBA before it makes a formal size

determination?

121.304 What are the size requirements for

refinancing an existing SBA loan?

121.305 What size eligibility requirements

exist for obtaining business loans

relating to particular procurements?

Size Eligibility Requirements for

Government Procurement

121.401 What procurement programs are

subject to size determinations?

121.402 What size standards are applicable

to procurement assistance programs?

121.403 Are SBA size determinations and

SIC code designations binding on

parties?

121.404 When does SBA determine the size

status of a business concern?

121.405 May a business concern self-certify

its small business size status?

121.406 How does a small business concern

qualify to provide manufactured

products under small business set-aside

or MED procurements?

121.407 What are the size procedures for

multiple item procurements?

121.408 What are the size procedures for

SBA’s Certificate of Competency

Program?

121.409 What size standard applies in an

unrestricted procurement for Certificate

of Competency purposes?

121.410 What are the size standards for

SBA’s Section 8(d) Subcontracting

Program?

121.411 What are the size procedures for

SBA’s Section 8(d) Subcontracting

Program?

121.412 What are the size procedures for

partial small business set-asides?

Size Eligibility Requirements for Sales or

Lease of Government Property

121.501 What programs for sales or leases

of Government property are subject to

size determinations?

121.502 What size standards are applicable

to programs for sales or leases of

Government property?

121.503 Are SBA size determinations

binding on parties?

121.504 When does SBA determine the size

status of a business concern?

121.505 What is the effect of a selfcertification?

121.506 What definitions are important for

sales or leases of Government-owned

timber?

121.507 What are the size standards and

other requirements for the purchase of

Government-owned timber (other than

Special Salvage timber)?

121.508 What are the size standards and

other requirements for the purchase of

Government-owned Special Salvage

Timber?

121.509 What is the size standard for

leasing of Government land for coal

mining?

121.510 What is the size standard for

leasing of Government land for uranium

mining?

121.511 What is the size standard for

buying Government-owned petroleum?

121.512 What is the size standard for

stockpile purchases?

Size Eligibility Requirements for the

Minority Enterprise Development (MED)

Program

121.601 What is a small business for

purposes of admission to SBA’s Minority

Enterprise Development (MED) Program?

121.602 At what point in time must a MED

applicant be small?

121.603 How does SBA determine whether

a Participant is small for a particular

MED subcontract?

121.604 Are MED Participants considered

small for purposes of other SBA

assistance?

Size Eligibility Requirements for the Small

Business Innovation Research (SBIR)

Program

121.701 What SBIR programs are subject to

size determinations?

121.702 What size standards are applicable

to the SBIR programs?

121.703 Are formal size determinations

binding on parties?

121.704 When does SBA determine the size

status of a business concern?

121.705 Must a business concern selfcertify its size status?

Size Eligibility Requirements for Paying

Reduced Patent Fees

121.801 May patent fees be reduced if a

concern is small?

121.802 What size standards are applicable

to the reduced patent fees program?

121.803 Are formal size determinations

binding on parties?

121.804 When does SBA determine the size

status of a business concern?

121.805 May a business concern self-certify

its size status?

Size Eligibility Requirements for Compliance

With Programs of Other Agencies

121.901 Can other Government agencies

obtain SBA size determinations?

121.902 What size standards are applicable

to programs of other agencies?

121.903 When does SBA determine the size

status of a business concern?

Procedures for Size Protests and Requests

for Formal Size Determinations

121.1001 Who may initiate a size protest or

a request for formal size determination?

121.1002 Who makes a formal size

determination?

121.1003 Where should a size protest be

filed?

121.1004 What time limits apply to size

protests?

121.1005 How must a protest be filed with

the contracting officer?

121.1006 When will a size protest be

referred to an SBA Government

Contracting Area Office?

121.1007 Must a protest of size status relate

to a particular procurement and be

specific?

121.1008 What happens after SBA receives

a size protest or a request for a formal

size determination?

121.1009 What are the procedures for

making the size determination?

121.1010 How does a concern become

recertified as a small business?

Appeals of Size Determinations and SIC

Code Designations

121.1101 Are formal size determinations

subject to appeal?

121.1102 Are SIC code designations subject

to appeal?

121.1103 What are the procedures for

appealing a SIC code designation?
Federal Register / Vol. 61, No. 21 / Wednesday, January 31, 1996 / Rules and Regulations 3287

Subpart B—Other Applicable Provisions

Waivers of the Nonmanufacturer Rule for

Classes of Products and Individual Contracts

121.1201 What is the Nonmanufacturer

Rule?

121.1202 When will a waiver of the

Nonmanufacturer Rule be granted for a

class of products?

121.1203 When will a waiver of the

Nonmanufacturer Rule be granted for an

individual contract?

121.1204 What are the procedures for

requesting and granting waivers?

121.1205 How is a list of previously granted

class waivers obtained?

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

637(a) and 644(c); and Pub. L. 102–486, 106

Stat. 2776, 3133.

Subpart A—Size Eligibility Provisions

and Standards

Provisions of General Applicability

§ 121.101 What are SBA size standards?

SBA’s size standards define whether a

business entity is small and, thus,

eligible for Government programs and

preferences reserved for ‘‘small

business’’ concerns. Size standards have

been established for types of economic

activity, or industry, generally under the

Standard Industrial Classification (SIC)

System. The SIC System is described in

the ‘‘Standard Industrial Classification

Manual’’ published by the Office of

Management and Budget, Executive

Office of the President, and sold by the

U.S. Government Printing Office,

Superintendent of Documents, P.O. Box

371954, Pittsburgh, PA 15250–7954.

The SIC System assigns four-digit SIC

codes to all economic activity within

ten major divisions. Section 121.201

describes the size standards now

established. A full table matching a size

standard with each four-digit SIC code

is also published annually by SBA in

the Federal Register.

§ 121.102 How does SBA establish size

standards?

(a) SBA considers economic

characteristics comprising the structure

of an industry, including degree of

competition, average firm size, start-up

costs and entry barriers, and

distribution of firms by size. It also

considers technological changes,

competition from other industries,

growth trends, historical activity within

an industry, unique factors occurring in

the industry which may distinguish

small firms from other firms, and the

objectives of its programs and the

impact on those programs of different

size standard levels.

(b) As part of its review of a size

standard, SBA will investigate if any

concern at or below a particular

standard would be dominant in the

industry. SBA will take into

consideration market share of a concern

and other appropriate factors which

may allow a concern to exercise a major

controlling influence on a national basis

in which a number of business concerns

are engaged. Size standards seek to

ensure that a concern that meets a

specific size standard is not dominant in

its field of operation.

(c) Please address any requests to

change existing size standards or

establish new ones for emerging

industries to the Assistant

Administrator for Size Standards, Small

Business Administration, 409 3rd Street,

S.W., Washington, D.C. 20416.

§ 121.103 What is affiliation?

(a) General Principles of Affiliation.

(1) Concerns are affiliates of each other

when one concern controls or has the

power to control the other, or a third

party or parties controls or has the

power to control both.

(2) SBA considers factors such as

ownership, management, previous

relationships with or ties to another

concern, and contractual relationships,

in determining whether affiliation

exists.

(3) Individuals or firms that have

identical or substantially identical

business or economic interests, such as

family members, persons with common

investments, or firms that are

economically dependent through

contractual or other relationships, may

be treated as one party with such

interests aggregated.

(4) SBA counts the receipts or

employees of the concern whose size is

at issue and those of all its domestic and

foreign affiliates, regardless of whether

the affiliates are organized for profit, in

determining the concern’s size.

(b) Exclusion from affiliation

coverage. (1) Business concerns owned

in whole or substantial part by

investment companies licensed, or

development companies qualifying,

under the Small Business Investment

Act of 1958, as amended, are not

considered affiliates of such investment

companies or development companies.

(2) Business concerns owned and

controlled by Indian Tribes, Alaska

Regional or Village Corporations

organized pursuant to the Alaska Native

Claims Settlement Act (43 U.S.C. 1601),

Native Hawaiian Organizations, or

Community Development Corporations

authorized by 42 U.S.C. 9805 are not

considered affiliates of such entities, or

with other concerns owned by these

entities solely because of their common

ownership.

(3) Business concerns which are part

of an SBA approved pool of concerns for

a joint program of research and

development as authorized by the Small

Business Act are not affiliates of one

another because of the pool.

(4) 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.

(5) For financial, management or

technical assistance under the Small

Business Investment Company program,

an applicant concern is not affiliated

with the investors listed in paragraphs

(b)(5)(i) through (vi) of this section if the

investors do not control the concern

except under those circumstances set

forth in § 107.865(c) or (d) of this

chapter. For purposes of this paragraph

(b)(5), ‘‘control’’ is determined under

§ 107.865 of this chapter.

(i) Venture capital operating

companies, as defined in the U.S.

Department of Labor regulations found

at 29 CFR 2510.3–101(d);

(ii) Employee benefit or pension plans

established and maintained by the

Federal government or any state, or their

political subdivisions, or any agency or

instrumentality thereof, for the benefit

of employees;

(iii) Employee benefit or pension

plans within the meaning of the

Employee Retirement Income Security

Act of 1974, as amended (29 U.S.C.

1001, et seq.);

(iv) Charitable trusts, foundations,

endowments, or similar organizations

exempt from Federal income taxation

under section 501(c) of the Internal

Revenue Code of 1986, as amended (26

U.S.C. 501(c));

(v) Investment companies registered

under the Investment Company Act of

1940, as amended (1940 Act) (15 U.S.C.

80a-1, et seq.); and

(vi) Investment companies, as defined

under the 1940 Act, which are not

registered under the 1940 Act because

they are beneficially owned by less than

100 persons, if the company’s sales

literature or organizational documents

indicate that its principal purpose is

investment in securities rather than the

operation of commercial enterprises.

(6) A protege firm is not an affiliate of

a mentor firm solely because the protege

firm receives assistance from the mentor

firm under Federal Mentor-Protege

programs.

(c) Affiliation based on stock

ownership. (1) A person is an affiliate of

a concern if the person owns or

controls, or has the power to control 50

percent or more of its voting stock, or

a block of stock which affords control

because it is large compared to other

outstanding blocks of stock.
3288 Federal Register / Vol. 61, No. 21 / Wednesday, January 31, 1996 / Rules and Regulations

(2) If two or more persons each owns,

controls or has the power to control less

than 50 percent of the voting stock of a

concern, with minority holdings that are

equal or approximately equal in size,

but the aggregate of these minority

holdings is large as compared with any

other stock holding, each such person is

presumed to be an affiliate of the

concern.

(d) Affiliation arising under stock

options, convertible debentures, and

agreements to merge. Since stock

options, convertible debentures, and

agreements to merge (including

agreements in principle) affect the

power to control a concern, SBA treats

them as though the rights granted have

been exercised (except that an affiliate

cannot use them to appear to terminate

control over another concern before it

actually does so). SBA gives present

effect to an agreement to merge or sell

stock whether such agreement is

unconditional, conditional, or finalized

but unexecuted. Agreements to open or

continue negotiations towards the

possibility of a merger or a sale of stock

at some later date are not considered

‘‘agreements in principle’’ and, thus, are

not given present effect.

(e) Affiliation based on common

management. Affiliation arises where

one or more officers, directors or general

partners controls the board of directors

and/or the management of another

concern.

(f) Affiliation based on joint venture

arrangements. (1) Parties to a joint

venture are affiliates if any one of them

seeks SBA financial assistance for use in

connection with the joint venture.

(2) Concerns bidding on a particular

procurement or property sale as joint

venturers are affiliated with each other

with regard to performance of that

contract.

(3) A contractor and subcontractor are

treated as joint venturers if the

ostensible subcontractor will perform

primary and vital requirements of a

contract or if the prime contractor is

unusually reliant upon the ostensible

subcontractor. All requirements of the

contract are considered in reviewing

such relationship, including contract

management, technical responsibilities,

and the percentage of subcontracted

work.

(4) For size purposes, a concern must

include in its revenues its proportionate

share of joint venture receipts.

(g) Affiliation based on franchise and

license agreements. The restraints

imposed on a franchisee or licensee by

its franchise or license agreement

relating to standardized quality,

advertising, accounting format and other

similar provisions, generally will not be

considered in determining whether the

franchisor or licensor is affiliated with

the franchisee or licensee provided the

franchisee or licensee has the right to

profit from its efforts and bears the risk

of loss commensurate with ownership.

Affiliation may arise, however, through

other means, such as common

ownership, common management or

excessive restrictions upon the sale of

the franchise interest.

§ 121.104 How does SBA calculate annual

receipts?

(a) Definitions. In determining annual

receipts of a concern:

(1) Receipts means ‘‘total income’’ (or

in the case of a sole proprietorship,

‘‘gross income’’) plus the ‘‘cost of goods

sold’’ as these terms are defined or

reported on Internal Revenue Service

(IRS) Federal tax return forms (Form

1120 for corporations; Form 1120S for

Subchapter S corporations; Form 1065

for partnerships; and Form 1040,

Schedule F for farm or Schedule C for

other sole proprietorships). However,

the term receipts excludes net capital

gains or losses, taxes collected for and

remitted to a taxing authority if

included in gross or total income,

proceeds from the transactions between

a concern and its domestic or foreign

affiliates (if also excluded from gross or

total income on a consolidated return

filed with the IRS), and amounts

collected for another by a travel agent,

real estate agent, advertising agent, or

conference management service

provider.

(2) Completed fiscal year means a

taxable year including any short period.

Taxable year and short period have the

meaning attributed to them by the IRS.

(3) Unless otherwise defined in this

section, all terms shall have the

meaning attributed to them by the IRS.

(b) Period of measurement. (1) Annual

receipts of a concern which has been in

business for 3 or more completed fiscal

years means the receipts of the concern

over its last 3 completed fiscal years

divided by three.

(2) Annual receipts of a concern

which has been in business for less than

3 complete fiscal years means the

receipts for the period the concern has

been in business divided by the number

of weeks in business, multiplied by 52.

(3) Annual receipts of a concern

which has been in business 3 or more

complete fiscal years but has a short

year as one of those years means the

receipts for the short year and the two

full fiscal years divided by the number

of weeks in the short year and the two

full fiscal years, multiplied by 52.

(c) Use of information other than the

Federal tax return. Where other

information gives SBA reason to regard

Federal Income Tax returns as false,

SBA may base its size determination on

such other information.

(d) Annual receipts of affiliates. (1) If

a concern has acquired an affiliate or

been acquired as an affiliate during the

applicable averaging period or before

small business self-certification, the

annual receipts in determining size

status include the receipts of both firms.

Furthermore, this aggregation applies

for the entire applicable period used in

computing size rather than only for the

period after the affiliation arose.

Receipts are determined for the concern

and its affiliates in accordance with

paragraph (b) of this section even

though this may result in different

periods being used to calculate annual

receipts.

(2) The annual receipts of a former

affiliate are not included as annual

receipts if affiliation ceased before the

date used for determining size. This

exclusion of annual receipts of a former

affiliate applies during the entire period

used in computing size, rather than only

for the period after which the affiliation

ceased .

§ 121.105 How does SBA define ‘‘business

concern or concern’’?

(a) A business concern eligible for

assistance from SBA as a small business

is a business entity organized for profit,

with a place of business located in the

United States, and which operates

primarily within the United States or

which makes a significant contribution

to the U.S. economy through payment of

taxes or use of American products,

materials or labor.

(b) A business concern may be in the

legal form of an individual

proprietorship, partnership, limited

liability company, corporation, joint

venture, association, trust or

cooperative, except that where the form

is a joint venture there can be no more

than 49 percent participation by foreign

business entities in the joint venture.

(c) A firm will not be treated as a

separate business concern if a

substantial portion of its assets and/or

liabilities are the same as those of a

predecessor entity. In such a case, the

annual receipts and employees of the

predecessor will be taken into account

in determining size.

§ 121.106 How does SBA calculate number

of employees?

(a) Employees counted in determining

size include all individuals employed

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

other basis. SBA will consider the

totality of the circumstances, including

factors relevant for tax purposes, in
Federal Register / Vol. 61, No. 21 / Wednesday, January 31, 1996 / Rules and Regulations 3289

determining whether individuals are

employees of the concern in question.

(b) Where the size standard is number

of employees, the method for

determining a concern’s size includes

the following principles:

(1) The average number of employees

of the concern is used (including the

employees of its domestic and foreign

affiliates) based upon numbers of

employees for each of the pay periods

for the preceding completed 12 calendar

months.

(2) Part-time and temporary

employees are counted the same as fulltime employees.

(3) If a concern has not been in

business for 12 months, the average

number of employees is used for each of

the pay periods during which it has

been in business.

(4) The treatment of employees of

former affiliates or recently acquired

affiliates is the same as for size

determinations using annual receipts in

§ 121.104(d).

§ 121.107 How does SBA determine a

concern’s ‘‘primary industry’’?

In determining the primary industry

in which a concern or a concern

combined with its affiliates is engaged,

SBA considers the distribution of

receipts, employees and costs of doing

business among the different industries

in which business operations occurred

for the most recently completed fiscal

year. SBA may also consider other

factors, such as the distribution of

patents, contract awards, and assets.

§ 121.108 What are the penalties for

misrepresentation of size status?

In addition to other laws which may

be applicable, section 16(d) of the Small

Business Act, 15 U.S.C. 645(d), provides

severe criminal penalties for knowingly

misrepresenting the small business size

status of a concern in connection with

procurement programs. Section 16(a) of

the Act also provides, in part, for

criminal penalties for knowingly

making false statements or

misrepresentations to SBA for the

purpose of influencing in any way the

actions of the Agency.

Size Standards Used To Define Small

Business Concerns

§ 121.201 What size standards has SBA

identified by Standard Industrial

Classification codes?

The size standards described in this

section apply to all SBA programs

unless otherwise specified. The size

standards themselves are expressed

either in number of employees or

annual receipts in millions of dollars,

unless otherwise specified. The number

of employees or annual receipts

indicates the maximum allowed for a

concern and its affiliates to be

considered small. The following is a

listing of size standards for industries

under the SIC System. Size standards

are listed by Division and apply to all

industries in that Division except those

specifically listed with separate size

standards for a specific two-digit major

group or four-digit industry code. The

industry code applicable to an industry

that cannot be otherwise classified will

be SIC code 9999, Nonclassifiable

Establishments, with a corresponding

size standard of $5.0 million in annual

receipts.

SIZE STANDARDS BY SIC INDUSTRY

SIC code and description

Size standards in

number of employees or millions of

dollars

DIVISION A—AGRICULTURE

MAJOR GROUP 01—AGRICULTURAL PRODUCTION CROPS .............................................................................................. $0.5

MAJOR GROUP 02—LIVESTOCK AND ANIMAL SPECIALTIES ............................................................................................. $0.5

Except:

0211 Beef Cattle Feedlots (Custom) ................................................................................................................................. $0.5

0252 Chicken Eggs ........................................................................................................................................................... $9.0

MAJOR GROUP 07—AGRICULTURAL SERVICES .................................................................................................................. $5.0

MAJOR GROUP 08—FORESTRY ............................................................................................................................................. $5.0

MAJOR GROUP 09—FISHING, HUNTING, AND TRAPPING .................................................................................................. $3.0

DIVISION B—MININ

MAJOR GROUP 10—METAL MINING ....................................................................................................................................... $500

MAJOR GROUP 12—COAL MINING ......................................................................................................................................... $500

MAJOR GROUP 13—OIL AND GAS EXTRACTION AND MAJOR GROUP 14—MINING AND QUARRYING OF NONMETALLIC MINERALS, EXCEPT FUELS.$500

EXCEPT:

1081 Metal Mining Services .............................................................................................................................................. $5.0

1241 Coal Mining Services ................................................................................................................................................ $5.0

1382 Oil and Gas Field Exploration Services ................................................................................................................... $5.0

1389 Oil and Gas Field Services, N.E.C. .......................................................................................................................... $5.0

1481 Nonmetallic Minerals Services, Except Fuels .......................................................................................................... $5.0

DIVISION C—CONSTRUCTION

MAJOR GROUP 15—GENERAL BUILDING CONTRACTORS ................................................................................................ $17.0

MAJOR GROUP 16—HEAVY CONSTRUCTION, NON BUILDING .......................................................................................... $17.0

EXCEPT:

1629 (Part) Dredging and Surface Cleanup Activities ................................................................................................... $13.5 1

MAJOR GROUP 17—CONSTRUCTION—SPECIAL TRADE CONTRACTORS ....................................................................... $7.0

DIVISION D—MANUFACTURING,2 ........................................................................................................................................... 500

EXCEPT:

2032 Canned Specialties ................................................................................................................................................... 1,000
3290 Federal Register / Vol. 61, No. 21 / Wednesday, January 31, 1996 / Rules and Regulations

SIZE STANDARDS BY SIC INDUSTRY—Continued

SIC code and description

Size standards in

number of employees or millions of

dollars

2033 Canned Fruits, Vegetables, Preserves, Jams and Jellies ....................................................................................... 500 3

2043 Cereal Breakfast Foods ............................................................................................................................................ 1,000

2046 Wet Corn Milling ....................................................................................................................................................... 750

2052 Cookies and Crackers .............................................................................................................................................. 750

2062 Cane Sugar Refining ................................................................................................................................................ 750

2063 Beet Sugar ................................................................................................................................................................ 750

2076 Vegetable Oil Mills, Except Corn, Cottonseed, and Soybean ................................................................................. 1,000

2079 Shortening, Table Oils, Margarine, and Other Edible Fats and Oils, N.E.C ........................................................... 750

2085 Distilled and Blended Liquors ................................................................................................................................... 750

2111 Cigarettes ................................................................................................................................................................. 1,000

2211 Broadwoven Fabric Mills, Cotton ............................................................................................................................. 1,000

2261 Finishers of Broadwoven Fabrics of Cotton ............................................................................................................. 1,000

2295 Coated Fabrics, Not Rubberized .............................................................................................................................. 1,000

2296 Tire Cord and Fabrics .............................................................................................................................................. 1,000

2611 Pulp Mills .................................................................................................................................................................. 750

2621 Paper Mills ................................................................................................................................................................ 750

2631 Paperboard Mills ....................................................................................................................................................... 750

2656 Sanitary Food Containers, Except Folding .............................................................................................................. 750

2657 Folding Paperboard Boxes, Including Sanitary ........................................................................................................ 750

2812 Alkalies and Chlorine ................................................................................................................................................ 1,000

2813 Industrial Gases ........................................................................................................................................................ 1,000

2816 Inorganic Pigments ................................................................................................................................................... 1,000

2819 Industrial Inorganic Chemicals, N.E.C ..................................................................................................................... 1,000

2821 Plastics Materials, Synthetic Resins, and Nonvulcanizable Elastomers ................................................................. 750

2822 Synthetic Rubber (Vulcanizable Elastomers) ........................................................................................................... 1,000

2823 Cellulosic Manmade Fibers ...................................................................................................................................... 1,000

2824 Manmade Organic Fibers, Except Cellulosic ........................................................................................................... 1,000

2833 Medicinal Chemicals and Botanical Products .......................................................................................................... 750

2834 Pharmaceutical Preparations ................................................................................................................................... 750

2841 Soap and Other Detergents, Except Specialty Cleaners ......................................................................................... 750

2865 Cyclic Organic Crudes and Intermediates, and Organic Dyes and Pigments ......................................................... 750

2869 Industrial Organic Chemicals, N.E.C. ....................................................................................................................... 1,000

2873 Nitrogenous Fertilizers .............................................................................................................................................. 1,000

2892 Explosives ................................................................................................................................................................. 750

2911 Petroleum Refining ................................................................................................................................................... 1,500 4

2952 Asphalt Felts and Coatings ...................................................................................................................................... 750

3011 Tires and Inner Tubes .............................................................................................................................................. 1,000 5

3021 Rubber and Plastics Footwear ................................................................................................................................. 1,000

3211 Flat Glass ................................................................................................................................................................. 1,000

3221 Glass Containers ...................................................................................................................................................... 750

3229 Pressed and Blown Glass and Glassware, N.E.C ................................................................................................... 750

3241 Cement, Hydraulic .................................................................................................................................................... 750

3261 Vitreous China Plumbing Fixtures and China and Earthenware Fittings and Bathroom Accessories .................... 750

3275 Gypsum Products ..................................................................................................................................................... 1,000

3292 Asbestos Products .................................................................................................................................................... 750

3296 Mineral Wool ............................................................................................................................................................. 750

3297 Nonclay Refractories ................................................................................................................................................ 750

3312 Steel Works, Blast Furnaces (Including Coke Ovens), and Rolling Mills ................................................................ 1,000

3313 Electrometallurgical Products, Except Steel ............................................................................................................ 750

3315 Steel Wiredrawing and Steel Nails and Spikes ....................................................................................................... 1,000

3316 Cold-Rolled Steel Sheet, Strip, and Bars ................................................................................................................. 1,000

3317 Steel Pipe and Tubes ............................................................................................................................................... 1,000

3331 Primary Smelting and Refining of Copper ............................................................................................................... 1,000

3334 Primary Production of Aluminum .............................................................................................................................. 1,000

3339 Primary Smelting and Refining of Nonferrous Metals, Except Copper and Aluminum ........................................... 750

3351 Rolling, Drawing, and Extruding of Copper .............................................................................................................. 750

3353 Aluminum Sheet, Plate, and Foil .............................................................................................................................. 750

3354 Aluminum Extruded Products ................................................................................................................................... 750

3355 Aluminum Rolling and Drawing, N.E.C .................................................................................................................... 750

3356 Rolling, Drawing, and Extruding of Nonferrous Metals, Except Copper and Aluminum ......................................... 750

3357 Drawing and Insulating of Nonferrous Wire ............................................................................................................. 1,000

3398 Metal Heat Treating .................................................................................................................................................. 750

3399 Primary Metal Products, N.E.C ................................................................................................................................ 750

3411 Metal Cans ............................................................................................................................................................... 1,000

3431 Enameled Iron and Metal Sanitary Ware ................................................................................................................. 750

3482 Small Arms Ammunition ........................................................................................................................................... 1,000

3483 Ammunition, Except for Small Arms ........................................................................................................................ 1,500

3484 Small Arms ............................................................................................................................................................... 1,000

3511 Steam, Gas, and Hydraulic Turbines, and Turbine Generator Set Units ................................................................ 1,000
Federal Register / Vol. 61, No. 21 / Wednesday, January 31, 1996 / Rules and Regulations 3291

SIZE STANDARDS BY SIC INDUSTRY—Continued

SIC code and description

Size standards in

number of employees or millions of

dollars

3519 Internal Combustion Engines, N.E.C ....................................................................................................................... 1,000

3531 Construction Machinery and Equipment .................................................................................................................. 750

3537 Industrial Trucks, Tractors, Trailers, and Stackers .................................................................................................. 750

3562 Ball and Roller Bearings ........................................................................................................................................... 750

3571 Electronic Computers ............................................................................................................................................... 1,000

3572 Computer Storage Devices ...................................................................................................................................... 1,000

3575 Computer Terminals ................................................................................................................................................. 1,000

3577 Computer Peripheral Equipment, N.E.C .................................................................................................................. 1,000

3578 Calculating and Accounting Machines, Except Electronic Computers .................................................................... 1,000

3585 Air-Conditioning and Warm Air Heating Equipment and Commercial and Industrial Refrigeration Equipment ...... 750

3612 Power, Distribution, and Specialty Transformers ..................................................................................................... 750

3613 Switchgear and Switchboard Apparatus .................................................................................................................. 750

3621 Motors and Generators ............................................................................................................................................ 1,000

3624 Carbon and Graphite Products ................................................................................................................................ 750

3625 Relays and Industrial Controls ................................................................................................................................. 750

3631 Household Cooking Equipment ................................................................................................................................ 750

3632 Household Refrigerators and Home and Farm Freezers ........................................................................................ 1,000

3633 Household Laundry Equipment ................................................................................................................................ 1,000

3634 Electronic Housewares and Fans ............................................................................................................................ 750

3635 Household Vacuum Cleaners ................................................................................................................................... 750

3641 Electric Lamp Bulbs and Tubes ............................................................................................................................... 1,000

3651 Household Audio and Video Equipment .................................................................................................................. 750

3652 Phonograph Records and Prerecorded Audio Tapes and Disks ............................................................................. 750

3661 Telephone and Telegraph Apparatus ....................................................................................................................... 1,000

3663 Radio and Television Broadcasting and Communications Equipment .................................................................... 750

3669 Communications Equipment, N.E.C ......................................................................................................................... 750

3671 Electron Tubes ......................................................................................................................................................... 750

3692 Primary Batteries, Dry and Wet ............................................................................................................................... 1,000

3694 Electrical Equipment for Internal Combustion Engines ............................................................................................ 750

3695 Magnetic and Optical Recording Media ................................................................................................................... 1,000

3699 Electrical Machinery, Equipment, and Supplies, N.E.C ........................................................................................... 750

3711 Motor Vehicles and Passenger Car Bodies ............................................................................................................. 1,000

3714 Motor Vehicle Parts and Accessories ...................................................................................................................... 750

3716 Motor Homes ............................................................................................................................................................ 1,000

3721 Aircraft ...................................................................................................................................................................... 1,500

3724 Aircraft Engines and Engine Parts ........................................................................................................................... 1,000

3728 Aircraft Parts and Auxiliary Equipment, N.E.C ......................................................................................................... 1,000 9

3731 Shipbuilding and Repair of Nuclear Propelled Ships ............................................................................................... 1,000

Shipbuilding of Nonnuclear Propelled Ships and Nonpropelled Ships ........................................................................ 1,000

Ship Repair (Including Overhauls and Conversions) Performed on Nonnuclear Propelled and Nonpropelled Ships

East of the 108 Meridian.

1,000

Ship Repair (Including Overhauls and Conversion) Performed on Nonnuclear Propelled and Nonpropelled Ships

West of the 108 Meridian.

1,000

3743 Railroad Equipment .................................................................................................................................................. 1,000

3761 Guided Missiles and Space Vehicles ....................................................................................................................... 1,000

3764 Guided Missile and Space Vehicle Propulsion Units and Propulsion Units Parts .................................................. 1,000

3769 Guided Missile and Space Vehicle Parts and Auxiliary Equipment, N.E.C ............................................................. 1,000

3795 Tanks and Tank Components .................................................................................................................................. 1,000

3812 Search, Detection, Navigation, Guidance, Aeronautical, and Nautical Systems and Instruments ......................... 750

3996 Linoleum, Asphalted-Felt-Base, and other Hard Surface Floor Coverings, N.E.C .................................................. 750

DIVISION E—TRANSPORTATION, COMMUNICATIONS ELECTRIC, GAS, AND SANITARY SERVICES

MAJOR GROUP 40—RAILROAD TRANSPORTATION ............................................................................................................ 1500

EXCEPT:

4013 Railroad Switching and Terminal Establishments .................................................................................................... 500

MAJOR GROUP 41—LOCAL AND SUBURBAN TRANSIT AND INTERURBAN HIGHWAY AND PASSENGER TRANSPORTATION.$5.0

MAJOR GROUP 42—MOTOR FREIGHT TRANSPORTATION AND WAREHOUSING .......................................................... $18.5

EXCEPT:

4212 (Part) Garbage and Refuse Collection, Without Disposal ....................................................................................... $6.0

4231 Terminal and Joint Terminal Maintenance Facilities for Motor Freight Transportation ........................................... $5.0

MAJOR GROUP 44—WATER TRANSPORTATION ................................................................................................................. 500

EXCEPT:

4491 Marine Cargo Handling ............................................................................................................................................ $18.5

4492 Towing and Tugboat Services .................................................................................................................................. $5.0

4493 Marinas ..................................................................................................................................................................... $5.0

4499 Water Transportation Services, N.E.C. .................................................................................................................... $5.0

—Offshore Marine Water Transportation Services .................................................................................................. $20.5
3292 Federal Register / Vol. 61, No. 21 / Wednesday, January 31, 1996 / Rules and Regulations

SIZE STANDARDS BY SIC INDUSTRY—Continued

SIC code and description

Size standards in

number of employees or millions of

dollars

MAJOR GROUP 45—TRANSPORTATION BY AIR .................................................................................................................. 1500

EXCEPT:

4522 Air Transportation, Nonscheduled ............................................................................................................................ 1500

—Offshore Marine Air Transportation Services ....................................................................................................... $20.5

4581 Airports, Flying Fields, and Airport Terminal Services ............................................................................................. $5.0

MAJOR GROUP 46—PIPELINES, EXCEPT NATURAL GAS, .................................................................................................. 1500

EXCEPT:

4619 Pipelines, N.E.C. ...................................................................................................................................................... $25.0

MAJOR GROUP 47—TRANSPORTATION SERVICES, ........................................................................................................... $5.0

EXCEPT:

4724 Travel Agencies ........................................................................................................................................................ $1.06

4731 Arrangement of Transportation of Freight and Cargo .............................................................................................. $18.5

4783 Packing and Crating ................................................................................................................................................. $18.5

MAJOR GROUP 48—COMMUNICATIONS.

4812 Radiotelephone Communications ............................................................................................................................. 1,500

4813 Telephone Communications, Except Radiotelephone ............................................................................................. 1,500

4822 Telegraph and Other Message Communications .................................................................................................... $5.0

4832 Radio Broadcasting Stations .................................................................................................................................... $5.0

4833 Television Broadcasting Stations ............................................................................................................................. $10.5

4841 Cable and Other Pay Television Services ............................................................................................................... $11.0

4899 Communications Services, N.E.C. ........................................................................................................................... $11.0

MAJOR GROUP 49—ELECTRIC, GAS, AND SANITARY SERVICES, .................................................................................... $5.0

EXCEPT:

4911 Electric Services ....................................................................................................................................................... 4 million megawatt

hrs.

4924 Natural Gas Distribution ........................................................................................................................................... 500

4953 Refuse Systems ....................................................................................................................................................... $6.0

4961 Steam and Air-Conditioning Supply ......................................................................................................................... $9.0

DIVISION F—WHOLESALE TRADE ......................................................................................................................................... 100

(Not Applicable to Government procurement of supplies. The nonmanufacturer size standard of 500 employees shall

be used for purposes of Government procurement of supplies.)

DIVISION G—RETAIL TRADE ................................................................................................................................................... $5.0

(Not Applicable to Government procurement of supplies. The nonmanufacturer size standard of 500 employees shall

be used for purposes of Government procurement of supplies.)

5271 Mobile Home Dealers ............................................................................................................................................... $9.5

5311 Department Stores ................................................................................................................................................... $20.0

5331 Variety Stores ........................................................................................................................................................... $8.0

5411 Grocery Stores ......................................................................................................................................................... $20.0

5511 Motor Vehicle Dealers (New and Used) .................................................................................................................. $21.0

5521 Motor Vehicle Dealers (Used Only) ......................................................................................................................... $17.0

5541 Gasoline Service Stations ........................................................................................................................................ $6.5

5599 Automobile Dealers, N.E.C. ..................................................................................................................................... $5.0

—Aircraft Dealers, Retail .......................................................................................................................................... $7.5

5611 Men’s and Boys’ Clothing and Accessory Stores .................................................................................................... $6.5

5621 Women’s Clothing Stores ......................................................................................................................................... $6.5

5651 Family Clothing Stores ............................................................................................................................................. $6.5

5661 Shoe Stores .............................................................................................................................................................. $6.5

5722 Household Appliance Stores .................................................................................................................................... $6.5

5731 Radio, Television, and Consumer Electronics Stores .............................................................................................. $6.5

5734 Computer and Computer Software Stores ............................................................................................................... $6.5

5812 (Part) Food Service, Institutional .............................................................................................................................. $15.0

5961 Catalog and Mail-Order Houses ............................................................................................................................... $18.5

5983 Fuel Oil Dealers ........................................................................................................................................................ $9.0

DIVISION H—FINANCE, INSURANCE, AND REAL ESTATE ................................................................................................. $5.0

EXCEPT:

6021–6082 National and Commercial Banks, Savings, Institutions and Credit Unions ................................................... $100 Million in assets 7

6331 Fire, Marine, and Casualty Insurance ...................................................................................................................... 1,500

6515 (Part) Leasing of Building Space to Federal Government by Owners .................................................................... $15.0 8

6531 Real Estate Agents and Managers .......................................................................................................................... $1.5 6

DIVISION I—SERVICES ............................................................................................................................................................. $5.0

EXCEPT:
Federal Register / Vol. 61, No. 21 / Wednesday, January 31, 1996 / Rules and Regulations 3293

SIZE STANDARDS BY SIC INDUSTRY—Continued

SIC code and description

Size standards in

number of employees or millions of

dollars

7211 Power Laundries, Family and Commercial .............................................................................................................. $10.5

7213 Linen Supply ............................................................................................................................................................. $10.5

7216 Drycleaning Plants, Except Rug Cleaning ............................................................................................................... $3.5

7217 Carpet and Upholstery Cleaning .............................................................................................................................. $3.5

7218 Industries Launderers ............................................................................................................................................... $10.0

7311 Advertising Agencies ................................................................................................................................................ $5.0 6

7312 Outdoor Advertising Services ................................................................................................................................... $5.0 6

7313 Radio, Television, and Publishers’ Advertising Representatives ............................................................................. $5.0 6

7319 Advertising, N.E.C. ................................................................................................................................................... $5.0 6

7349 Building Cleaning and Maintenance Services, N.E.C. ............................................................................................. $12.0

7371 Computer Programming Services ............................................................................................................................ $18.0

7372 Prepackaged Software ............................................................................................................................................. $18.0

7373 Computer Integrated Systems Design ..................................................................................................................... $18.0

7374 Computer Processing and Data Preparation and Processing Services .................................................................. $18.0

7375 Information Retrieval Services ................................................................................................................................. $18.0

7376 Computer Facilities Management Services .............................................................................................................. $18.0

7377 Computer Rental and Leasing ................................................................................................................................. $18.0

7378 Computer Maintenance and Repair ......................................................................................................................... $18.0

7379 Computer Related Services, N.E.C .......................................................................................................................... $18.0

7381 Detective, Guard, and Armord Car Services ........................................................................................................... $9.0

7382 Security Systems Services ....................................................................................................................................... $9.0

7389 Business Services, N.E.C ........................................................................................................................................ $5.0

Map Drafting Services, Mapmaking (Including Aerial) and Photogrammetric Mapping Services ............................... $3.5

7513 Truck Rental and Leasing Without Drivers .............................................................................................................. $18.5

7514 Passenger Car Rental .............................................................................................................................................. $18.5

7515 Passenger Car Leasing ............................................................................................................................................ $18.5

7534 Tire Retreading and Repair Shops .......................................................................................................................... $10.5

7699 Repair Shops and Related Services, N.E.C ............................................................................................................ $5.0 9

7812 Motion Picture and Video Tape Production ............................................................................................................. $21.5

7819 Services Allied to Motion Picture Production ........................................................................................................... $21.5

7822 Motion Picture and Video Tape Distribution ............................................................................................................ $21.5

8299 (Part) Flight Training Services .................................................................................................................................. $18.5

8711 Engineering Services ................................................................................................................................................ $2.5

Military and Aerospace Equipment and Military Weapons ........................................................................................... $20.0

Contracts and Subcontracts for Engineering Services Awarded Under the National Energy Policy Act of 1992 ...... $20.0

Marine Engineering and Naval Architecture ................................................................................................................. $13.5

8712 Architectural Services (Other Than Naval) .............................................................................................................. $2.5

8713 Surveying Services ................................................................................................................................................... $2.5

8721 Accounting, Auditing, and Bookkeeping Services .................................................................................................... $6.0

8731 Commercial Physical and Biological Research ........................................................................................................ 500 10

Aircraft ........................................................................................................................................................................... 1,500

Aircraft Parts, and Auxiliary Equipment, and Aircraft Engines and Engine Parts ........................................................ 1,000

Space Vehicles and Guided Missiles, their Propulsion Units, their Propulsion Units Parts, and their Auxiliary

Equipment and Parts.

1,000

8741 (Part) Conference Management Services ................................................................................................................ $5.0 6

8744 Facilities Support Management Services ................................................................................................................. $5.0 11

Base Maintenance ........................................................................................................................................................ $20.0 12

Environmental Remediation Services ........................................................................................................................... 500 13

Footnotes:

1SIC code 1629—Dredging: To be considered small for purposes of Government procurement, a firm must perform at least 40 percent of the

volume dredged with its own equipment or equipment owned by another small dredging concern. 2SIC Division D—Manufacturing: For rebuilding machinery or equipment on a factory basis, or equivalent, use the SIC code for a newly manufactured product. Concerns performing major rebuilding or overhaul activities do not necessarily have to meet the criteria for being a ‘‘manufacturer’’ although the activities may be classified under a manufacturing SIC code. Ordinary repair services or preservation are not considered rebuilding. 3SIC code 2033: For purposes of Government procurement for food canning and preserving, the standard of 500 employees excludes agricultural labor as defined in section 3306(k) of the Internal Revenue Code, 26 U.S.C. 3306(k). 4SIC code 2911: For purposes of Government procurement, the firm may not have more than 1,500 employees nor more than 75,000 barrels

per day capacity of petroleum-based inputs, including crude oil or bona fide feedstocks. Capacity includes owned or leased facilities as well as

facilities under a processing agreement or an arrangement such as an exchange agreement or a throughput. The total product to be delivered

under the contract must be at least 90 percent refined by the successful bidder from either crude oil or bona fide feedstocks. 5SIC code 3011: For purposes of Government procurement, a firm is small for bidding on a contract for pneumatic tires within Census Classification codes 30111 and 30112, provided that:

(1) The value of tires within Census Classification codes 30111 and 30112 which it manufactured in the United States during the previous calendar year is more than 50 percent of the value of its total worldwide manufacture;

(2) The value of pneumatic tires within Census Classification codes 30111 and 30112 comprising its total worldwide manufacture during the

preceding calendar year was less than 5 percent of the value of all such tires manufactured in the United States during that period; and

(3) the value of the principal product which it manufactured or otherwise produced, or sold worldwide during the preceding calendar year is

less than 10 percent of the total value of such products manufactured or otherwise produced or sold in the United States during that period. 6SIC codes 4724, 6531, 7311, 7312, 7313, 7319, and 8741 (part): As measured by total revenues, but excluding funds received in trust for an

unaffiliated third party, such as bookings or sales subject to commissions. The commissions received are included as revenue.
3294 Federal Register / Vol. 61, No. 21 / Wednesday, January 31, 1996 / Rules and Regulations

7A financial institution’s assets are determined by averaging the assets reported on its four quarterly financial statements for the preceding

year. Assets for the purposes of this size standard means the assets defined according to the Federal Financial Institutions Examination Council

034 call report form. 8SIC code 6515: Leasing of building space to the Federal Government by Owners: For Government procurement, a size standard of $15.0

million in gross receipts applies to the owners of building space leased to the Federal Government. The standard does not apply to an agent. 9SIC codes 7699 and 3728: Contracts for the rebuilding or overhaul of aircraft ground support equipment on a contract basis are classified

under SIC code 3728. 10SIC code 8731: For research and development contracts requiring the delivery of a manufactured product, the appropriate size standard is

that of the manufacturing industry.

(1) Research and Development means laboratory or other physical research and development. It does not include economic, educational, engineering, operations, systems, or other nonphysical research; or computer programming, data processing, commercial and/or medical laboratory

testing.

(2) For purposes of the Small Business Innovation Research (SBIR) program only, a different definition has been established by law. See

§ 121.701.

(3) Research and development for guided missiles and space vehicles includes evaluations and simulation, and other services requiring thorough knowledge of complete missiles and spacecraft. 11Facilities Management, a component of SIC code 8744, includes establishments, not elsewhere classified, which provide overall management and the personnel to perform a variety of related support services in operating a complete facility in or around a specific building, or within

another business or Government establishment. Facilities management means furnishing three or more personnel supply services which may include, but are not limited to, secretarial services, typists, telephone answering, reproduction or mimeograph service, mailing service, financial or

business management, public relations, conference planning, travel arrangements, word processing, maintaining files and/or libraries, switchboard operation, writers, bookkeeping, minor office equipment maintenance and repair, or use of information systems (not programming). 12SIC code 8744:

(1) If one of the activities of base maintenance, as defined in paragraph (2) of this footnote, can be identified with a separate industry and that

activity (or industry) accounts for 50 percent or more of the value of an entire contract, then the proper size standard is that of the particular industry, and not the base maintenance size standard.

(2) ‘‘Base Maintenance’’ requires the performance of three or more separate activities in the areas of service or special trade construction industries. If services are performed, these activities must each be in a separate SIC code including, but not limited to, Janitorial and Custodial

Service, Fire Prevention Service, Messenger Service, Commissary Service, Protective Guard Service, and Grounds Maintenance and Landscaping Service. If the contract requires the use of special trade contractors (plumbing, painting, plastering, carpentry, etc.), all such special trade

construction activities are considered a single activity and classified as Base Housing Maintenance. Since Base Housing Maintenance is only

one activity, two additional activities are required for a contract to be classified as ‘‘Base Maintenance.’’ 13SIC codre 8744: (1) For SBA assistance as a small business concern in the industry of Environmental Remediation Services, other than for

Government procurement, a concern must be engaged primarily in furnishing a range of services for the remediation of a contaminated environment to an acceptable condition including, but not limited to, preliminary assessment, site inspection, testing, remedial investigation, feasibility

studies, remedial design, containment, remedial action, removal of contaminated materials, storage of contaminated materials and security and

site closeouts. If one of such activities accounts for 50 percent or more of a concern’s total revenues, employees, or other related factors, the

concern’s primary industry is that of the particular industry and not the Environmental Remediation Services Industry.

(2) For purposes of classifying a Government procurement as Environmental Remediation Services, the general purpose of the procurement

must be to restore a contaminated environment and also the procurement must be composed of activities in three or more separate industries

with separate SIC codes or, in some instances (e.g., engineering), smaller sub-components of SIC codes with separate, distinct size standards.

These activities may include, but are not limited to, separate activities in industries such as: Heavy Construction; Special Trade Construction; Engineering Services; Architectural Services; Management Services; Refuse Systems; Sanitary Services, Not Elsewhere Classified; Local Trucking

Without Storage; Testing Laboratories; and Commercial, Physical and Biological Research. If any activity in the procurement can be identified

with a separate SIC code, or component of a code with a separate distinct size standard, and that industry accounts for 50 percent or more of

the value of the entire procurement, then the proper size standard is the one for that particular industry, and not the Environmental Remediation

Service size standard.

Size Eligibility Requirements For SBA

Financial Assistance

§ 121.301 What size standards are

applicable to financial assistance

programs?

(a) For Business Loans and Disaster

Loans (other than physical disaster

loans), an applicant must not exceed the

size standard for the industry in which:

(1) The applicant combined with its

affiliates is primarily engaged; and

(2) The applicant alone is primarily

engaged.

(b) For Development Company

programs, an applicant must meet one

of the following standards:

(1) Including its affiliates, tangible net

worth not in excess of $6 million, and

average net income after Federal income

taxes (excluding any carry-over losses)

for the preceding two completed fiscal

years not in excess of $2 million; or

(2) The same standards applicable

under paragraph (a) of this section.

(c) For the Small Business Investment

Company (SBIC) program, an applicant

must meet one of the following

standards:

(1) Including its affiliates, tangible net

worth not in excess of $18 million, and

average net income after Federal income

taxes (excluding any carry-over losses)

for the preceding 2 completed fiscal

years not in excess of $6 million; or

(2) The same standards applicable

under paragraph (a) of this section.

(d) For Surety Bond Guarantee

assistance—

(1) Any construction (general or

special trade) concern or concern

performing a contract for services is

small if its average annual receipts do

not exceed $5.0 million.

(2) Any concern not specified in

paragraph (d)(1) of this section must

meet the size standard for the primary

industry in which it, combined with its

affiliates, is engaged.

(e) The applicable size standards for

the purpose of all SBA financial

assistance programs, excluding the

Surety Bond Guarantee assistance

program, are increased by 25 percent

whenever the applicant agrees to use the

assistance within a labor surplus area.

Labor surplus areas are listed monthly

in the Department of Labor publication

called ‘‘Area Trends.’’

§ 121.302 When does SBA determine the

size status of an applicant?

(a) The size of an applicant for SBA

financial assistance is determined as of

the date the application for such

financial assistance is accepted for

processing by SBA, except for the

Disaster Loan and Preferred Lenders

programs.

(b) For the Preferred Lenders program,

size is determined as of the date of

approval of the loan by the Preferred

Lender.

(c) For disaster loan assistance (other

than physical disaster loans), size status

is determined as of the date the disaster

commenced, as set forth in the Disaster

Declaration.

(d) Changes in size subsequent to the

applicable date when size is determined

will not disqualify an applicant for

assistance.
Federal Register / Vol. 61, No. 21 / Wednesday, January 31, 1996 / Rules and Regulations 3295

§ 121.303 What size procedures are used

by SBA before it makes a formal size

determination?

(a) A concern that submits an

application for financial assistance is

deemed to have certified that it is small

under the applicable size standard. SBA

may question the concern’s status based

on information supplied in the

application or from any other source.

(b) A small business investment

company, a development company, a

surety bond company, or a preferred

lender may accept as true the size

information provided by an applicant,

unless credible evidence to the contrary

is apparent.

(c) Size is initially considered by the

individual with final financial

assistance authority. This is not a formal

size determination. A formal

determination may be requested prior to

a denial of eligibility based on size.

(d) An applicant may request a formal

size determination when assistance has

been denied for size ineligibility. Except

for disaster loan eligibility, a request for

a formal size determination must be

made to the Government Contracting

Area Director serving the area in which

the headquarters of the applicant is

located, regardless of the location of the

parent company or affiliates. For

disaster loan assistance, the request for

a size determination must be made to

the Area Director for the Disaster Area

Office which denied the assistance.

(e) There are no time limitations for

making a formal size determination for

purposes of financial assistance. The

official making the formal size

determination must provide a copy of

the determination to the applicant, to

the requesting SBA official, and to other

interested SBA program officials.

§ 121.304 What are the size requirements

for refinancing an existing SBA loan?

(a) A concern that applies to refinance

an existing SBA loan or guarantee will

be considered small for the refinancing

even though its size has increased since

the date of the original financing to

exceed its applicable size standard,

provided that:

(1) The increase in size is due to

natural growth (as distinguished from

merger, acquisition or similar

management action); and

(2) SBA determines that refinancing is

necessary to protect the Government’s

financial interest.

(b) If a concern’s size has increased

other than by natural growth, the

concern and its affiliates must be small

at the time the application for

refinancing is accepted for processing

by SBA.

§ 121.305 What size eligibility

requirements exist for obtaining business

loans relating to particular procurements?

A concern qualified as small for a

particular procurement, including an

8(a) subcontract, is small for financial

assistance directly and primarily

relating to the performance of the

particular procurement.

Size Eligibility Requirements for

Government Procurement

§ 121.401 What procurement programs are

subject to size determinations?

The requirements set forth in

§§ 121.401 through 121.412 cover all

procurement programs for which status

as a small business is required,

including the small business set-aside

program, SBA’s Certificate of

Competency Program, SBA’s Minority

Enterprise Development program, the

Small Business Subcontracting program

authorized under section 8(d) of the

Small Business Act, and Federal Small

Disadvantaged Business programs.

§ 121.402 What size standards are

applicable to procurement assistance

programs?

(a) A concern must meet the size

standard for the SIC code specified in

the solicitation.

(b) The procuring agency contracting

officer, or authorized representative,

designates the proper SIC code and size

standard in a solicitation, selecting the

SIC code which best describes the

principal purpose of the product or

service being acquired. Primary

consideration is given to the industry

descriptions in the SIC Manual, the

product or service description in the

solicitation and any attachments to it,

the relative value and importance of the

components of the procurement making

up the end item being procured, and the

function of the goods or services being

purchased. Other factors considered

include previous Government

procurement classifications of the same

or similar products or services, and the

classification which would best serve

the purposes of the Small Business Act.

A procurement is usually classified

according to the component which

accounts for the greatest percentage of

contract value.

(c) The SIC code assigned to a

procurement and its corresponding size

standard is final unless timely appealed

to SBA’s Office of Hearings and Appeals

(OHA), or unless SBA assigns a SIC

code or size standard as provided in

paragraph (d) of this section.

(d) An unclear, incomplete or missing

SIC code designation or size standard in

the solicitation may be clarified,

completed or supplied by SBA in

connection with a formal size

determination or size appeal.

(e) Any offeror or other interested

party adversely affected by a SIC code

designation or size standard designation

may appeal the designations to OHA

under Part 134 of this chapter.

§ 121.403 Are SBA size determinations

and SIC code designations binding on

parties?

Formal size determinations and SIC

code designations made by authorized

SBA officials are binding upon the

parties. Opinions otherwise provided by

SBA officials to contracting officers or

others are advisory in nature, and are

not binding or appealable.

§ 121.404 When does SBA determine the

size status of a business concern?

Generally, SBA determines the size

status of a concern (including its

affiliates) 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.

The following are two exceptions to this

rule:

(a) 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.

(b) Size status for purposes of

compliance with the nonmanufacturer

rule set forth in § 121.406(b)(1) and the

ostensible subcontractor rule set forth in

§ 121.103(f)(3) is determined as of the

date of the best and final offer.

§ 121.405 May a business concern selfcertify its small business size status?

(a) A concern must self-certify it is

small under the size standard specified

in the solicitation, or as clarified,

completed or supplied by SBA pursuant

to § 121.402(d).

(b) A contracting officer may accept a

concern’s self-certification as true for

the particular procurement involved in

the absence of a written protest by other

offerors or other credible information

which causes the contracting officer or

SBA to question the size of the concern.

(c) Procedures for protesting the selfcertification of an offeror are set forth in

§§ 121.1001 through 121.1009.

§ 121.406 How does a small business

concern qualify to provide manufactured

products under small business set-aside or

MED procurements?

(a) General. In order to qualify as a

small business concern for a small

business set-aside or 8(a) contract to

provide manufactured products, an

offeror must either:

(1) Be the manufacturer of the end

item being procured (and the end item
3296 Federal Register / Vol. 61, No. 21 / Wednesday, January 31, 1996 / Rules and Regulations

must be manufactured or produced in

the United States); or

(2) Comply with the requirements of

paragraph (b), (c) or (d) of this section

as a nonmanufacturer, a kit assembler or

a supplier under Simplified Acquisition

Procedures.

(b) Nonmanufacturers. (1) A concern

may qualify for a requirement to provide

manufactured products as a

nonmanufacturer if it:

(i) Does not exceed 500 employees;

(ii) Is primarily engaged in the

wholesale or retail trade and normally

sells the items being supplied to the

general public; and

(iii) Will supply the end item of a

small business manufacturer or

processor made in the United States, or

obtains a waiver of such requirement

pursuant to paragraph (b)(3) of this

section.

(2) For size purposes, there can be

only one manufacturer of the end item

being acquired. The manufacturer is the

concern which, with its own facilities,

performs the primary activities in

transforming inorganic or organic

substances, including the assembly of

parts and components, into the end item

being acquired. The end item must

possess characteristics which, as a result

of mechanical, chemical or human

action, it did not possess before the

original substances, parts or

components were assembled or

transformed. The end item may be

finished and ready for utilization or

consumption, or it may be semifinished

as a raw material to be used in further

manufacturing. Firms which perform

only minimal operations upon the item

being procured do not qualify as

manufacturers of the end item. SBA will

evaluate the following factors in

determining whether a concern is the

manufacturer of the end item:

(i) The proportion of total value in the

end item added by the efforts of the

concern, excluding costs of overhead,

testing, quality control, and profit; and

(ii) The importance of the elements

added by the concern to the function of

the end item, regardless of their relative

value.

(3) The Administrator or designee

may waive the requirement set forth in

paragraph (b)(1)(iii) of this section

under the following two circumstances:

(i) The contracting officer has

determined that no small business

manufacturer or processor reasonably

can be expected to offer a product

meeting the specifications (including

period for performance) required by a

particular solicitation and SBA reviews

and accepts that determination; or

(ii) SBA determines that no small

business manufacturer or processor of

the product or class of products is

available to participate in the Federal

procurement market.

(4) The two waiver possibilities

identified in paragraph (b)(3) of this

section are called ‘‘class’’ waivers and

‘‘individual’’ waivers respectively, and

the procedures for them are contained

in § 121.1204 .

(5) Any SBA waiver of the

nonmanufacturer rule has no effect on

requirements external to the Small

Business Act which involve domestic

sources of supply, such as the Buy

American Act.

(c) Kit assemblers. (1) Where the

manufactured item being acquired is a

kit of supplies or other goods provided

by an offeror for a special purpose, the

offeror cannot exceed 500 employees,

and 50 percent of the total value of the

components of the kit must be

manufactured by business concerns in

the United States which are small under

the size standards for the SIC codes of

the components being assembled. The

offeror need not itself be the

manufacturer of any of the items

assembled.

(2) Where the Government has

specified an item for the kit which is not

produced by U.S. small business

concerns, such item shall be excluded

from the calculation of total value in

paragraph (c)(1) of this section.

(d) Simplified Acquisition Procedures.

Where the procurement of a

manufactured item is processed under

Simplified Acquisition Procedures, as

defined in § 13.101 of the Federal

Acquisition Regulation (FAR) (48 CFR

13.101), and where the anticipated cost

of the procurement will not exceed

$25,000, the offeror need not supply the

end product of a small business concern

as long as the product acquired is

manufactured or produced in the United

States, and the offeror does not exceed

500 employees. The offeror need not

itself be the manufacturer of any of the

items acquired.

§ 121.407 What are the size procedures for

multiple item procurements?

If a procurement calls for two or more

specific end items or types of services

with different size standards and the

offeror may submit an offer on any or all

end items or types of services, the

offeror must meet the size standard for

each end item or service item for which

it submits an offer. If the procurement

calls for more than one specific end

item or type of service and an offeror is

required to submit an offer on all items,

the offeror may qualify as a small

business for the procurement if it meets

the size standard of the item which

accounts for the greatest percentage of

the total contract value.

§ 121.408 What are the size procedures for

SBA’s Certificate of Competency Program?

(a) A firm which applies for a COC

must file an ‘‘Application for Small

Business Size Determination’’ (SBA

Form 355). If the initial review of SBA

Form 355 indicates the applicant,

including its affiliates, is small for

purposes of the COC program, SBA will

process the application for COC. If the

review indicates the applicant,

including its affiliates, is other than

small, SBA will initiate a formal size

determination as set forth in § 121.1009.

In such a case, SBA will not further

process the COC application until a

formal size determination is made.

(b) A concern is ineligible for a COC

if a formal SBA size determination finds

the concern other than small.

§ 121.409 What size standard applies in an

unrestricted procurement for Certificate of

Competency purposes?

For the purpose of receiving a

Certificate of Competency in an

unrestricted procurement, the

applicable size standard is that

corresponding to the SIC code set forth

in the solicitation. For a manufactured

product, a concern must also furnish a

domestically produced or manufactured

product, regardless of the size status of

the product manufacturer. The offeror

need not be the manufacturer of any of

the items acquired.

§ 121.410 What are the size standards for

SBA’s Section 8(d) Subcontracting

Program?

For subcontracting purposes pursuant

to section 8(d) of the Small Business

Act, a concern is small:

(a) For subcontracts of $10,000 or less

which relate to Government

procurements, if its number of

employees (including its affiliates) does

not exceed 500 employees. However,

subcontracts for engineering services

awarded under the National Energy

Policy Act of 1992 have the same size

standard as Military and Aerospace

Equipment and Military Weapons under

SIC code 8711;

(b) For subcontracts exceeding

$10,000 which relate to Government

procurements, if its number of

employees or average annual receipts

(including its affiliates) does not exceed

the size standard for the product or

service it is providing on the

subcontract; and

(c) For subcontracts for financial

services, if the concern (including its

affiliates) is a commercial bank or

savings and loan association whose

assets do not exceed $100 million.
Federal Register / Vol. 61, No. 21 / Wednesday, January 31, 1996 / Rules and Regulations 3297

§ 121.411 What are the size procedures for

SBA’s Section 8(d) Subcontracting

Program?

(a) Prime contractors may rely on the

information contained in SBA’s

Procurement Automated Source System

(PASS), or equivalent data base

maintained or sanctioned by SBA, as an

accurate representation of a concern’s

size and ownership characteristics for

purposes of maintaining a small

business source list. Even though a

concern is on a small business source

list, it must still qualify and self-certify

as a small business at the time it

submits its offer as a section 8(d)

subcontractor.

(b) Upon determination of the

successful subcontract offeror for a

competitive subcontract, but prior to

award, the prime contractor must

inform each unsuccessful subcontract

offeror in writing of the name and

location of the apparent successful

offeror.

(c) The self-certification of a concern

subcontracting or proposing to

subcontract under section 8(d) of the

Small Business Act may be protested by

the contracting officer, the prime

contractor, the appropriate SBA official

or any other interested party.

§ 121.412 What are the size procedures for

partial small business set-asides?

A firm is required to meet size

standard requirements only for the

small business set-aside portion of a

procurement, and is not required to

qualify as a small business for the

unrestricted portion.

Size Eligibility Requirements For Sales

Or Lease Of Government Property

§ 121.501 What programs for sales or

leases of Government property are subject

to size determinations?

Sections 121.501 through 121.512

apply to small business size

determinations for the purpose of the

sale or lease of Government property,

including the Timber Sales Program, the

Special Salvage Timber Sales Program,

and the sale of Government petroleum,

coal and uranium.

§ 121.502 What size standards are

applicable to programs for sales or leases

of Government property?

(a) Unless otherwise specified in this

part—

(1) A concern primarily engaged in

manufacturing is small for sales or

leases of Government property if it does

not exceed 500 employees;

(2) A concern not primarily engaged

in manufacturing is small for sales or

leases of Government property if it has

annual receipts not exceeding $2

million.

(b) Size status for such sales and

leases is determined by the primary

industry of the applicant business

concern.

§ 121.503 Are SBA size determinations

binding on parties?

Formal size determinations based

upon a specific Government sale or

lease, or made in response to a request

from another Government agency under

§ 121.901, are binding upon the parties.

Other SBA opinions provided to

contracting officers or others are only

advisory, and are not binding or

appealable.

§ 121.504 When does SBA determine the

size status of a business concern?

SBA determines the size status of a

concern (including its affiliates) as of

the date the concern submits a written

self-certification that it is small to the

Government as part of its initial offer

including price where there is a specific

sale or lease at issue, or as set forth in

§ 121.903 if made in response to a

request of another Government agency.

§ 121.505 What is the effect of a selfcertification?

(a) A contracting officer may accept a

concern’s self-certification as true for

the particular sale or lease involved, in

the absence of a written protest by other

offerors or other credible information

which would cause the contracting

officer or SBA to question the size of the

concern.

(b) Procedures for protesting the selfcertification of an offeror are set forth in

§§ 121.1001 through 121.1009.

§ 121.506 What definitions are important

for sales or leases of Government-owned

timber?

(a) Forest product industry means

logging, wood preserving, and the

manufacture of lumber and wood

related products such as veneer,

plywood, hardboard, particle board, or

wood pulp, and of products of which

lumber or wood related products are the

principal raw materials.

(b) Logging of timber means felling

and bucking, yarding, and/or loading. It

does not mean hauling.

(c) Manufacture of logs means, at a

minimum, breaking down logs into

rough cuts of the finished product.

(d) Sell means, in addition to its usual

and customary meaning, the exchange

of sawlogs for sawlogs on a product-forproduct basis with or without monetary

adjustment, and an indirect transfer,

such as the sale of the assets of a

concern after it has been awarded one

or more set-aside sales of timber.

(e) Significant logging of timber means

that a concern uses its own employees

to perform at least two of the following:

felling and bucking, yarding, and

loading.

§ 121.507 What are the size standard and

other requirements for the purchase of

Government-owned timber (other than

Special Salvage Timber)?

(a) To be small for purposes of the

sale of Government-owned timber (other

than Special Salvage Timber) a concern

must:

(1) Be primarily engaged in the

logging or forest products industry;

(2) Not exceed 500 employees, taking

into account its affiliates; and

(3) If it does not intend at the time of

the offer to resell the timber—

(i) Agree that it will manufacture the

logs with its own facilities or those of

another business which meets the

requirements of paragraphs (a)(1) and

(a)(2) of this section;

(ii) Agree that if it eventually resells

the timber, it will resell no more than

30% of the sawtimber volume to other

businesses which do not meet the

requirements of paragraphs (a)(1) and

(a)(2) of this section; and

(iii) Agree that if it becomes acquired

or controlled by a business which does

not meet the requirements of paragraphs

(a)(1) and (a)(2) of this section, it will

require as a condition of the acquisition

or change of control that the acquiring

or controlling business resell at least

70% of the sawtimber volume to

businesses which do meet the

requirements of paragraphs

(a)(1) and (a)(2) of this section; or

(4) If it intends at the time of offer to

resell the timber—

(i) Agree that it will not sell more than

30% of such timber (50% of such timber

if the concern is an Alaskan business) to

a business which does not meet the

requirements of paragraphs (a)(1) and

(a)(2) of this section; and

(ii) Agree that if it becomes acquired

or controlled by a business which does

not meet the requirements of paragraphs

(a)(1) and (a)(2) of this section, it will

require as a condition of the acquisition

or change of control that the acquiring

or controlling business resell at least

70% of the sawtimber volume (or at

least 50% of the sawtimber volume, if

it is an Alaskan business) to businesses

which meet the requirements of

paragraphs (a)(1) and (a)(2) of this

section.

(b) For a period of three years

following the date upon which a

concern purchases timber under a small

business set-aside (other than through

the Special Salvage Timber Sale

program), it must maintain a record of:

(1) The name, address and size status

of every concern to which it sells the

timber or sawlogs; and
3298 Federal Register / Vol. 61, No. 21 / Wednesday, January 31, 1996 / Rules and Regulations

(2) The species, grades and volumes

of sawlogs sold.

(c) For a period of three years

following the date upon which a

concern purchases timber, it must by

contract require all small business

repurchasers of the sawlogs or timber it

purchased under the small business setaside to maintain the records described

in paragraph (b) of this section.

§ 121.508 What are the size standard and

other requirements for the purchase of

Government-owned Special Salvage

Timber?

(a) In order to purchase Governmentowned Special Salvage Timber from the

United States Forest Service or the

Bureau of Land Management as a small

business, a concern must:

(1) Be primarily engaged in the

logging or forest product industry;

(2) Have, together with its affiliates,

no more than twenty-five employees

during any pay period for the last

twelve months; and

(3) If it does not intend at the time of

offer to resell the timber—

(i) Agree that it will manufacture a

significant portion of the logs with its

own employees; and

(ii) Agree that it will log the timber

only with its own employees or with

employees of another business which is

eligible for award of a Special Salvage

Timber sales contract; or

(4) If it intends at the time of offer to

resell the timber, agree that it will

perform a significant portion of timber

logging with its own employees and that

it will subcontract the remainder of the

timber logging to a concern which is

eligible for award of a Special Salvage

Timber sales contract.

§ 121.509 What is the size standard for

leasing of Government land for coal

mining?

A concern is small for this purpose if

it:

(a) Together with its affiliates, does

not have more than 250 employees;

(b) Maintains management and

control of the actual mining operations

of the tract; and

(c) Agrees that if it subleases the

Government land, it will be to another

small business, and that it will require

its sublessors to agree to the same.

§ 121.510 What is the size standard for

leasing of Government land for uranium

mining?

A concern is small for this purpose if

it, together with its affiliates, does not

have more than 100 employees.

§ 121.511 What is the size standard for

buying Government-owned petroleum?

A concern is small for this purpose if

it is primarily engaged in petroleum

refining and meets the size standard for

a petroleum refining business.

§ 121.512 What is the size standard for

stockpile purchases?

A concern is small for this purpose if:

(a) It is primarily engaged in the

purchase of materials which are not

domestic products; and

(b) Its annual receipts, together with

its affiliates, do not exceed $42 million.

Size Eligibility Requirements for the

Minority Enterprise Development

(MED) Program

§ 121.601 What is a small business for

purposes of admission to SBA’s Minority

Enterprise Development (MED) program?

An applicant must be small under the

size standard corresponding to its

primary industry classification in order

to be admitted to SBA’s Minority

Enterprise Development (MED)

program.

§ 121.602 At what point in time must a

MED applicant be small?

A MED applicant must be small for its

primary industry at the time SBA

certifies it for admission into the

program.

§ 121.603 How does SBA determine

whether a Participant is small for a

particular MED subcontract?

(a) Self certification by Participant. A

MED Participant must certify that it

qualifies as a small business under the

SIC code assigned to a particular MED

subcontract as part of its initial offer

including price to the procuring agency.

The Participant also must submit a copy

of its offer, including its selfcertification as to size, to the

appropriate SBA district office at the

same time it submits the offer to the

procuring agency. See § 121.404 for the

time at which size is determined for,

and § 121.406 for the applicability of the

nonmanufacturer rule to, MED

procurements.

(b) Verification of size by SBA. Within

30 days of its receipt of a Participant’s

size self-certification for a particular

MED subcontract, the SBA district office

serving the geographic area in which the

Participant’s principal office is located

will review the Participant’s selfcertification and determine if it is small

for purposes of that subcontract. The

SBA district office will review the

Participant’s most recent financial

statements and other relevant data and

then notify the Participant of its

decision.

(c) Changes in size between date of

self-certification and date of award. (1)

Where SBA verifies that the selected

Participant is small for a particular

procurement, subsequent changes in

size up to the date of award, except

those due to merger with or acquisition

by another business concern, will not

affect the firm’s size status for that

procurement.

(2) Where a Participant has merged

with or been acquired by another

business concern between the date of its

self-certification and the date of award,

the concern must recertify its size

status, and SBA must verify the new

certification before award can occur.

(d) Finding Participant to be other

than small. (1) A Participant may

request a formal size determination

(pursuant to §§ 121.1001 through

121.1009) with the SBA Government

Contracting Area Office serving the

geographic area in which the principal

office of the Participant is located

within 5 working days of its receipt of

notice from the SBA district office that

it is not small for a particular MED

subcontract.

(2) Where the Participant does not

timely request a formal size

determination, SBA may accept the

procurement in support of another

Participant, or may rescind its

acceptance of the offer for the MED

program, as appropriate.

§ 121.604 Are MED Participants

considered small for purposes of other SBA

assistance?

A concern which SBA determines to

be a small business for the award of a

MED subcontract will be considered to

have met applicable size eligibility

requirements of other SBA programs

where that assistance directly and

primarily relates to the performance of

the MED subcontract in question.

Size Eligibility Requirements for the

Small Business Innovation Research

(SBIR) Program

§ 121.701 What SBIR programs are subject

to size determinations?

(a) These sections apply to size status

for award of a funding agreement

pursuant to the Small Business

Innovation Development Act of 1982

(Pub. L. 97–219, 15 U.S.C. 638(e)

through (k)).

(b) Funding agreement officer means

a contracting officer, a grants officer, or

a cooperative agreement officer.

(c) Funding agreement means any

contract, grant or cooperative agreement

entered into between any Federal

agency and any small business for the

performance of experimental,

developmental, or research work funded

in whole or in part by the Federal

Government. Such work includes:

(1) A systematic, intensive study

directed toward greater knowledge or

understanding of the subject studied;
Federal Register / Vol. 61, No. 21 / Wednesday, January 31, 1996 / Rules and Regulations 3299

(2) A systematic study directed

specifically toward applying new

knowledge to meet a recognized need;

or

(3) A systematic application of

knowledge toward the production of

useful materials, devices, and systems

or methods, including design,

development, and improvement of

prototypes and new processes to meet

specific requirements.

§ 121.702 What size standards are

applicable to the SBIR program?

To be eligible to compete for award of

funding agreements in SBA’s Small

Business Innovation Research (SBIR)

program, a business concern must:

(a) Be at least 51 percent owned and

controlled by one or more individuals

who are citizens of, or permanent

resident aliens in, the United States; and

(b) Not have more than 500

employees, including its affiliates.

§ 121.703 Are formal size determinations

binding on parties?

Size determinations by authorized

SBA officials are formal actions based

upon a specific funding agreement, and

are binding upon the parties. Other SBA

opinions provided to funding agreement

officers or others, are only advisory, and

are not binding or appealable.

§ 121.704 When does SBA determine the

size status of a business concern?

The size status of a concern for the

purpose of a funding agreement under

the SBIR program is determined as of

the date of the award for both Phase I

and Phase II SBIR awards.

§ 121.705 Must a business concern selfcertify its size status?

(a) A firm must self-certify it is small

in its SBIR funding proposal.

(b) A funding agreement officer may

accept a concern’s self-certification as

true for the particular funding

agreement involved in the absence of a

written protest by other offerors or other

credible information which would cause

the funding agreement officer or SBA to

question the size of the concern.

(c) Procedures for protesting an

offeror’s self-certification are set forth in

§§ 121.1001 through 121.1009.

Size Eligibility Requirements For

Paying Reduced Patent Fees

§ 121.801 May patent fees be reduced if a

concern is small?

These sections apply to size status for

the purpose of paying reduced patent

fees authorized by Pub. L. 97–247, 96

Stat. 317. The eligibility requirements

for independent inventors and nonprofit

organizations for the purpose of paying

reduced patent fees are set forth in

regulations of the Patent and Trademark

Office of the Department of Commerce,

37 CFR 1.9, 1.27, 1.28.

§ 121.802 What size standards are

applicable to reduced patent fees

programs?

A concern eligible for reduced patent

fees is one:

(a) Whose number of employees,

including affiliates, does not exceed 500

persons; and

(b) Which has not assigned, granted,

conveyed, or licensed (and is under no

obligation to do so) any rights in the

invention to any person who made it

and could not be classified as an

independent inventor, or to any concern

which would not qualify as a non-profit

organization or a small business concern

under this section.

§ 121.803 Are formal size determinations

binding on parties?

Size determinations by authorized

SBA officials are formal actions, based

upon a specific patent application

pursuant to the rules of the Patent and

Trademark Office, Department of

Commerce, and are binding upon the

parties. Other SBA opinions provided to

patent applicants or others are only

advisory, and are not binding or

appealable.

§ 121.804 When does SBA determine the

size status of a business concern?

Size status is determined as of the

date of the patent applicant’s written

verification of size.

§ 121.805 May a business concern selfcertify its size status?

(a) A concern verifies its size status

with its submission of its patent

application.

(b) Any attempt to establish small size

status improperly (fraudulently, through

gross negligence, or otherwise) may

result in remedial action by the Patent

and Trademark Office.

(c) In the absence of credible

information indicating otherwise, the

Patent and Trademark Office may accept

the verification by the concern as a

small business as true.

(d) Questions concerning the size

verification are resolved initially by the

Patent and Trademark Office. If not

verified as small, the applicant may

request a formal SBA size

determination.

Size Eligibility Requirements for

Compliance With Programs of Other

Agencies

§ 121.901 Can other Government agencies

obtain SBA size determinations?

Upon request by another Government

agency, SBA will provide a size

determination, under SBA rules,

standards and procedures, for its use in

determining compliance with small

business requirements of its statutes,

regulations or programs.

§ 121.902 What size standards are

applicable to programs of other agencies?

(a) SBA size standards. The size

standards for compliance with programs

of other agencies are those for SBA

programs which are most comparable to

the programs of such other agencies,

unless otherwise agreed by the agency

and SBA.

(b) Special size standards. (1) Federal

agencies or departments promulgating

regulations relating to small businesses

usually use SBA size criteria. In limited

circumstances, if they decide the SBA

size standard is not appropriate, then

agency heads may establish a small

business definition for the exclusive use

of such program which is more

appropriate, but only when:

(i) The size standard is first proposed

for public comment pursuant to the

Administrative Procedure Act, 4 U.S.C.

553;

(ii) The proposed size standard

provides for determining size measured

by average number of employees over 12

months for manufacturing concerns,

average annual revenues over three

years for concerns providing services,

and data over a period of not less than

three years for all other concerns (unless

approved by SBA, ‘‘annual receipts’’

and ‘‘number of employees’’ must be

determined in accordance with

§§ 121.104 and 121.106, respectively);

and

(iii) The proposed size standard is

approved by SBA’s Administrator.

(2) In order to receive the approval of

SBA’s Administrator, the agency head

must:

(i) Request approval prior to

publishing the proposed rule containing

the size standard. The request must

include: an explanation of the

contemplated industry size standard,

the reasons the SBA size standard is not

appropriate, and the reasons the

proposed size standard would be

appropriate; and a certification that

there will be compliance with the

criteria set forth in paragraphs (b)(1)(i)

and (b)(1)(ii) of this section; and

(ii) Agree to provide written notice to

SBA’s Administrator prior to publishing

the contemplated size standard as a

final rule. The notice must include: a

copy of the intended final rule,

including the preamble, or a separate

written justification for the intended

size standard followed by a copy of the

intended final rule and preamble prior

to its publication; copies of all public
3300 Federal Register / Vol. 61, No. 21 / Wednesday, January 31, 1996 / Rules and Regulations

comments relating to the size standard

received in response to the proposed

rule; and any other supporting

documentation relevant to the size

standard and requested by SBA’s

Administrator.

(3) When approving any size standard

established pursuant to subsection (b) of

this section, SBA’s Administrator will

ensure that the size standard varies from

industry to industry to the extent

necessary to reflect the differing

characteristics of the various industries,

and consider other relevant factors.

(4) Where the agency head is

developing a size standard for the sole

purpose of performing a Regulatory

Flexibility Analysis pursuant to the

Regulatory Flexibility Act, the

department or agency may, after

consultation with the SBA Office of

Advocacy, establish a size standard

different from SBA’s which is more

appropriate for such analysis.

§ 121.903 When does SBA determine the

size status of a business concern?

For the purpose of compliance with

programs of other agencies, SBA will

base its size determination on the size

of the concern as of the date set forth in

the request of the other agency.

Procedures for Size Protests and

Requests for Formal Size

Determinations

§ 121.1001 Who may initiate a size protest

or a request for formal size determination?

(a) Size Status Protests. (1) For SBA’s

Small Business Set-Aside Program,

including the Property Sales Program,

the following entities may file a size

protest in connection with a particular

procurement or sale:

(i) Any offeror;

(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, or the Associate

Administrator for Government

Contracting; and

(iv) Other interested parties. Other

interested parties include large

businesses where only one concern

submitted an offer for the specific

procurement in question. A concern

found to be other than small in

connection with the procurement is not

an interested party unless there is only

one remaining offeror after the concern

is found to be other than small.

(2) For SBA’s Subcontracting

Program, the following entities may

protest:

(i) The prime contractor;

(ii) The contracting officer;

(iii) Other potential subcontractors;

(iv) The responsible SBA Government

Contracting Area Director or the

Associate Administrator for Government

Contracting; and

(v) Other interested parties.

(3) For SBA’s Small Business

Innovation Research (SBIR) Program,

the following entities may protest:

(i) A prospective offeror;

(ii) The funding agreement officer;

(iii) The responsible SBA Government

Contracting Area Director or the

Assistant Administrator for Technology;

and

(iv) Other interested parties.

(4) For the Department of Defense’s

Small Disadvantaged Business (SDB)

Program, and any other similar program

of another Federal agency, the following

entities may file a protest in connection

with a particular SDB procurement:

(i) Any offeror for the specific SDB

requirement;

(ii) The contracting officer; and

(iii) The responsible SBA Government

Contracting Area Director, the Associate

Administrator for Government

Contracting, or the Associate

Administrator for MED.

(5) For any unrestricted Government

procurement in which status as a small

business may be beneficial, including,

but not limited to, the award of a

contract to a small business where there

are tie bids, the opportunity to seek a

Certificate of Competency by a small

business, and SDB price evaluation

preferences, the following entities may

protest in connection with a particular

procurement:

(i) Any offeror;

(ii) The contracting officer; and

(iii) The responsible SBA Government

Contracting Area Director, the Associate

Administrator for Government

Contracting, or the Associate

Administrator for MED.

(b) Request for Size Determinations.

(1) For SBA’s Financial Assistance

Programs, the following entities may

request a formal size determination:

(i) The applicant for assistance; and

(ii) The SBA official with authority to

take final action on the assistance

requested. That official may also request

the appropriate Government Contracting

Area Office to determine whether

affiliation exists between an applicant

for financial assistance and one or more

other entities for purposes of

determining whether the applicant

would exceed the loan limit amount

imposed by § 120.151 of this chapter.

(2) For SBA’s MED program—

(i) Concerning initial MED eligibility,

the following entities may request a

formal size determination:

(A) The MED applicant concern; and

(B) The Director of the Division of

Program Certification and Eligibility or

the Associate Administrator for MED.

(ii) Concerning individual 8(a)

subcontract awards, whether sole source

or competitive, the following entities

may request a formal size

determination:

(A) The MED concern nominated by

SBA for the particular sole source 8(a)

award or the apparent successful offeror

for the particular competitive 8(a)

award;

(B) The SBA program official with

authority to execute the 8(a)

subcontract; and

(C) The SBA District Director in the

district serving the area in which the

headquarters of the MED concern is

located, regardless of the location of a

parent company and affiliates, or the

Associate Administrator for MED.

(3) For SBA’s Certificate of

Competency Program, the following

entities may request a formal size

determination:

(i) The offeror who has applied for a

COC; and

(ii) The responsible SBA Government

Contracting Area Director or the

Associate Administrator for Government

Contracting.

(4) For SBA’s sale or lease of

government property, the following

entities may request a formal size

determination:

(i) The responsible SBA Government

Contracting Area Director or the

Associate Administrator for Government

Contracting; and

(ii) Authorized officials of other

Federal agencies administering a

property sales program.

(5) For eligibility to pay reduced

patent fees, the following entities may

request a formal size determination:

(i) The applicant for the reduced

patent fees; and

(ii) The Patent and Trademark Office.

(6) For purposes of determining

compliance with small business

requirements of another Government

agency program not otherwise specified

in this section, an official with authority

to administer the program involved may

request a formal size determination.

§ 121.1002 Who makes a formal size

determination?

The responsible Government

Contracting Area Director or designee

makes all formal size determinations in

response to either a size protest or a

request for a formal size determination,

with the exception of size

determinations for purposes of the

Disaster Loan Program, which will be

made by the Disaster Area Office

Director or designee responsible for the

area in which the disaster occurred.
Federal Register / Vol. 61, No. 21 / Wednesday, January 31, 1996 / Rules and Regulations 3301

§ 121.1003 Where should a size protest be

filed?

A protest involving a government

procurement or sale must be filed with

the contracting officer for the

procurement or sale, who must forward

the protest to the SBA Government

Contracting Area Office serving the area

in which the headquarters of the

protested concern is located, regardless

of the location of any parent company

or affiliates.

§ 121.1004 What time limits apply to

protests?

(a) Protests by entities other than

contracting officers or SBA. (1) Nonnegotiated procurement or sale. A

protest must be received by the

contracting officer prior to the close of

business on the 5th day, exclusive of

Saturdays, Sundays, and legal holidays,

after bid or proposal opening.

(2) Negotiated procurement. A protest

must be received by the contracting

officer prior to the close of business on

the 5th day, exclusive of Saturdays,

Sundays, and legal holidays, after the

contracting officer has notified the

protestor of the identity of the

prospective awardee.

(3) Multiple award schedule. On a

multiple award schedule procurement

set aside for small business, protests

will be considered timely if received by

SBA at any time prior to the expiration

of the contract period (including

renewals).

(b) Protests by contracting officers or

SBA. The time limitations in paragraph

(a) of this section do not apply to

contracting officers or SBA, and they

may file protests before or after awards,

except to the extent set forth in

paragraph (e) of this section.

(c) Effect of contract award. A timely

filed protest applies to the procurement

in question even though a contracting

officer awarded the contract prior to

receipt of the protest.

(d) Untimely protests. A protest

received after the allotted time limits

must still be forwarded to SBA. SBA

will dismiss untimely protests.

(e) Premature protests. A protest filed

by any party, including the contracting

officer, before bid opening or

notification to offerors of the selection

of the apparent successful offer will be

dismissed as premature.

§ 121.1005 How must a protest be filed

with the contracting officer?

A protest must be delivered to the

contracting officer by hand, telegram,

mail, FAX, or telephone. If a protest is

made by telephone, the contracting

officer must later receive a confirming

letter either within the 5-day period in

§ 121.1004(a)(1) or postmarked no later

than one day after the date of the

telephone protest.

§ 121.1006 When will a size protest be

referred to an SBA Government Contracting

Area Office?

(a) A contracting officer who receives

a protest (other than from SBA) must

forward the protest promptly to the SBA

Government Contracting Area Office

serving the area in which the

headquarters of the offeror is located.

(b) A contracting officer’s referral

must contain the following information:

(1) The protest and any accompanying

materials;

(2) A copy of the self-certification as

to size;

(3) Identification of the applicable

size standard;

(4) A copy of the solicitation;

(5) Identification of the date of bid

opening or notification provided to

unsuccessful offerors;

(6) The date on which the protest was

received; and

(7) A complete address and point of

contact for the protested concern.

§ 121.1007 Must a protest of size status

relate to a particular procurement and be

specific?

(a) Particular procurement. A protest

challenging the size of a concern which

does not pertain to a particular

procurement or sale will not be acted on

by SBA.

(b) A protest must include specific

facts. A protest must be sufficiently

specific to provide reasonable notice as

to the grounds upon which the

protested concern’s size is questioned.

Some basis for the belief or allegation

stated in the protest must be given. A

protest merely alleging that the

protested concern is not small or is

affiliated with unnamed other concerns

does not specify adequate grounds for

the protest. No particular form is

prescribed for a protest. Where materials

supporting the protest are available,

they should be submitted with the

protest.

(c) Non-specific protests will be

dismissed. Protests which do not

contain sufficient specificity will be

dismissed by SBA.

§ 121.1008 What happens after SBA

receives a size protest or a request for a

formal size determination?

(a) When a size protest is received, the

SBA Government Contracting Area

Director, or designee, will promptly

notify the contracting officer, the

protested concern, and the protestor that

a protest has been received. In the event

the size protest pertains to a

requirement involving SBA’s SBIR

Program, the Government Contracting

Area Director will advise the Assistant

Administrator for Technology of the

receipt of the protest. SBA will provide

a copy of the protest to the protested

concern along with a blank SBA

Application for Small Business Size

Determination (SBA Form 355) by

certified mail, return receipt requested,

or by any overnight delivery service that

provides proof of receipt. SBA will ask

the protested concern to respond to the

allegations of the protestor.

(b) When SBA receives a request for

a formal size determination in accord

with § 121.1001(b), SBA will provide a

blank copy of SBA Form 355 to the

concern whose size is at issue.

(c) The protested concern or concern

whose size is at issue must return the

completed SBA Form 355 and all other

requested information to SBA within 3

working days from the date of receipt of

the blank form from SBA. SBA has

discretion to grant an extension of time

to file the form. The firm must attach to

the completed SBA Form 355 its

answers to the allegations contained in

the protest, where applicable, together

with any supporting material.

(d) If a concern does not submit a

completed SBA Form 355, answers to

the protest allegations, or other

requested information within the

allotted time provided by SBA, or if it

submits incomplete information, SBA

may presume that disclosure of the

form, any information missing from it,

or other missing information would

show or tend to show that the concern

is other than a small business.

§ 121.1009 What are the procedures for

making the size determination?

(a) Time frame for making size

determination. After receipt of a protest

or a request for a formal size

determination, SBA will make a formal

size determination within 10 working

days, if possible.

(b) Basis for determination. The size

determination will be based primarily

on information supplied by the

protestor or the entity requesting the

size determination and the subject

concern. The determination, however,

may also be based on other grounds not

raised in the protest or request for size

determination. SBA may utilize other

information in its files and may make

inquiries including requests to the

protestor, the protested concern and any

alleged affiliates, or other persons for

additional specific information.

(c) Burden of persuasion. The concern

whose size is under consideration has

the burden of establishing its small

business size.
3302 Federal Register / Vol. 61, No. 21 / Wednesday, January 31, 1996 / Rules and Regulations

(d) Weight of evidence. SBA will give

greater weight to specific, signed,

factual evidence than to general,

unsupported allegations or opinions. In

the case of refusal or failure to furnish

requested information within a required

time period, SBA may assume that

disclosure would be contrary to the

interests of the party failing to make

disclosure.

(e) Formal size determination. The

SBA will base its formal size

determination upon the record,

including reasonable inferences from

the record, and will state in writing the

basis for its findings and conclusions.

(f) Notification of determination. SBA

will promptly notify the contracting

officer, the protestor, and the protested

offeror, as well as each affiliate or

alleged affiliate, of the size

determination. The notification will be

by certified mail, return receipt

requested, or by any overnight delivery

service that provides proof of receipt.

(g) Results of an SBA size

determination. (1) A formal size

determination becomes effective

immediately and remains in full force

and effect unless and until reversed by

OHA.

(2) Once SBA has determined that a

concern is other than small for purposes

of a particular procurement, the concern

cannot later become eligible for the

procurement by reducing its size.

(3) A concern determined to be other

than small for a particular size standard

is ineligible for any procurement or

assistance authorized by the Small

Business Act or the Small Business

Investment Act of 1958, requiring the

same or a lower size standard, unless

recertified as small pursuant to

§ 121.1010. Following an adverse size

determination, a concern cannot again

self-certify as small within the same or

a lower size standard unless it is

recertified as small by SBA. If it does so,

it may be in violation of criminal laws,

including section 16(d) of the Small

Business Act, 15 U.S.C. 645(d). If the

concern has already certified itself as

small on a pending procurement or on

another assistance application, the

concern must immediately inform the

officials responsible for the pending

procurement or other requested

assistance of the adverse size

determination.

(h) Limited reopening of size

determinations. In cases where the size

determination contains clear

administrative error or a clear mistake of

fact, SBA may, in its sole discretion,

reopen the size determination to correct

the error or mistake, provided the case

has not been accepted for review by

OHA.

§ 121.1010 How does a concern become

recertified as a small business?

(a) A concern may request SBA to

recertify it as small at any time by filing

an application for recertification with

the Government Contracting Area Office

responsible for the area in which the

headquarters of the applicant is located,

regardless of the location of parent

companies or affiliates. No particular

form is prescribed for the application;

however, the request for recertification

must be accompanied by a current

completed SBA Form 355 and any other

information sufficient to show a

significant change in its ownership,

management, or other factors bearing on

its status as a small concern.

(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 due to a joint

venture (e.g., ostensible subcontracting)

limited to a particular Government

procurement or property sale, or is

based on an ineligible manufacturer

where the eligible small business bidder

or offeror is a nonmanufacturer on a

particular Government procurement.

(c) A denial of an application for

recertification is a formal size

determination and may be reviewed by

OHA at the discretion of that office.

(d) The granting of an application for

recertification has future effect only.

While it is a formal size determination,

notice of recertification is required to be

given only to the applicant.

Appeals of Size Determinations and SIC

Code Designations

§ 121.1101 Are formal size determinations

subject to appeal?

There is no right of appeal of a size

determination. OHA, however, may, in

its sole discretion, review a formal size

determination made by a SBA

Government Contracting Area Office or

by a Disaster Area Office. Unless OHA

accepts a petition for review of a formal

size determination, the size

determination made by a SBA

Government Contracting Area Office or

by a Disaster Area Office is the final

decision of SBA. The procedures for

requesting discretionary reviews by

OHA of formal size determinations are

set forth in part 134 of this chapter.

§ 121.1102 Are SIC code designations

subject to appeal?

Appeals may be made to OHA, which

has exclusive jurisdiction to determine

appeals of SIC code designations

pursuant to part 134 of this chapter.

§ 121.1103 What are the procedures for

appealing a SIC code designation?

(a) Generally, any interested party

who has been adversely affected by a

SIC code designation may appeal the

designation to OHA. However, with

respect to a particular MED contract,

only the Associate Administrator for

MED may appeal.

(b) Procedures for perfecting SIC code

appeals with OHA are contained in

§ 19.303 of the Federal Acquisition

Regulations, 48 CFR 19.303.

Subpart B—Other Applicable

Provisions

Waivers of the Nonmanufacturer Rule

for Classes of Products and Individual

Contracts

§ 121.1201 What is the Nonmanufacturer

Rule?

The Nonmanufacturer Rule is set forth

in § 121.406(b).

§ 121.1202 When will a waiver of the

Nonmanufacturer Rule be granted for a

class of products?

(a) A waiver for a class of products

(class waiver) will be granted when

there are no small business

manufacturers or processors available to

participate in the Federal market for that

class of products.

(b) Federal market means acquisitions

by the Federal Government from

offerors located in the United States, or

such smaller area as SBA designates if

it concludes that the class of products

is not supplied on a national basis.

(1) When considering the appropriate

market area for a product, SBA

presumes that the entire United States is

the relevant Federal market, unless it is

clearly demonstrated that a class of

products cannot be procured on a

national basis. This presumption may be

particularly difficult to overcome in the

case of manufactured products, since

such items typically have a market area

encompassing the entire United States.

(2) When considering geographic

segmentation of a Federal market, SBA

will not necessarily use market

definitions dependent on airline radius,

political, or SBA regional boundaries.

Market areas typically follow

established transportation routes rather

than jurisdictional borders. SBA

examines the following factors, among

others, in cases where geographic

segmentation for a class of products is

urged:

(i) Whether perishability affects the

area in which the product can

practically be sold;

(ii) Whether transportation costs are

high as a proportion of the total value
Federal Register / Vol. 61, No. 21 / Wednesday, January 31, 1996 / Rules and Regulations 3303

of the product so as to limit the

economic distribution of the product;

(iii) Whether there are legal barriers to

transportation of the item;

(iv) Whether a fixed, well-delineated

boundary exists for the purported

market area and whether this boundary

has been stable over time; and

(v) Whether a small business, not

currently selling in the defined market

area, could potentially enter the market

from another area and supply the

market at a reasonable price.

(c) Available to participate in the

context of the Federal market means

that contractors exist that have been

awarded or have performed a contract to

supply a specific class of products to the

Federal Government within 24 months

from the date of the request for waiver,

either directly or through a dealer, or

who have submitted an offer on a

solicitation for that class of products

within that time frame.

(d) Class of products is an individual

subdivision within a four-digit Industry

Number as established by the Office of

Management and Budget in the SIC

Manual.

§ 121.1203 When will a waiver of the

Nonmanufacturer Rule be granted for an

individual contract?

An individual waiver for a product in

a specific solicitation will be approved

when the SBA Associate Administrator

for Government Contracting reviews and

accepts a contracting officer’s

determination that no small business

manufacturer or processor can

reasonably be expected to offer a

product meeting the specifications of a

solicitation, including the period of

performance.

§ 121.1204 What are the procedures for

requesting and granting waivers?

(a) Waivers for classes of products. (1)

SBA may, at its own initiative, examine

a class of products for possible waiver

of the Nonmanufacturer Rule.

(2) Any interested person, business,

association, or Federal agency may

submit a request for a waiver for a

particular class of products. Requests

should be addressed or hand-carried to

the Associate Administrator of

Government Contracting, Small

Business Administration, 409 3rd Street

S.W., Washington, D.C. 20416.

(3) Requests for a waiver of a class of

products need not be in any particular

form, but should include a statement of

the class of products to be waived, the

applicable SIC code, and detailed

information on the efforts made to

identify small business manufacturers

or processors for the class.

(4) If SBA decides that there are small

business manufacturers or processors in

the Federal procurement market, it will

deny the request for waiver, issue notice

of the denial, and provide the names,

addresses, and telephone numbers of

the sources found. If SBA does not

initially confirm the existence of small

business manufacturers or processors in

the Federal market, it will:

(i) Publish notices in the Commerce

Business Daily and the Federal Register

seeking information on small business

manufacturers or processors,

announcing a notice of intent to waive

the Nonmanufacturer Rule for that class

of products and affording the public a

15-day comment period; and

(ii) If no small business sources are

identified, publish a notice in the

Federal Register stating that no small

business sources were found and that a

waiver of the Nonmanufacturer Rule for

that class of products has been granted.

(5) An expedited procedure for

issuing a class waiver may be used for

emergency situations, but only if the

contracting officer provides a

determination to the Associate

Administrator for Government

Contracting that the procurement is

proceeding under the authority of FAR

§ 6.302–2 (48 CFR 6.302–2) for ‘‘unusual

and compelling urgency,’’ or provides a

determination materially the same as

one of unusual and compelling urgency.

Under the expedited procedure, if a

small business manufacturer or

processor is not identified by a PASS

search, the SBA will grant the waiver for

the class of products and then publish

a notice in the Federal Register. The

notice will state that a waiver has been

granted, and solicit public comment for

future procurements.

(6) The decision by the Associate

Administrator for Government

Contracting to grant or deny a waiver is

the final decision by the Agency.

(7) A waiver of the Nonmanufacturer

Rule for classes of products has no

specific time limitation. SBA will,

however, periodically review existing

class waivers to the Nonmanufacturer

Rule to determine if small business

manufacturers or processors have

become available to participate in the

Federal market for the waived classes of

products and the waiver should be

terminated.

(i) Upon SBA’s receipt of evidence

that a small business manufacturer or

processor exists in the Federal market

for a waived class of products, the

waiver will be terminated by the

Associate Administrator for Government

Contracting. This evidence may be

discovered by SBA during a periodic

review of existing waivers or may be

brought to SBA’s attention by other

sources.

(ii) SBA will announce its intent to

terminate a waiver for a class of

products through the publication of a

notice in the Federal Register, asking

for comments regarding the proposed

termination.

(iii) Unless public comment reveals

that no small business manufacturer or

processor in fact exists for the class of

products in question, SBA will publish

a final Notice of Termination in the

Federal Register.

(b) Individual waivers for specific

solicitations. (1) A contracting officer’s

request for a waiver of the

Nonmanufacturer Rule for specific

solicitations need not be in any

particular form, but must, at a

minimum, include:

(i) A definitive statement of the

specific item to be waived and

justification as to why the specific item

is required;

(ii) The solicitation number, SIC code,

dollar amount of the procurement, and

a brief statement of the procurement

history;

(iii) A determination by the

contracting officer that there are no

known small business manufacturers or

processors for the requested items (the

determination must contain a narrative

statement of the contracting officer’s

efforts to search for small business

manufacturers or processors of the item

and the results of those efforts, and a

statement by the contracting officer that

there are no known small business

manufacturers for the items and that no

small business manufacturer or

processor can reasonably be expected to

offer the required items); and

(iv) For contracts expected to exceed

$500,000, a copy of the Statement of

Work.

(2) Requests should be addressed to

the Associate Administrator for

Government Contracting, Small

Business Administration, 409 3rd Street,

S.W., Washington, D.C. 20416.

(3) SBA will examine the contracting

officer’s determination and any other

information it deems necessary to make

an informed decision on the individual

waiver request. If SBA’s research

verifies that no small business

manufacturers or processors exist for the

item, the Associate Administrator for

Government Contracting will grant an

individual, one-time waiver. If a small

business manufacturer or processor is

found for the product in question, the

Associate Administrator will deny the

request. Either decision represents a

final decision by SBA.
3304 Federal Register / Vol. 61, No. 21 / Wednesday, January 31, 1996 / Rules and Regulations

§ 121.1205 How is a list of previously

granted class waivers obtained?

A list of classes of products for which

waivers of the Nonmanufacturer Rule

have been granted will be maintained in

SBA’s Procurement Automated Source

System (PASS). A list of such waivers

may also be obtained by contacting the

Office of Government Contracting at the

Small Business Administration, 409 3rd

Street, S.W., Washington, D.C. 20416, or

at the nearest SBA Government

Contracting Area Office.

Dated: January 22, 1996.

John T. Spotila,

Acting Administrator.

[FR Doc. 96–1348 Filed 1–30–96; 8:45 am]

BILLING CODE 8025–01–P

13 CFR Part 123

Disaster Loan Program

AGENCY: Small Business Administration.

ACTION: Final rule.

SUMMARY: In response to President

Clinton’s regulatory review directive,

the Small Business Administration has

completed a page-by-page and line-byline review of its regulations. As a

result, SBA is clarifying and

streamlining its regulations. This final

rule reorganizes the entire Part 123

covering the disaster loan program to

make it clearer and easier to use.

EFFECTIVE DATE: This rule is effective on

March 1, 1996.

FOR FURTHER INFORMATION CONTACT:

Bernard Kulik, Associate Administrator

for Disaster Assistance, at (202) 205–

6734.

SUPPLEMENTARY INFORMATION: Part 123 of

Chapter I, 13 CFR contains policies

governing the eligibility of disaster

victims to obtain low-cost loans to

restore their damaged property to its

pre-disaster condition. On November

24, 1995, SBA published a proposed

rule in the Federal Register (60 FR

58014) to reorganize the entire Part 123

to make it clearer and easier to use. SBA

did not receive any comments in

response to the proposed rule. Thus,

SBA is finalizing that rule without any

material changes. The rule eliminates

references to disasters which occurred

years ago, and it would eliminate

Subpart D—Persian Gulf Troop

Deployment Economic Injury Loans

because the authority for that loan

program has expired. A conversion table

follows:

Existing

section Action New section

123.1 .... Revise .. 123.1

Existing

section Action New section

123.2 .... Revise .. 123.101

123.3 .... Revise .. 123.3, 123.4, 123.5,

123.10, 123.101

123.4 .... Revise .. 123.5

123.5 .... Delete ..

123.6 .... Revise .. 123.8

123.7 .... Revise .. 123.3

123.8 .... Delete ..

123.9 .... Revise .. 123.101, 123.104,

123.105

123.10 .. Delete ..

123.11 .. Revise .. 123.11

123.12 .. Revise .. 123.13

123.13 .. Revise .. 123.16, 123.104

123.14 .. Revise .. 123.101

123.15 .. Delete ..

123.16 .. Delete ..

123.17 .. Revise .. 123.201

123.18 .. Revise .. 123.12

123.19 .. Revise .. 123.9

123.20 .. Delete ..

123.21 .. Revise .. 123.100, 123.200

123.22 .. Revise .. 123.3

123.23 .. Revise .. 123.3

123.24 .. Revise .. 123.6, 123.7, 123.12,

123.101, 123.105,

123.106, 123.107,

123.201, 123.202

123.25 .. Revise .. 123.15, 123.105

123.26 .. Revise .. 123.202, 123.203

123.27 .. Delete ..

123.28 .. Revise .. 123.202

123.29 .. Delete ..

123.40 .. Delete ..

123.41 .. Revise .. 123.14, 123.301,

123.302, 123.303

123.60–

69.

Delete ..

Compliance With Executive Orders

12612, 12778, and 12866, the

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

et seq.), and the Paperwork Reduction

Act (44 U.S.C. Ch. 35).

SBA certifies that this rule does not

have a significant economic impact on

a substantial number of small entities

within the meaning of Executive Order

12866, or the Regulatory Flexibility Act,

5 U.S.C. 601, et seq.

For purposes of the Paperwork

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

certifies that this rule contains no new

reporting or recordkeeping

requirements.

For purposes of Executive Order

12612, SBA certifies that this rule has

no federalism implications warranting

preparation of the federalism

assessment.

For purposes of Executive Order

12778, SBA certifies that this rule is

drafted, to the extent practicable, in

accordance with the standards set forth

in Section 2 of that Order.

List of Subjects in 13 CFR Part 123

Disaster assistance, loan programs—

business, Small businesses.

Pursuant to the authority set forth in

sections 5(b)(6), 7(b)(1), and 7(c)(6) of

the Small Business Act, SBA revises

Part 123 of Title 13 of the Code of

Federal Regulations, to read as follows:

PART 123—DISASTER LOAN

PROGRAM

Overview

123.1 What do these rules cover?

123.2 What are disaster loans and disaster

declarations?

123.3 How are disaster declarations made?

123.4 What is a disaster area and why is it

important?

123.5 What kinds of loans are available?

123.6 What does SBA look for when

considering a disaster loan applicant?

123.7 Are there restrictions on how

disaster loans can be used?

123.8 Does SBA charge any fees for

obtaining a disaster loan?

123.9 What happens if I don’t use loan

proceeds for the intended purpose?

123.10 What happens if I cannot use my

insurance proceeds to make repairs?

123.11 Does SBA require collateral for any

of its disaster loans?

123.12 Are books and records required?

123.13 What happens if my loan

application is denied?

123.14 How does the Federal Debt

Collection Procedures Act of 1990 apply?

123.15 What if I change my mind?

123.16 How are loans administered and

serviced?

123.17 Do other Federal requirements

apply?

Home Disaster Loans

123.100 Am I eligible to apply for a home

disaster loan?

123.101 When am I not eligible to apply for

a home disaster loan?

123.102 What circumstances would justify

my relocating?

123.103 What happens if I am forced to

move from my home?

123.104 What interest rate will I pay on my

home disaster loan?

123.105 How much can I borrow with a

home disaster loan and what limits

apply on use of funds and repayment

terms?

123.106 What is eligible refinancing?

123.107 What is mitigation?

Physical Disaster Business Loans

123.200 Am I eligible to apply for a

physical disaster business loan?

123.201 When am I not eligible to apply for

a physical disaster business loan?

123.202 How much can my business

borrow with a physical disaster business

loan?

123.203 What interest rate will my business

pay on a physical disaster business loan

and what are its repayment terms?

Economic Injury Disaster Loans

123.300 Is my business eligible to apply for

an economic injury disaster loan?

123.301 When would my business not be

eligible to apply for an economic injury

disaster loan?