This section of the FEDERAL REGISTER

contains notices to the public of the proposed

issuance of rules and regulations. The

purpose of these notices is to give interested

persons an opportunity to participate in the

rule making prior to the adoption of the final

rules.

Proposed Rules Federal Register

77955 

Vol. 79, No. 248 

Monday, December 29, 2014 

SMALL BUSINESS ADMINISTRATION 

13 CFR Parts 121, 124, 125, 126 and 

127 

[Docket No. SBA–2014–0006] 

RIN 3245–AG58 

Small Business Government 

Contracting and National Defense 

Authorization Act of 2013 Amendments 

AGENCY: U.S. Small Business 

Administration. 

ACTION: Proposed rule. 

SUMMARY: The U.S. Small Business 

Administration (SBA or Agency) is 

proposing to amend its regulations to 

implement provisions of the National 

Defense Authorization Act of 2013, 

which pertain to performance 

requirements applicable to small 

business and socioeconomic program 

set aside contracts and small business 

subcontracting. SBA is also proposing to 

make changes to its regulations 

concerning the nonmanufacturer rule 

and affiliation rules. Further, SBA is 

proposing to allow a joint venture to 

qualify as small for any government 

procurement as long as each partner to 

the joint venture qualifies individually 

as small under the size standard 

corresponding to the NAICS code 

assigned in the solicitation. Finally, 

SBA is requesting comments on the 

timeline and procedures for North 

American Industry Classification 

System code appeals. 

DATES: Comments must be received on 

or before February 27, 2015. 

ADDRESSES: You may submit comments, 

identified by RIN: 3245–AG58, by any of 

the following methods: 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

• For mail, paper, disk, or CD/ROM 

submissions: Brenda Fernandez, U.S. 

Small Business Administration, Office 

of Policy, Planning and Liaison, 409 

Third Street SW., 8th Floor, 

Washington, DC 20416. 

• Hand Delivery/Courier: Brenda 

Fernandez, U.S. Small Business 

Administration, Office of Policy, 

Planning and Liaison, 409 Third Street 

SW., 8th Floor, Washington, DC 20416. 

SBA will post all comments on 

www.regulations.gov. If you wish to 

submit confidential business 

information (CBI) as defined in the User 

Notice at www.regulations.gov, please 

submit the information to Brenda 

Fernandez, U.S. Small Business 

Administration, Office of Policy, 

Planning and Liaison, 409 Third Street 

SW., 8th Floor, Washington, DC 20416, 

or send an email to brenda.fernandez@

sba.gov. Highlight the information that 

you consider to be CBI and explain why 

you believe SBA should hold this 

information as confidential. SBA will 

review the information and make the 

final determination on whether it will 

publish the information. 

FOR FURTHER INFORMATION CONTACT: 

Brenda Fernandez, Office of Policy, 

Planning and Liaison, 409 Third Street 

SW., Washington, DC 20416; (202) 207– 

7337; brenda.fernandez@sba.gov. 

SUPPLEMENTARY INFORMATION: 

Proposed Changes Pursuant to the 

National Defense Authorization Act of 

2013 

Section 1621 of the National Defense 

Authorization Act of 2013 (NDAA), Pub. 

L. 112–239, 126 Stat. 1632 (Jan. 2013), 

revised the Small Business Act 

regarding the responsibilities of 

Procurement Center Representatives 

(PCRs). Section 1621 clarifies that PCRs 

have the ability to review barriers to 

small business participation in Federal 

contracting and to review any bundled 

or consolidated solicitation or contract 

in accordance with the Small Business 

Act. SBA proposes to amend 13 CFR 

125.2(b)(1)(i)(A), based on the changes 

in Section 1621(c)(6)(H) of the NDAA. 

This rule would add language to 

§ 125.2(b)(1)(i)(A) and to 

§ 125.2(b)(1)(ii), which clarifies that 

PCRs advocate for the maximum 

practicable utilization of small business 

concerns in Federal contracting, 

including advocating against the 

unjustified consolidation or bundling of 

contract requirements. 

Pursuant to Section 1621(c)(6)(G) of 

the NDAA, SBA proposes new 

§ 125.2(b)(1)(iv), which states that PCRs 

will consult with the agency’s Office of 

Small and Disadvantaged Business 

(OSDBU) and Office of Small Business 

Program (OSBP) Director regarding an 

agency’s decision to convert an activity 

performed by a small business concern 

to an activity performed by a Federal 

employee. SBA also proposes new 

§ 125.2(b)(1)(v) pursuant to the language 

enacted by Section 1621(c)(6)(F) of the 

NDAA, which allows PCRs to receive 

unsolicited proposals from small 

business concerns and to provide those 

proposals to the appropriate agency’s 

personnel for review and disposition. 

SBA also proposes to amend 

paragraphs 125.2(b)(1) and (2), which 

pertain to Breakout PCRs (BPCRs). 

Sections 1621(e) and (f) of the NDAA 

effectively eliminate the statutory 

authority for the separate BPCR role. As 

a result, SBA proposes to reassign the 

responsibilities currently held by BPCRs 

to PCRs. SBA proposes to add 

§ 125.2(b)(1)(i)(F), which states that 

PCRs also advocate full and open 

competition in Federal contracting and 

recommend the breakout for 

competition of items and requirements 

which previously have not been 

competed. SBA proposes the 

elimination of § 125.2(b)(2) that 

provided guidance on the role and 

responsibilities of BPCRs and proposes 

redesignating current § 125.2(b)(3) as the 

new § 125.2(b)(2) and removing any 

reference to BPCRs from that paragraph. 

Section 1651 of the NDAA, as 

codified at 15 U.S.C. 657s, requires that 

the limitations on subcontracting for full 

or partial small business set-aside 

contracts, HUBZone contracts, 8(a) BD 

contracts, SDVO SBC contracts, and 

WOSB and EDWOSB contracts, be 

evaluated based on the percentage of the 

overall award amount that a prime 

contractor spends on its subcontractors. 

Significantly, the NDAA excludes from 

the limitations on subcontracting 

calculation the percentage of the award 

amount that the prime contractor 

spends on similarly situated entity 

subcontractors. When a contract is 

awarded pursuant to a small business 

set-aside or socioeconomic program setaside, a similarly situated entity 

subcontractor is a small business 

concern subcontractor that is a 

participant of the same SBA program 

that qualified the prime contractor as an 

eligible offeror and awardee of the 

contract. 

Currently, SBA’s regulations contain 

different terms for compliance with the 


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performance of work requirements 

based on the type of small business 

program set-aside at issue. The method 

for calculating compliance not only 

varies by program set-aside type, but 

also based on whether the acquisition is 

for services, supplies, general 

construction, or specialty trade 

construction. Section 1651 of the NDAA 

creates a shift from the concept of a 

required percentage of work to be 

performed by a prime contractor to the 

concept of limiting a percentage of the 

award amount to be spent on 

subcontractors. The goal is the same: to 

ensure that a certain amount of work is 

performed by a prime contractor small 

business concern (SBC) that qualified 

for a small business program set-aside 

procurement due to its socioeconomic 

program status. SBA proposes to revise 

all references to ‘‘performance of work’’ 

requirements found in parts 121, 124, 

125, 126, and 127 to ‘‘limitations on 

subcontracting.’’ 

The current method for determining 

whether a firm is in compliance with 

the limitation on subcontracting 

requirements requires the Contracting 

Officer (CO) to evaluate the percentage 

of the cost of the contract performance 

incurred for the prime contractor’s 

personnel. This calculation excludes 

profit or fees from the cost of the 

contract and includes only those costs 

incurred for the prime contractor’s 

personnel, which was defined as direct 

labor costs and any overhead which has 

only direct labor as its base, plus the 

contractor’s General and Administrative 

rate multiplied by the labor cost. 

Additionally, Title 13, parts 124, 125, 

126, and 127 repeated the performance 

of work requirements, and in places, 

contained additional information 

affecting the calculation for the 

performance of work requirements. 

SBA proposes to totally revise § 125.6 

to take into account the new definition 

and calculation for the limitations on 

subcontracting, as described in Section 

1651 of the NDAA. SBA believes that it 

is critical that small businesses that 

obtain set aside contracts comply with 

applicable subcontracting limitations. 

The Government’s policy of promoting 

contracting opportunities for small 

businesses, HUBZone SBCs, SDVO 

SBCs, WOSBs/EDWOSBs, and 8(a) SBCs 

is seriously undermined when firms 

pass on work in excess of applicable 

limitations to firms that are other than 

small or that are not otherwise eligible 

for specific types of small business 

contracts. 

In addition, the section would be 

reorganized and simplified for easier 

use. Proposed § 125.6(a) would explain 

how to apply the limitations on 

subcontracting requirements to small 

business set-aside contracts. Instead of 

providing different methods of 

determining compliance based on the 

type of small business set-aside program 

at issue and the type of good or service 

sought, Section 1651(a) of the NDAA 

provides one method for determining 

compliance that is shared by almost all 

applicable small business set-aside 

programs, but varies based on whether 

the contract is for services, supplies or 

products, general construction, specialty 

trade construction, or a combination of 

both services and supplies. 

The approach described in Section 

1651(a) and (d) of the NDAA is to create 

a limit on the percentage of the award 

amount received by the prime 

contractor that may be spent on otherthan-small subcontractors. Specifically, 

the NDAA provides that a small 

business awarded a small business setaside, 8(a), SDVO small business, 

HUBZone, or WOSB/EDOSB award 

‘‘may not expend on subcontractors’’ 

more than a specified amount. However, 

as noted below, work done by ‘‘similarly 

situated entities’’ does not count as 

subcontracted work for purposes of 

determining compliance with the 

limitation on subcontracting 

requirements. Proposed §§ 125.6(a)(1) 

and (a)(3) would address the limitations 

on subcontracting applicable to small 

business set-aside contracts requiring 

services or supplies. The limitation on 

subcontracting for both services and 

supplies is statutorily set at 50% of the 

award amount received by the prime 

contractor. See 15 U.S.C. 657s(a). 

Proposed § 125.6(a)(3) addresses how 

the limitation on subcontracting 

requirement would be applied to a 

procurement that combines both 

services and supplies. This provision 

would clarify that the CO’s selection of 

the applicable NAICS code will 

determine which limitation of 

subcontracting requirement applies. 

Proposed §§ 125.6(a)(4) and (5) would 

address the limitations on 

subcontracting for general and specialty 

trade construction contracts. SBA 

proposes to keep the same percentages 

that currently apply: 15% for general 

construction and 25% for specialty 

trade construction. 

As noted above, the NDAA prohibits 

subcontracting beyond a certain 

specified amount for any small business 

set-aside, 8(a), SDVO small business, 

HUBZone, or WOSB/EDOSB contract. 

Section 1651(b) of the NDAA creates an 

exclusion from the limitations on 

subcontracting for ‘‘similarly situated 

entities.’’ In effect, the NDAA deems 

any work done by a similarly situated 

entity not to constitute ‘‘subcontracting’’ 

for purposes of determining compliance 

with the applicable limitation on 

subcontracting. A similarly situated 

entity is a small business subcontractor 

that is a participant of the same small 

business program that the prime 

contractor is a certified participant of 

and which qualified the prime 

contractor to receive the award. 

Subcontracts between a small business 

prime contractor and a similarly 

situated entity subcontractor are 

excluded from the limitations on 

subcontracting calculation because it 

does not further the goals of SBA’s 

government contracting and business 

development programs to penalize small 

business prime contract recipients that 

benefit the same small business program 

participants through subcontract 

awards. 

SBA proposes to include three 

examples to § 125.6(b) to demonstrate 

how a small business concern or Federal 

agency should apply the exclusion for 

similarly situated entities and determine 

compliance with the limitations on 

subcontracting. 

SBA has concerns about the practical 

application of a regulation that would 

require only a certain percentage of 

contract awards to be either retained by 

the prime contractor, or spent on a 

similarly situated entity. SBA’s concern 

is that an approach that limits its review 

solely to the first tier of the contracting 

process (agreements between the prime 

contractor and its direct subcontractors) 

could be fraught with abuse. For 

example, if small business A is awarded 

a $500,000 small business set-aside 

service contract and subcontracts 

$450,000 of the work to small business 

B, if the limitation of subcontracting 

requirements apply only to the first tier, 

then the Government’s review would be 

complete. Small businesses A and B 

clearly meet the 50% rule. However, if 

small business B could further 

subcontract all of its $450,000 to a large 

business with impunity, then SBA 

believes that the intent of the 

subcontracting limitation requirements 

would be circumvented and small 

businesses would not be properly 

protected. In such a case, a large 

business would have performed 

$450,000 of a $500,000 contract (or 

90%) of a contract that was set-aside 

exclusively for small business. In SBA’s 

view, a large business that ultimately 

performs 90% of a small business setaside contract unduly benefits from a 

contract intended to be performed by 

small business. 

SBA believes that the intent of the 

changes in the NDAA were to ensure 

that contracts awarded, and the benefits 

of those contracts, flow to the proper 


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beneficiaries. SBA does not believe that 

an intended consequence of the change 

was to make it easier to divert these 

benefits to ineligible entitles by merely 

moving contracts down one or two tiers 

in the contracting process. As such, SBA 

has retained a requirement that firms 

benefiting from contracts, and their 

similarly situated subcontractors, 

perform a required amount of work on 

the contract themselves. SBA believes 

that requiring firms awarded these 

contracts to perform significant portions 

of the work, as well as retain a 

significant portion of the contract 

award, will continue to help ensure that 

the benefits from these contracts flow to 

the intended parties. 

SBA welcomes comments on this 

issue, including whether SBA’s belief 

that there may be unintended 

consequences are misplaced, as well as 

comments about SBA’s proposed 

solution. SBA also requests comments 

on whether prime contractors should be 

required to report to the contracting 

officer concerning meeting the 

performance of work requirements, and 

comments concerning the frequency and 

method of reporting. 

SBA proposes to relocate the 

definitions that are relevant to the 

limitations on subcontracting that are 

currently found in § 125.6(e) to § 125.1 

with the other definitions that are 

applicable to part 125. Section 1651(e) 

of the NDAA provides the definitions of 

‘‘similarly situated entity’’ and ‘‘covered 

small business concern.’’ Proposed 

§ 125.1(x) interprets the statutorily 

prescribed definition for similarly 

situated entity. 

Proposed § 125.6(c) would explain 

how a small business concern certifies 

its compliance with the limitations on 

subcontracting and the date upon which 

compliance is determined. 

Proposed § 125.6(d) would require 

that small business concern prime 

contractors, which intend to exclude 

subcontracts to similarly situated 

entities from the limitations on 

subcontracting, must identify those 

similarly situated entities and the 

percentage of the prime contract award 

amount that will be spent on each 

similarly situated subcontractor. 

Proposed § 125.6(e) would address the 

process for continued compliance with 

the limitations on subcontracting when 

the award amount of a small business 

set-aside or small business program setaside contract is modified. This process 

would require that the prime contractor 

provide the contracting officer with 

documentation to demonstrate how it 

will continue to satisfy the applicable 

limitations on subcontracting. SBA 

seeks comments on this process and 

specifically requests suggestions for 

how procuring agencies can more 

effectively monitor compliance with the 

limitations on subcontracting when the 

award amount has been modified after 

award. 

Proposed § 125.6(i) would address 

how the limitations on subcontracting 

apply to members of a Small Business 

Teaming Arrangement (SBTA) that are 

exempt from affiliation according to 

§ 121.103(b)(9). Proposed § 125.6(k) 

states that the limitations on 

subcontracting apply to the combined 

effort of the SBTA members, not to the 

individual members of the SBTA 

separately. 

SBA proposes to add new paragraph 

125.6(j), which would exempt small 

business set aside contracts valued 

between $3,000 and $150,000 from the 

limitations on subcontracting 

requirements. Section 46 of the Small 

Business Act mandates that the 

statutory performance of work 

requirements (limitations on 

subcontracting) apply to small business 

set-aside contracts with values above 

$150,000, and contracts of any amount 

awarded to socioeconomically 

disadvantaged contracting programs, 

such as 8(a) set-aside contracts, WomenOwned and Economically 

Disadvantaged Women-Owned small 

business set-aside contracts, HUBZone 

set-aside contracts and Service-Disabled 

Veteran-Owned set-aside contracts. 15 

U.S.C. 657s. Although the limitations on 

subcontracting apply to all of these 

contracts, Section 46 does not 

specifically cite Section 15(j) of the 

Small Business Act, which is the 

statutory authority for nonsocioeconomically disadvantaged small 

business set-asides between $3,000 and 

$150,000. Further, Section 15(j) of the 

Small Business Act does not mention 

any limitation on subcontracting 

requirements in connection with the 

performance of set aside contracts under 

Section 15(j). Thus, the FAR provides 

that ‘‘[t]he contracting officer shall 

insert the clause at 52.219–14, 

Limitations on Subcontracting, in 

solicitations and contracts for supplies, 

services, and construction, if any 

portion of the requirement is to be set 

aside or reserved for small business and 

the contract amount is expected to 

exceed $150,000.’’ FAR 19.508(e). 

Therefore, this proposed rule would not 

expand the application of the 

limitations on subcontracting to apply 

to small business set-asides below 

$150,000, but would merely adopt what 

the FAR has done. SBA wants to make 

clear, however, that the proposed rule 

would exempt the limitations on 

subcontracting requirements only with 

respect to small business set asides 

valued between $3,000 and $150,000. 

The limitation on subcontracting 

requirements would continue to apply 

to all 8(a), HUBZone, SDVO, and 

WOSB/EDWOSB set aside contract 

awards regardless of value, including 

but not limited to contracts with values 

between $3,000 and $150,000. SBA 

requests comments regarding whether 

the limitations on subcontracting should 

apply to small business set aside 

contracts valued between $3,000 and 

$150,000. 

SBA’s proposal to not apply the 

subcontracting limitations to nonsocioeconomically disadvantaged small 

business set-aside contracts between 

$3,000 and $150,000 does not, however, 

reduce the importance of these 

limitations on small business set aside 

contracts over $150,000 and all 

contracts that are set aside for 

socioeconomically disadvantaged small 

businesses. It is critical that firms that 

obtain set aside and preferential 

contracts comply with applicable 

subcontracting limitations. The 

Government’s policy of promoting 

contracting opportunities for small and 

socioeconomically disadvantaged 

businesses is seriously undermined 

when firms pass on work in excess of 

applicable limitations to firms that are 

other than small or that are not 

disadvantaged. In addition, SBA 

requests comments on whether, for 

policy reasons and for purposes of 

consistency, the performance of work/

subcontracting limitation requirements 

should apply to small business set aside 

contract with a value between $3,000 

and $150,000. If SBA were to amend its 

regulations to apply those requirements 

to small business set aside contracts 

valued between $3,000 and $150,000, 

then a corresponding change to the FAR 

would be required for consistency 

purposes. 

Consistent with this concern, Section 

1652 of the NDAA, codified at 15 U.S.C. 

645 (Section 16 of the Small Business 

Act) prescribes penalties for concerns 

that violate the limitations on 

subcontracting requirements. SBA 

proposes to add new § 125.6(k) to 

incorporate these penalties into the 

regulations. Paragraph 125.6(k) states 

that concerns that violate the limitations 

on subcontracting are subject to the 

penalties listed in 15 U.S.C. 645(d) 

except that the fine associated with 

these penalties will be the greater of 

either $500,000 or the dollar amount 

spent in excess of the permitted levels 

for subcontracting. 

This rule also proposes to revise 

§ 121.103(h)(4). Paragraph (h) discusses 

the circumstances under which SBA 


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will find affiliation among joint 

venturers for size purposes. Paragraph 

(h)(4) addresses the ostensible 

subcontractor rule, which is the concept 

that a subcontractor who performs the 

majority of the primary and vital 

requirements of a contract or whom the 

prime contractor is unusually reliant 

upon may be considered a joint venturer 

with the prime contractor and thus 

affiliated with the prime contractor for 

size determination purposes. SBA 

proposes to revise this paragraph to 

exclude subcontractors that are 

similarly situated subcontractors, as that 

term is defined in 13 CFR 125.6(g)(3), 

from affiliation under the ostensible 

subcontractor rule. Such a position 

clearly flows from the NDAA’s 

treatment of similarly situated 

subcontractors. 

SBA proposes to amend §§ 124.510(a), 

(b), and (c) to reflect the limitations on 

subcontracting rules with respect to the 

8(a) Business Development (BD) 

program. Part 124 addresses the 8(a) BD 

program and the limitations on 

subcontracting that apply to 

procurements set-aside for competition 

among 8(a) BD participants. SBA 

proposes to delete paragraphs (a) and (b) 

and add new paragraph (a). Currently, 

paragraphs (a) and (b) discuss how 8(a) 

BD participants can comply with the 

performance of work requirements even 

though these specifications are also 

discussed in § 125.6. To eliminate 

confusion and repetition, SBA proposes 

to remove current paragraph (b) and add 

a new paragraph (a), which will direct 

8(a) BD participants to comply with the 

limitations on subcontracting set forth 

in § 125.6. The proposed rule would 

redesignate current paragraph (c) as 

paragraph (b) and include references to 

the limitations on subcontracting as 

opposed to the performance of work 

requirements in newly redesignated 

paragraph (b). The NDAA uses the term 

‘‘limitations on subcontracting’’ to 

describe the concept that is currently 

referred to as ‘‘performance of work 

requirements.’’ This change provides 

consistency throughout the rules. 

SBA proposes to revise §§ 125.15(a)(3) 

and (b)(3), which address the 

requirements for an SDVO SBC to 

submit an offer on a contract. SBA 

proposes to revise paragraph (a)(3) to 

state that a concern that represents itself 

as an SDVO SBC must also represent 

that it will comply with the limitations 

on subcontracting, as set forth in 

§ 125.6, as part of its initial offer, 

including price. SBA proposes to revise 

paragraph (b)(3) to state that joint 

ventures that represent themselves as an 

SDVO SBC joint venture must comply 

with the applicable limitations on 

subcontracting, as set forth in § 125.6. 

SBA also proposes to revise 

§ 126.200(b)(6). This paragraph 

addresses the requirements that a 

concern must meet in order to receive 

SBA’s certification as a qualified 

HUBZone SBC. Paragraphs (b)(6) and (d) 

are repetitive as both address the 

requirement that HUBZone SBCs must 

comply with the relevant performance 

of work requirements. SBA proposes to 

delete paragraph (d) and revise 

paragraph (b)(6). Specifically, proposed 

paragraph (b)(6) would state that the 

concern must represent in its 

application for the HUBZone program 

that it will comply with the applicable 

limitations on subcontracting 

requirements with respect to any 

procurement that it receives as a 

qualified HUBZone SBC. 

SBA proposes to revise §§ 126.700 in 

its entirety, including revision of 

paragraph (a) and removal of paragraphs 

(b) and (c). This section currently 

addresses the performance of work 

requirements for HUBZone contracts. 

SBA proposes to retitle the section to 

include the terminology ‘‘limitations on 

subcontracting’’; remove references to 

the ‘‘performance of work’’ 

requirements; and replace the deleted 

text with a reference to 13 CFR 125.6 for 

guidance on the applicable limitations 

on subcontracting for HUBZone 

contracts. SBA believes that it would be 

confusing to have each section of SBA’s 

set-aside program regulations to repeat 

the relevant limitations on 

subcontracting, and therefore SBA 

proposes to list all of the limitations on 

subcontracting requirements at § 125.6 

and provide references to that section in 

each of the various small business 

government contracting and business 

development program sections. 

SBA proposes to revise § 127.504(b), 

which addresses the requirements a 

concern must satisfy to submit an offer 

for an EDWOSB or WOSB requirement. 

Paragraph (b) states that the concern 

must meet the performance of work 

requirements in § 125.6. SBA proposes 

to revise this paragraph to replace the 

reference to ‘‘performance of work 

requirement’’ with ‘‘limitations on 

subcontracting.’’ 

SBA proposes to revise § 127.506(d), 

which addresses the requirements that a 

joint venture must satisfy in order to 

submit an offer for an EDWOSB or 

WOSB requirement. SBA proposes to 

revise this paragraph by replacing the 

reference to ‘‘performance of work 

requirement’’ with ‘‘limitations on 

subcontracting.’’ 

Section 1653 of the NDAA, as 

codified at 15 U.S.C. 637(d) (Section 

8(d) of the Small Business Act), 

addresses amendments to the 

requirements for subcontracting plans. 

Section 1653(a)(2) of the NDAA states 

that the head of the contracting agency 

shall ensure that the agency collects, 

reports, and reviews data on the extent 

to which the agency’s contractors meet 

the goals and objectives set out in their 

subcontracting plans. SBA proposes to 

add a new § 125.3(f)(8) to incorporate 

these provisions. 

Section 1653(a)(3) of the NDAA 

modifies the Small Business Act to state 

that a contractor that fails to provide a 

written corrective action plan after 

receiving a marginal or unsatisfactory 

rating for its subcontracting plan 

performance or that fails to make a good 

faith effort to comply with its 

subcontracting plan will not only be in 

material breach of the contract, but such 

failure may also be considered in any 

past performance evaluation of the 

contractor. SBA proposes to revise 

§ 125.3(f)(5) to incorporate this 

language. SBA is also proposing to add 

a new sentence to the end of 

§ 125.3(f)(5), which prescribes the 

process for a Commercial Market 

Representative (CMR) to report firms 

that are found to have acted 

fraudulently or in bad faith to the SBA’s 

Area Director for the Office of 

Government Contracting Area Office 

where the firm is headquartered. 

Section 1653(a)(4) of the NDAA 

modifies the Small Business Act to state 

that contracting agencies also perform 

evaluations of a prime contractor’s 

subcontracting plan performance, and 

that SBA’s evaluations of subcontracting 

plan performance are completed as a 

supplement to the contracting agency’s 

review. SBA proposes to revise 

§ 125.3(f)(1) to incorporate this 

language. 

Section 1653(a)(5) of the NDAA 

requires that if an SBC is identified as 

a potential subcontractor in an proposal, 

offer, bid or subcontracting plan in 

connection with a covered Federal 

contract, the prime contractor shall 

notify the SBC prior to such 

identification. Section 1653(a)(5) also 

requires that the Administrator establish 

a reporting mechanism that allows 

potential subcontractors to report 

fraudulent activity or bad faith behavior 

by a prime contractor with respect to a 

subcontracting plan. SBA proposes to 

incorporate these requirements in new 

§§ 125.3(c)(7) and (8). 

Affiliation 

SBA proposes to make changes to its 

regulations in § 121.103(f), which 

defines affiliation based on an identity 

of interest. Paragraph 121.103(f) 


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discusses the circumstances where an 

identity of interest between two or more 

persons leads to affiliation among those 

persons and their interests are 

aggregated. SBA is adding additional 

guidance on how to analyze affiliation 

due to an identity of interest. SBA 

believes that the additional 

clarifications will better enable 

concerned parties to understand and 

determine when they are affiliated. 

SBA proposes to divide paragraph (f) 

into two paragraphs. Paragraph (f)(1) 

will include further clarification 

regarding the type of relationships 

between individuals that will create a 

presumption of affiliation due to an 

identity of interest. Specifically, SBA 

proposes to insert language clarifying 

that a presumption of affiliation exists 

for firms that conduct business with 

each other and are owned and 

controlled by persons who are married 

couples, parties to a civil union, parents 

and children, and siblings. This is a 

rebuttable presumption. This proposed 

rule is based on size appeal decisions 

that have been issued interpreting this 

regulation. 

In paragraph (f)(2), SBA proposes to 

adopt a presumption that SBA 

established for the SBIR Program with 

respect to economic dependence. If a 

firm derives 70% or more of its revenue 

from another firm over the previous 

fiscal year, SBA will presume that the 

one firm is economically dependent on 

the other and, therefore, that the two 

firms are affiliated. Currently there is no 

fixed percentage that SBA applies when 

evaluating this criteria. SBA believes 

that providing clarity on this issue will 

be beneficial for firms, and enable them 

to more easily identify their affiliates. 

Further, this presumption is rebuttable, 

such as when a firm is new or a startup and has only received a few 

contracts or subcontracts. Often new 

firms will not have as many partners 

and clients, and therefore will normally 

be generating more of their revenue 

from a much smaller number of other 

companies. Over time these firms 

should diversify and become less 

dependent on one entity. 

Joint Ventures 

SBA proposes to amend § 121.103(h) 

to broaden the exclusion from affiliation 

for small business size status, to allow 

two or more small businesses to joint 

venture for any procurement without 

being affiliated with regard to the 

performance of that procurement 

requirement. Currently, in addition to 

the exclusion from affiliation given to 

an 8(a) prote ́ge ́ firm that joint ventures 

with its mentor for any small business 

procurement, there is also an exclusion 

from affiliation between two or more 

small businesses that seek to perform a 

small business procurement as a joint 

venture where the procurement is 

bundled or large (i.e., greater than half 

the size standard for a procurement 

assigned a NAICS code with a receiptsbased size standard and greater than $10 

million for a procurement assigned a 

NAICS code with an employee-based 

size standard). SBA proposes to remove 

the restriction on the type of contract for 

which small businesses may joint 

venture without being affiliated for size 

determination purposes. SBA is 

proposing this change for several 

reasons. First, this proposed change 

would encourage more small business 

joint venturing, in furtherance of the 

government-wide goals for small 

business participation in Federal 

contracting. Second, this change would 

respond to results from the Small 

Business Teaming Pilot Program 

indicating more small business 

opportunities and greater success on 

small contracts than on large contracts. 

Third, this change would better align 

with the new provisions of the NDAA 

governing the limitations on 

subcontracting, which allow a small 

business prime contractor to subcontract 

to as many similarly situated 

subcontractors as desired. If a small 

business prime contractor can 

subcontract significant portions of that 

contract to one or more other small 

businesses and, in doing so, meet the 

performance of work requirements for 

small business (without being affiliated 

with the small business 

subcontractor(s)), it is SBA’s view that 

similar treatment should be afforded 

joint ventures—so that a joint venture of 

two or more small businesses could 

perform a procurement requirement as a 

small business when each is 

individually small. 

Calculation of Annual Receipts 

SBA proposes to amend § 121.104, 

which explains how SBA calculates 

annual receipts when determining the 

size of a business concern. SBA 

proposes to clarify that receipts include 

all income, and the only exclusions 

from income are the ones specifically 

listed in paragraph (a). It was always 

SBA’s intent to include all income, 

except for the listed exclusions; 

however, SBA has found that some 

business concerns misinterpreted the 

current definition of receipts to exclude 

passive income. SBA’s proposed change 

clarifies the intent to include all 

income, including passive income, in 

the calculation of receipts. 

Recertification 

SBA proposes to amend 

§ 121.404(g)(2)(ii) by adding new 

paragraph (D) to clarify when 

recertification of size is required 

following the merger or acquisition of a 

firm that submitted an offer as a small 

business concern. Paragraph (D) clarifies 

that if the merger or acquisition occurs 

after offer but prior to award, the offeror 

must recertify its size to the contracting 

officer prior to award. 

Small Business Innovation Research 

and Small Business Technology 

Transfer Programs 

SBA proposes to amend 

§ 121.702(a)(2), which addresses the size 

and eligibility requirements applicable 

to the Small Business Innovation and 

Research (SBIR) and Small Business 

Technology Transfer (STTR) Programs, 

to clarify that a single venture capital 

operating company (VCOC), hedge fund, 

or private equity firm may own more 

than 50% of the concern if that single 

VCOC, hedge fund, or private equity 

firm qualifies as a small business 

concern which is more than 50% 

directly owned and controlled by 

individuals who are citizens or 

permanent resident aliens of the United 

States. Business concerns and Federal 

agencies have misread the language of 

this paragraph to exclude all VCOCs, 

hedge funds, or private equity firms that 

own more than 50% of the small 

business concern, regardless of the 

investment entity’s size. This paragraph 

explains the limitation on ownership by 

investment entities that are other than 

small and it is not meant to exclude 

those business concerns that are owned 

by investment entities that qualify as 

small business concerns. 

Size Protests 

SBA proposes to amend § 121.1001(a), 

which specifies who may initiate a size 

status protest. Small businesses and 

contracting officers have found the 

current language to be unclear because 

it contains a double negative, stating 

that any offeror that has not been 

eliminated for reasons not related to size 

may file a size protest. The intent is to 

provide standing to any offeror that is in 

line or consideration for award, but to 

not provide standing for an offeror that 

has been found to be non-responsive, 

technically unacceptable or outside of 

the competitive range. 

In addition, the proposed rule would 

add a new § 121.1001(b)(11) that would 

authorize the SBA’s Director, Office of 

Government Contracting, to initiate a 

formal size determination in connection 

with eligibility for the SDVO SBC and 


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the WOSB/EDWSOB programs. This 

change is needed to correct an oversight 

that did not authorize such requests for 

size determinations when those 

programs were added to SBA’s 

regulations. 

North American Industry Classification 

System Code Appeals 

The Agency is seeking comments on 

what is the appropriate timeline for 

filing a NAICS code appeal. SBA’s 

regulations currently state that, ‘‘[a]n 

appeal from a contracting officer’s 

NAICS code or size standard 

designation must be served and filed 

within 10 calendar days after the 

issuance of the solicitation or 

amendment affecting the NAICS code or 

size standard.’’ 13 CFR 121.1103(b)(1). 

SBA’s current rule is designed to work 

within the timeframe of a standard 

procurement, namely that firms will 

have 30 days from the date the 

solicitation is issued to submit an offer. 

However, the standard 30 day timeframe 

is not utilized in all procurements, and 

SBA is currently examining whether the 

current rule is adequate to address the 

needs of the various types of 

procurements and various timeframes 

that are available. Determining the 

appropriate timeline for filing a NAICS 

code appeal should take into 

consideration that for the NAICS code 

appeal process to be meaningful there 

must be sufficient time for a contracting 

officer to amend the solicitation to 

notify potentially interested parties of 

the pendency of the NAICS code appeal, 

see Advanced Systems Technology, Inc. 

v. United States, 69 Fed.Cl. 474 (2006), 

an opportunity for any interested party 

to draft and file a cogent response, and 

time for the Office of Hearings Appeals 

(OHA) to review the record to determine 

whether the contracting officer’s NAICS 

code assignment is based on a clear 

error of fact or law and issue a decision. 

Sometimes a NAICS code appeal is filed 

within days of the procurement closing. 

See generally NAICS Appeal of Phoenix 

Environmental Design, Inc., SBA No. 

NAICS–5582 (2014) (A timely NAICS 

code appeal filed on Friday, August 8, 

2014, for a procurement closing on 

Friday, August 15, 2014.). SBA is also 

assessing the effect that a NAICs code 

appeal should have on the solicitation. 

Currently SBA’s regulations require that 

the contracting officer, ‘‘[s]tay the 

solicitation.’’ 13 CFR 121.1103(c)(1)(i). 

SBA is requesting comments on whether 

its regulations should provide that 

contracting officer should not award the 

contract or that the agency should delay 

the offer or bid response date. 

Nonmanufacturer Rule 

SBA is proposing to clarify that the 

limitations on subcontracting and the 

nonmanufacturer rule do not apply to 

small business set-aside contracts 

valued between $3,000 and $150,000. 

The statutory nonmanufacturer rule, 

which is contained in section 8(a)(17) of 

the Small Business Act, 15 U.S.C. 

637(a)(17), is an exception to the 

limitations on subcontracting. It 

provides that a concern may not be 

denied the opportunity to compete for a 

supply contract under Section 8(a) and 

15(a) of the Small Business Act simply 

because it is not the actual manufacturer 

or processor of the product. Section 

8(a)(17) of the Small Business Act does 

not, however, also reference section 

15(j) of the Small Business Act, the 

authority requiring small business setaside contracts valued between $3,000 

and $150,000. Thus, there is no specific 

statutory requirement that the 

nonmanufacturer rule apply to the 

mandated small business set-asides 

between $3,000 and $150,000. SBA 

believes that not applying the 

nonmanufacturer rule to small business 

set-asides valued between $3,000 and 

$150,000 will spur small business 

competition by making it more likely 

that a contracting officer will set aside 

an acquisition for small business 

concerns because the agency will not 

have to request a waiver from SBA 

where there are no small business 

manufacturers available. In order to 

request a waiver, an agency must 

provide SBA with the solicitation and 

research on whether manufacturers exist 

and wait several weeks for SBA to verify 

the data and grant the waiver. Without 

a waiver, an offeror on a supply small 

business set-aside contract must either 

manufacture at least 50% of the product 

on its own or supply the product of a 

small business made in the United 

States. Many waiver requests below 

$150,000 are for name brand items (e.g., 

computers) that are clearly not made by 

small businesses in the United States. 

Whether an agency can procure name 

brand items is not within the 

jurisdiction of SBA. The contracting 

officer must make that determination, 

which can be protested by interested 

parties. 

SBA is proposing to amend 

§ 121.1203 to require that contracting 

officers notify potential offerors of any 

waivers, whether class waivers or 

contract specific waivers, that will be 

applied to the procurement. SBA 

proposes that this notification of the 

application of a waiver be contained in 

the solicitation itself. Without 

notification that a waiver is being 

applied by the contracting officer, 

potential offerors cannot reasonably 

anticipate what if any requirements they 

must meet in order to perform the 

procurement in accordance with SBA 

regulations. SBA believes that providing 

notice of waivers in the solicitation will 

provide all potential offerors with the 

information needed to decide if they 

should submit an offer. 

The proposed rule would also amend 

§ 121.1203, regarding waivers to the 

nonmanufacturer rule. SBA proposes to 

amend § 121.1203(a) to specifically 

authorize SBA to grant a waiver to the 

nonmanufacturer rule for an individual 

contract award after a solicitation has 

been issued, provided the contracting 

officer agrees to provide all potential 

offerors additional time to respond. SBA 

believes that a waiver may be 

appropriate even after a solicitation has 

been issued, but wants to ensure that all 

potential offerors would be fully 

apprised of any waiver granted after the 

solicitation is issued and have a 

reasonable amount of time (depending 

upon the complexities of the 

procurement) to adjust their offers 

accordingly. 

SBA is also proposing in 

§ 121.1203(b) to allow some waivers to 

be granted after the contract has been 

awarded. SBA believes that granting 

post-award waivers, when additional 

items that are eligible for a waiver are 

sought through in-scope modifications, 

is reasonable and will increase the use 

of the waiver process and allow firms to 

complete for contracts in a manner 

consistent with SBA regulations. SBA 

envisions these types of post award 

waivers to be given in situations similar 

to the example contained in the 

proposed regulation—where a need for 

an item occurs after contract award, 

where requiring the item would be an 

in-scope modification, and where the 

item is one for which a waiver would 

have been granted if sought prior to 

contract award. 

The proposed rule would also add a 

new § 121.1203(d), dealing with waivers 

to the nonmanufacturer rule for the 

purchase of software. SBA is proposing 

to address whether the nonmanufacturer 

rule should apply to certain software 

that can readily be treated as an item 

and not a service. SBA is proposing to 

treat this type of software as a product 

or item of supply rather than a service. 

SBA believes that this change will bring 

SBA’s regulations in line with how most 

buyers already perceive these types of 

software. Readily available software that 

is generally available to both the public 

and private sector unmodified is almost 

universally perceived to be a supply 

item, even though SBA’s regulations 


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currently would treat the production 

any type of software as a service. This 

change would also allow for certain 

types of software to be eligible for 

waivers of the nonmanufacturer rule. 

SBA is proposing to grant waivers on 

software that meet criteria that 

establishes that the Government is 

buying something that is more like a 

product or supply item than a service. 

Clearly, when the Government seeks to 

award a contract to a business concern 

to create or modify custom design 

software, that should be classified as a 

service requirement and the activity will 

remain classified in a service NAICS 

code to which the nonmanufacturer rule 

does not apply. For a service 

procurement set aside for small 

business, the prime (together with one 

or more similarly situated 

subcontractors) would have to perform 

the required percentage of work with its 

own employees. On the other hand, 

when the Government buys certain 

types of unmodified software that is 

generally available to both the public 

and the Government from a business 

concern, SBA believes that the 

contracting officer should classify the 

requirement as a commodity or supply. 

If the procurement is a supply contract 

set aside for small business, the prime 

contractor, together with any similarly 

situated subcontractors, would have to 

perform at least 50% of the cost of 

manufacturing the software, unless SBA 

granted a waiver of the 

nonmanufacturer rule. 

In order to address this scenario, SBA 

proposes to amend § 121.201 by adding 

a footnote to NAICS code 511210, 

Software Publishers, explaining that this 

is the proper NAICS code to use when 

the Government is purchasing software 

that is eligible for a waiver of the 

nonmanufacturer rule. The 2012 NAICs 

manual provides the following 

definition for this industry: 

This industry comprises establishments 

primarily engaged in computer software 

publishing or publishing and reproduction. 

Establishments in this industry carry out 

operations necessary for producing and 

distributing computer software, such as 

designing, providing documentation, 

assisting in installation, and providing 

support services to software purchasers. 

These establishments may design, develop, 

and publish, or publish only. 

SBA believes that this accurately 

reflects the type of companies that 

would be producing and supplying the 

Government with the type of software 

eligible for a waiver. Further, SBA is 

proposing that the procurement of this 

type of software would be treated by 

SBA as a supply requirement, and 

therefore the nonmanufacturer rule 

would apply, as long as the acquisition 

meets all of the requirements of the rule. 

SBA reiterates that the custom design or 

modification of software for the 

Government will generally continue to 

be treated as a service. Therefore, if the 

software being acquired requires any 

custom modifications in order to meet 

the needs of the Government, it is not 

eligible for a waiver of the 

nonmanufacturer rule because the 

contractor is performing a service, not 

providing a supply. 

SBA proposes to amend 

§ 121.406(b)(5) to make a technical 

correction. Section 121.406(b) addresses 

how a nonmanufacturer may qualify as 

a small business concern for a 

requirement to provide a manufactured 

product or other supply item. Currently, 

paragraph (b)(5) states that the SBA’s 

Administrator or designee may waive 

the requirement set forth in paragraph 

(b)(1)(iii) of this section, that requires 

nonmanufacturers to supply the end 

item of a small business manufacturer, 

processor or producer made in the 

United States. The citation to paragraph 

(b)(1)(iii) is incorrect and as such, SBA 

proposes to amend this paragraph to 

include the correct citation, paragraph 

(b)(1)(iv). 

In addition, the proposed rule would 

amend § 121.406(b)(7) to clarify that 

SBA’s 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 

and the Trade Agreements Act. This has 

always been SBA’s policy, but because 

SBA has received several inquiries 

about this issue, SBA believes that for 

better clarity the policy should be 

specifically set forth in the regulatory 

text. 

In order to clarify whether the 

nonmanufacturer rule applies, or 

whether a general or specific waiver is 

attached to a procurement, SBA 

proposes to add a new § 121.1206 to 

require contracting officers to receive 

specific waivers prior to posting a 

solicitation, and also to provide 

notification to all potential offerors of 

any waivers that will be applied 

(whether class or specific) to a given 

solicitation. SBA believes that this will 

help to provide clear guidance to 

prospective offerors. If a solicitation 

states that a waiver is being applied, 

prospective offerors will know that the 

nonmanufacturer rule will not apply to 

that procurement. If no notice of a 

waiver being applied is given, 

prospective offerors will know that the 

requirements of § 121.406 must all be 

met. This will give prospective offerors 

ample time to prepare, and will remove 

some of the uncertainty surrounding 

issuances of waivers to the 

nonmanufacturer rule. SBA also 

proposes that if a contracting officer 

seeks and is provided a waiver after 

issuing a solicitation, the contracting 

officer must give all potential offers a 

reasonable amount of additional time in 

order to respond to the solicitation. In 

SBA’s view, whether a waiver applies or 

not has a meaningful impact on who 

may place an offer, and how prospective 

offerors may respond to a given 

solicitation. Therefore, SBA believes it 

is important that potential offerors have 

a reasonable amount of time to properly 

evaluate and respond to the solicitation. 

Adverse Impact and Construction 

Requirements 

SBA proposes to amend § 124.504 to 

clarify when a procurement for 

construction services is considered a 

new requirement. This section generally 

addresses when SBA must conduct an 

adverse impact analysis for the award of 

an 8(a) contract. SBA is not required to 

perform an adverse impact analysis for 

new requirements. Currently, paragraph 

(c)(1)(ii)(B) states that ‘‘Construction 

contracts, by their very nature (e.g., the 

building of a specific structure), are 

deemed new requirements.’’ SBA 

proposes to clarify the definition of 

‘‘new requirement’’ for construction 

contracts by specifying that generally, 

the building of a specific structure is 

considered a new requirement. 

However, recurring indefinite delivery 

or indefinite quantity (IDIQ) 

procurements for construction services 

are not considered new. SBA has found 

that agencies have misinterpreted the 

current language of § 124.504(c)(1)(ii)(B) 

to consider recurring IDIQ construction 

services procurements as new. SBA 

intends to clarify that such recurring 

requirements are not considered new. A 

determination of whether a construction 

contract is recurring or new will have to 

be made on a case by case basis, and 

there is a process in place that allows 

SBA to file an appeal with the procuring 

agency when there is a disagreement. 

Certificate of Competency 

SBA proposes to amend § 125.5(f), 

which addresses SBA’s review of an 

application for the Certificate of 

Competency (COC) program. SBA 

proposes to insert new § 125.5(f)(3) to 

address how SBA should review an 

application for a COC based on a finding 

of non-responsibility due to financial 

capacity where the applicant is the 

apparent successful offeror for an IDIQ 

task order or contract. SBA frequently 

receives inquiries regarding the 

application of the COC process for 


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financial capacity to the potential award 

of an IDIQ contract. SBA clarifies this 

process by proposing changes to 

§ 125.5(f). The proposed changes state 

that the SBA’s Area Director will 

consider the firm’s maximum financial 

capacity and if such COC is issued, it 

will be for a specific amount that serves 

as the limit of the firm’s financial 

capacity for that contract. The 

contracting officer cannot deny the firm 

the award of an order or contract on the 

basis of financial incapacity if the firm 

has not reached the financial maximum 

identified by the Area Director. 

SBA proposes to revise § 125.26 to 

replace the term ‘‘Associate 

Administrator for Government 

Contracting’’ with the term ‘‘Director, 

Office of Government Contracting.’’ 

There is no longer a position at SBA 

titled the Associate Administrator for 

Government Contracting and as a result, 

SBA proposes to update these 

regulations with the current title for the 

appropriate official who will receive 

correspondence related to SDVO 

protests. 

Compliance With Executive Orders 

12866, 13563, 12988, 13132, the 

Paperwork Reduction Act (44 U.S.C. 

Ch. 35), and the Regulatory Flexibility 

Act (5 U.S.C. 601–612) Executive Order 

12866 

The Office of Management and Budget 

(OMB) has determined that this 

proposed rule is a ‘‘significant’’ 

regulatory action for purposes of 

Executive Order 12866. Accordingly, 

the next section contains SBA’s 

Regulatory Impact Analysis. However, 

this is not a major rule under the 

Congressional Review Act, 5 U.S.C. 801, 

et seq. 

Regulatory Impact Analysis 

1. Is there a need for the regulatory 

action? 

The proposed rule implements 

Sections 1621, 1651, 1652, 1653 and 

1654 of the National Defense 

Authorization Act of 2013, Pub. L. 112– 

239, 126 Stat. 1632, January 2, 2013; 15 

U.S.C. 637(d), 644(l), 645, 657s. In 

addition, it makes several other changes 

needed to clarify ambiguities in or 

remedy perceived problems with the 

current regulations. These proposed 

changes should make SBA’s regulations 

easier to use and understand. 

2. What are the potential benefits and 

costs of this regulatory action? 

The proposed regulations should 

benefit small business concerns by 

allowing small business concerns to use 

similarly situated subcontractors in the 

performance of a set aside contract, 

thereby expanding the capacity of the 

small business prime contractor and 

potentially enabling the firm to compete 

for and obtain larger contracts. It also 

strengthens the small business 

subcontracting provisions, which may 

result in more subcontract awards to 

small business concerns. The proposed 

regulations also seek to address or 

clarify issues that are ambiguous or 

subject to dispute, thereby providing 

clarity to contracting officers as well as 

small business concerns. 

3. What are the alternatives to this final 

rule? 

Many of the proposed regulations are 

required to implement statutory 

provisions, thus there are no 

alternatives for these regulations. The 

alternative to the proposed regulations 

that are not required by statute would be 

to not issue regulations, which would 

result in continued confusion, litigation 

and controversy. 

Executive Order 13563 

This executive order directs agencies 

to, among other things: (a) Afford the 

public a meaningful opportunity to 

comment through the Internet on 

proposed regulations, with a comment 

period that should generally consist of 

not less than 60 days; (b) provide for an 

‘‘open exchange’’ of information among 

government officials, experts, 

stakeholders, and the public; and (c) 

seek the views of those who are likely 

to be affected by the rulemaking, even 

before issuing a notice of proposed 

rulemaking. As far as practicable or 

relevant, SBA considered these 

requirements in developing this rule, as 

discussed below. 

1. Did the agency use the best 

available techniques to quantify 

anticipated present and future costs 

when responding to E.O. 12866 (e.g., 

identifying changing future compliance 

costs that might result from 

technological innovation or anticipated 

behavioral changes)? 

To the extent possible, the agency 

utilized the most recent data available 

in the Federal Procurement Data 

System—Next Generation, System for 

Award Management and Electronic 

Subcontracting Reporting System. 

2. Public participation: Did the 

agency: (a) Afford the public a 

meaningful opportunity to comment 

through the Internet on any proposed 

regulation, with a comment period that 

should generally consist of not less than 

60 days; (b) provide for an ‘‘open 

exchange’’ of information among 

government officials, experts, 

stakeholders, and the public; (c) provide 

timely online access to the rulemaking 

docket on Regulations.gov; and (d) seek 

the views of those who are likely to be 

affected by rulemaking, even before 

issuing a notice of proposed 

rulemaking? 

The proposed rule will have a 60 day 

comment period and will be posted on 

www.regulations.gov to allow the public 

to comment meaningfully on its 

provisions. In addition, the agency 

reached out to agencies, including the 

Forest Service, the Food and Drug 

Administration, and the Defense 

Logistics Agency. SBA then submitted 

the rule to the Office of Management 

and Budget for interagency review. 

3. Flexibility: Did the agency identify 

and consider regulatory approaches that 

reduce burdens and maintain flexibility 

and freedom of choice for the public? 

Yes, the proposed rule implements 

statutory provisions and will provide 

clarification to rules that were requested 

by agencies and stakeholders. The 

proposed rule will make it easier for 

small businesses to contract with the 

Federal government. 

Executive Order 12988 

This action meets applicable 

standards set forth set forth in section 

3(a) and 3(b)(2) of Executive Order 

12988, Civil Justice Reform, to minimize 

litigation, eliminate ambiguity, and 

reduce burden. This action does not 

have any retroactive or preemptive 

effect. 

Executive Order 13132 

SBA has determined that this 

proposed rule will not have substantial 

direct effects on the States, on the 

relationship between the national 

government and the States, or on the 

distribution of power and 

responsibilities among the various 

levels of government. Therefore, for the 

purposes of Executive Order 13132, 

SBA has determined that this proposed 

rule has no federalism implications 

warranting preparation of a federalism 

assessment. 

Paperwork Reduction Act, 44 U.S.C. 

Ch. 35 

For the purposes of the Paperwork 

Reduction Act, SBA has determined that 

this rule, if adopted in final form, would 

not impose new government-wide 

reporting requirements on small 

business concerns. 

Regulatory Flexibility Act, 5 U.S.C. 

601–612 

According to the Regulatory 

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

when an agency issues a rulemaking, it 

must prepare a regulatory flexibility 


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analysis to address the impact of the 

rule on small entities. However, section 

605 of the RFA allows an agency to 

certify a rule, in lieu of preparing an 

analysis, if the rulemaking is not 

expected to have a significant economic 

impact on a substantial number of small 

entities. The RFA defines ‘‘small entity’’ 

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

organizations,’’ and ‘‘small 

governmental jurisdictions.’’ This 

proposed rule concerns various aspects 

of SBA’s contracting programs, as such 

the rule relates to small business 

concerns but would not affect ‘‘small 

organizations’’ or ‘‘small governmental 

jurisdictions’’ because those programs 

generally apply only to ‘‘business 

concerns’’ as defined by SBA 

regulations, in other words, to small 

businesses organized for profit. ‘‘Small 

organizations’’ or ‘‘small governmental 

jurisdictions’’ are non-profits or 

governmental entities and do not 

generally qualify as ‘‘business concerns’’ 

within the meaning of SBA’s 

regulations. 

There are approximately 326,000 

concerns listed as small business 

concerns in the System for Award 

Management (SAM) that could 

potentially be impacted by the 

implementation of the NDAA 2013 

contracting provisions. However, we 

cannot say with any certainty how many 

will be impacted because we do not 

know how many of these concerns will 

team together to submit offers, nor do 

we know how many will be awarded 

contracts as teams. The number of firms 

participating in teaming will be lower 

than the number of firms registered in 

SAM. However, as discussed elsewhere 

in this rule, including section 2 of the 

Regulatory Impact Analysis, there are no 

new compliance or other costs imposed 

by the proposed rule on small business 

concerns. Under current law, firms must 

adhere to certain performance 

requirements when performing set aside 

contracts. Further, SBA expects that 

costs now incurred by small business 

concerns as a result of ambiguous or 

indefinite regulations will be eliminated 

or reduced. Clarifying the confusion and 

uncertainty concerning the applicability 

of SBA contracting regulations would 

also reduce the time burden on the 

small business contracting community 

and therefore make it easier for them to 

contract with the Federal Government. 

In sum, the proposed amendments 

would not have a disparate impact on 

small businesses and would increase 

their opportunities to participate in 

federal government contracting without 

imposing any additional costs. For the 

reasons discussed, SBA certifies that 

this proposed rule would not have a 

significant economic impact on a 

substantial number of small business 

concerns. 

List of Subjects 

13 CFR Part 121 

Government procurement; 

Government property; Grant programs— 

business, Individuals with disabilities; 

Loan programs—business; Small 

businesses. 

13 CFR Part 124 

Administrative practice and 

procedure, Government procurement, 

Minority businesses, Reporting and 

recordkeeping requirements, Small 

business, Technical assistance. 

13 CFR Part 125 

Government contracts, Government 

procurement, Reporting and 

recordkeeping requirements, Small 

businesses, Technical assistance. 

13 CFR Part 126 

Administrative practice and 

procedure, Government procurement, 

Penalties, Reporting and Recordkeeping 

requirements, Small business. 

13 CFR Part 127 

Government procurement, Reporting 

and recordkeeping requirements, Small 

businesses. 

Accordingly, for the reasons stated in 

the preamble, SBA proposes to amend 

parts 121, 124, 125, 126, and 127 of title 

13 of the Code of Federal Regulations as 

follows: 

PART 121—SMALL BUSINESS SIZE 

REGULATIONS 

■ 1. The authority citation for 13 CFR 

part 121 continues to read as follows: 

Authority: 15 U.S.C. 632, 634(b)(6), 662 

and 694a(9). 

■ 2. Amend § 121.103 by adding 

paragraphs (f)(1) and (f)(2) and by 

revising paragraphs (h)(3)(i) and (h)(4) 

to read as follows: 

§ 121.103 How does SBA determine 

affiliation? 

* * * * * 

(f) * * * 

(1) Firms owned or controlled by 

married couples, parties to a civil union, 

parents and children, and siblings are 

presumed to be affiliated with each 

other if they conduct business with each 

other, such as subcontracts or joint 

ventures or share or provide loans, 

resources, equipment, locations or 

employees with one another. This 

presumption may be overcome by 

showing a clear line of fracture between 

the concerns. Other types of familial 

relationships are not grounds for 

affiliation on family relationships. 

(2) SBA may presume an identity of 

interest based upon economic 

dependence if the concern in question 

derived 70% or more of its receipts from 

another concern in the previously 

completed fiscal year. 

* * * * * 

(h) * * * 

(3) Exception to affiliation for certain 

joint ventures. (i) A joint venture of two 

or more business concerns may submit 

an offer as a small business for a Federal 

procurement, subcontract or sale so long 

as each concern is small under the size 

standard corresponding to the NAICS 

code assigned to the contract. 

* * * * * 

(4) A contractor and its ostensible 

subcontractor are treated as joint 

venturers, and therefore affiliates, for 

size determination purposes. An 

ostensible subcontractor is a 

subcontractor that is not a similarly 

situated entity, as that term is defined 

in § 125.6(g)(3), and: Performs primary 

and vital requirements of a contract, or 

of an order; or is a subcontractor upon 

which the prime contractor is unusually 

reliant. All aspects of the relationship 

between the prime and subcontractor 

are considered, including, but not 

limited to, the terms of the proposal 

(such as contract management, technical 

responsibilities, and the percentage of 

subcontracted work), agreements 

between the prime and subcontractor 

(such as bonding assistance or the 

teaming agreement), and whether the 

subcontractor is the incumbent 

contractor and is ineligible to submit a 

proposal because it exceeds the 

applicable size standard for that 

solicitation. 

* * * * * 

■ 3. Amend § 121.104 by revising the 

introductory text in paragraph (a) to 

read as follows: 

§ 121.104 How does SBA calculate annual 

receipts? 

(a) Receipts means all revenue in 

whatever form received or accrued from 

whatever source, including from the 

sales of products or services, interest, 

dividends, rents, royalties, fees, or 

commissions, reduced by returns and 

allowances. Generally, receipts are 

considered ‘‘total income’’ (or in the 

case of a sole proprietorship ‘‘gross 

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

these terms are defined and reported on 

Internal Revenue Service (IRS) tax 

return forms (such as Form 1120 for 

corporations; Form 1120S and Schedule 

K for S corporations; Form 1120, Form 


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1065 or Form 1040 for LLCs; Form 1065 

and Schedule K for partnerships; Form 

1040, Schedule F for farms; Form 1040, 

Schedule C for other sole 

proprietorships). Receipts do not 

include net capital gains or losses; taxes 

collected for and remitted to a taxing 

authority if included in gross or total 

income, such as sales or other taxes 

collected from customers and excluding 

taxes levied on the concern or its 

employees; proceeds from transactions 

between a concern and its domestic or 

foreign affiliates; and amounts collected 

for another by a travel agent, real estate 

agent, advertising agent, conference 

management service provider, freight 

forwarder or customs broker. For size 

determination purposes, the only 

exclusions from receipts are those 

specifically provided for in this 

paragraph. All other items, such as 

subcontractor costs, reimbursements for 

purchases a contractor makes at a 

customer’s request, investment income, 

and employee-based costs such as 

payroll taxes, may not be excluded from 

receipts. 

* * * * * 

■ 4. Amend § 121.201 by adding the 

following paragraph as footnote 20 to 

NAICS code 511210. 

§ 121.201 What size standards has SBA 

identified by North American Industry 

Classification System codes? 

* * * * * 

Footnotes 

* * * * * 

20. NAICS code 511210—For purposes of 

Government procurement, the purchase of 

software subject to potential waiver of the 

nonmanufacturer rule pursuant to 

§ 121.1203(d) should be classified under this 

NAICs code. 

■ 5. Amend § 121.404 as follows: 

■ a. Revise paragraph (f); and 

■ b. Add paragraph (g)(2)(ii)(D) to read 

as follows: 

§ 121.404 When is the size status of a 

business concern determined? 

* * * * * 

(f) For purposes of architectengineering, design/build or two-step 

sealed bidding procurements, a concern 

must qualify as small as of the date that 

it certifies that it is small as part of its 

initial bid or proposal (which may or 

may not include price). 

(g) * * * 

(2) * * * 

(ii) * * * 

(D) If the merger or acquisition occurs 

after offer but prior to award, the offeror 

must recertify its size to the contracting 

officer prior to award. 

* * * * * 

■ 6. Amend § 121.406 by revising 

paragraph (b)(5) introductory text, (b)(7), 

and (d) to read as follows: 

§ 121.406 How does a small business 

concern qualify to provide manufactured 

products or other supply items under a 

small business set-aside, service-disabled 

veteran-owned small business set-aside, 

WOSB or EDWOSB set-aside, or 8(a) 

contract? 

* * * * * 

(b) * * * 

(5) The Administrator or designee 

may waive the requirement set forth in 

paragraph (b)(1)(iv) of this section under 

the following two circumstances: 

* * * * * 

(7) SBA’s waiver of the 

nonmanufacturer rule means that the 

firm can supply the product of any size 

business without regard to the place of 

manufacture. However, any SBA waiver 

has no effect on requirements external 

to the Small Business Act which involve 

domestic sources of supply, such as the 

Buy American Act and the Trade 

Agreements Act. 

* * * * * 

(d) The performance requirements 

(limitations on subcontracting) and the 

nonmanufacturer rule do not apply to 

small business set aside acquisitions 

with an estimated value between $3,000 

and $150,000. 

* * * * * 

■ 8. Amend § 121.702 by revising 

paragraph (a)(2) to read as follows: 

§ 121.702 What size and eligibility 

standards are applicable to the SBIR and 

STTR programs? 

* * * * * 

(a) * * * 

(2) No single venture capital operating 

company, hedge fund, or private equity 

firm may own more than 50% of the 

concern unless that single venture 

capital operating company, hedge fund, 

or private equity firm qualifies as a 

small business concern that is more 

than 50% directly owned and controlled 

by individuals who are citizens or 

permanent resident aliens of the United 

States. 

* * * * * 

■ 9. Amend § 121.1001 as follows: 

■ a. Revise paragraphs (a)(1)(i) and 

(a)(2)(i); and 

■ b. Add paragraph (b)(11) to read as 

follows: 

§ 121.1001 Who may initiate a size protest 

or request a formal size determination? 

(a) * * * (1) * * * 

(i) Any offeror that the contracting 

officer has not eliminated from 

consideration for any procurementrelated reason, such as nonresponsiveness, technical 

unacceptability or outside of the 

competitive range; 

* * * * * 

(2) * * * 

(i) Any offeror that the contracting 

officer has not eliminated from 

consideration for any procurement 

related reason, such as nonresponsiveness, technical 

unacceptability or outside of the 

competitive range; 

* * * * * 

(b) * * * 

(11) In connection with eligibility for 

the SDVO SBC and the WOSB/EDWSOB 

programs, the Director, Office of 

Government Contracting, may initiate a 

formal size determination. 

■ 10. Revise § 121.1203 to read as 

follows: 

§ 121.1203 When will a waiver of the 

Nonmanufacturer Rule be granted for an 

individual contract? 

(a) Where appropriate, SBA will 

generally grant waivers for an 

individual contract or order prior to the 

issuance of a solicitation, or, where a 

solicitation has been issued, when the 

contracting officer provides all potential 

offerors additional time to respond. 

(b) SBA may grant a waiver after 

contract award, where the contracting 

officer has determined that the 

modification is within the scope of the 

contract and the agency followed the 

regulations prior to issuance of the 

solicitation and properly and timely 

requested a waiver for any other items 

under the contract, where required. 

Example: The Government seeks to buy 

spare parts to fix Item A. After conducting 

market research, the government determines 

that Items B, C, and D that are being procured 

may be eligible for waivers and requests and 

receives waivers from SBA for those items 

prior to issuing the solicitation. After the 

contract is awarded, the Government 

determines that it will need additional spare 

parts to fix Item A. The Government 

determines that adding the additional parts 

as a modification to the original contract is 

within scope. The contracting officer believes 

that one of the additional parts is also eligible 

for a waiver from SBA, and requests the 

waiver at the time of the modification. If all 

other criteria are met, SBA would grant the 

waiver, even though the contract has already 

been awarded. 

(c) An individual waiver for a product 

in a specific solicitation will be 

approved when the SBA Director, Office 

of 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 


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solicitation, including the period of 

performance. 

(d) Waivers for the purchase of 

software. (1) SBA may grant an 

individual waiver for the procurement 

of a software item provided that the 

software being sought is an item that is 

of a type customarily used by the 

general public or by non-governmental 

entities for purposes other than 

governmental purposes, and the item: 

(i) Has been sold, leased, or licensed 

to the general public, or has been 

offered for sale, lease, or license to the 

general public; 

(ii) Is sold in substantial quantities in 

the commercial marketplace; and 

(iii) Is offered to the Government, 

under a contract or subcontract at any 

tier, without modification, in the same 

form in which it is sold in the 

commercial marketplace. 

(2) If the value of services provided 

related to the purchase of a supply item 

that meets the requirements of 

paragraph (a)(1) of this section exceed 

the value of the item itself, the 

procurement should be identified as a 

service procurement, even if the 

services are provided as part of the same 

license, lease, or sale terms. If a 

contracting officer cannot make a 

determination of the value of services 

being provided, SBA will assume that 

the value of the services is greater than 

the value of items or supplies, and will 

not grant a waiver. 

(3) Subscription services, remote 

hosting of software, data, or other 

applications on servers or networks of a 

party other than the U.S. Government 

are considered by SBA to be services 

and not the procurement of a supply 

item. Therefore SBA will not grant 

waivers of the nonmanufacturer rule for 

these types of services. 

■ 11. Amend § 121.1204 by revising 

paragraphs (b)(1)(ii) and (iii) to read as 

follows: 

§ 121.1204 What are the procedures for 

requesting and granting waivers? 

* * * * * 

(b) * * * 

(1) * * * 

(ii) The proposed solicitation number, 

NAICS code, dollar amount of the 

procurement, and a brief statement of 

the procurement history; 

(iii) A determination by the 

contracting officer that no small 

business manufacturer or processor 

reasonably can be expected to offer a 

product meeting the specifications 

(including period of performance) 

required by a particular solicitation. 

Include a narrative describing market 

research and supporting documentation; 

and 

* * * * * 

■ 12. Add § 121.1206 to read as follows: 

§ 121.1206 How will potential offerors be 

notified of applicable waivers? 

(a) Contracting officers must provide 

written notification to potential offerors 

of any waivers being applied to a 

specific acquisition, whether it is a class 

waiver or a contract specific waiver. 

This notification must be provided at 

the time a solicitation is issued. If the 

notification is provided after a 

solicitation is issued, the contracting 

officer must provide potential offerors a 

reasonable amount of additional time to 

respond to the solicitation. 

(b) If a contracting officer does not 

provide notice, and additional 

reasonable time for responses when 

required, then the waiver cannot be 

applied to the solicitation. This applies 

to both class waivers and individual 

waivers. 

PART 124—8(a) BUSINESS 

DEVELOPMENT/SMALL 

DISADVANTAGED BUSINESS STATUS 

DETERMINATIONS 

■ 13. The authority citation for part 124 

is revised to read as follows: 

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

637(a), 637(d), 644 and Pub. L. 99–661, Pub. 

L. 100–656, sec.1207, Pub. L. 101–37, Pub. L. 

101–574, section 8021, Pub. L. 108–87, and 

42 U.S.C. 9815. 

■ 14. Amend § 124.504 by revising 

paragraph (c)(1)(ii)(B) to read as follows: 

§ 124.504 What circumstances limit SBA’s 

ability to accept a procurement for award as 

an 8(a) contract? 

* * * * * 

(c) * * * 

(1) * * * 

(ii) * * * 

(B) Procurements for construction 

services (e,g., the building of a specific 

structure) are generally deemed to be 

new requirements. However, recurring 

indefinite delivery or indefinite quantity 

task or delivery order construction 

services are not considered new (e.g., a 

recurring procurement requiring all 

construction work at base X). 

* * * * * 

■ 15. Amend § 124.510 by revising the 

section heading and the text to read as 

follows: 

§ 124.510 What limitations on 

subcontracting apply to an 8(a) contract? 

(a) To assist the business development 

of Participants in the 8(a) BD program, 

there are limitations on the percentage 

of an 8(a) contract award amount that 

may be spent on subcontractors. The 

prime contractor recipient of an 8(a) 

contract must comply with the 

limitations on subcontracting at § 125.6 

of this chapter. 

(b) Indefinite delivery and indefinite 

quantity contracts. (1) In order to ensure 

that the required limitations on 

subcontracting requirements on an 

indefinite delivery or indefinite quantity 

8(a) award are met by the Participant, 

the Participant cannot subcontract more 

than the required percentage to 

subcontractors that are not similarly 

situated entities for each performance 

period of the contract (i.e., during the 

base term and then during each option 

period thereafter). However, the 

contracting officer, in his or her 

discretion, may require the Participant 

to meet the applicable limitation on 

subcontracting or comply with the 

nonmanufacturer rule for each order. 

(i) This includes Multiple Award 

Contracts that were set-aside, partially 

set-aside or reserved solely for 8(a) BD 

Participants. 

(ii) For orders that are set aside for 

eligible 8(a) Participants under full and 

open contracts or reserves, the 

Participant must meet the applicable 

limitation on subcontracting 

requirement or comply with the 

nonmanufacturer rule for each order. 

(2) The applicable SBA District 

Director may waive the provisions in 

paragraph (b)(1) of this section requiring 

a Participant to meet the applicable 

limitation on subcontracting 

requirement for each performance 

period (or for each order for an order set 

aside solely for eligible 8(a) Participants 

under full and open multiple award 

contracts or reserves). Instead, the 

District Director may permit the 

Participant to subcontract in excess of 

the limitations on subcontracting where 

the District Director makes a written 

determination that larger amounts of 

subcontracting are essential during 

certain stages of performance. However, 

the 8(a) Participant and procuring 

activity’s contracting officer must 

provide written assurances that the 

Participant will ultimately comply with 

the requirements of this section prior to 

contract completion. The procuring 

activity’s contracting officer does not 

have the authority to waive the 

provisions of paragraph (b)(1) of this 

section requiring a Participant to meet 

the applicable limitation on 

subcontracting requirement for each 

performance period, even if the agency 

has a Partnership Agreement with SBA. 

Example. Two task orders are issued under 

an 8(a) indefinite quantity service contract 

during the base period of the contract. The 

amount paid to the Participant on each of the 

two task orders is $100,000. The Participant 


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subcontracts $40,000 to subcontractors that 

are not similarly situated on the first task 

order. Where the relevant SBA District 

Director has not waived the requirements of 

paragraph (b)(1), the Participant could not 

subcontract more than $60,000 to 

subcontractors that are not similarly situated 

on the second task order in order to meet the 

requirement that it not subcontract more than 

50% of the amount paid to it to 

subcontractors that are not similarly situated 

during the relevant performance period (i.e., 

in order to ensure that it would not 

subcontract more than $100,000, out of the 

$200,000 paid to it, to subcontractors that are 

not similarly situated). 

(3) Where the Participant does not 

ultimately comply with the performance 

of work requirements by the end of the 

contract, SBA will not grant future 

waivers for the Participant. Further, the 

contracting officer must document an 

8(a) Participant’s compliance with the 

limitation on subcontracting 

requirements as part of its performance 

evaluation in accordance with the 

procedures set forth in FAR 42.1502. 

The contracting officer must also 

evaluate compliance for future contract 

awards in accordance with the 

procedures set forth in FAR 9.104–6. 

■ 16. Amend § 124.513 by revising 

paragraph (b) to read as follows: 

§ 124.513 Under what circumstances can a 

joint venture be awarded an 8(a) contract? 

* * * * * 

(b) Size of concerns to an 8(a) joint 

venture. (1) A joint venture of at least 

one 8(a) Participant and one or more 

other business concerns may submit an 

offer as a small business for a 

competitive 8(a) procurement, or be 

awarded a sole source 8(a) procurement, 

so long as each concern is small under 

the size standard corresponding to the 

NAICS code assigned to the 

procurement. 

(2) Notwithstanding the provisions of 

paragraph (b)(1) of this section, a joint 

venture between a prote ́ge ́ firm and its 

approved mentor (see § 124.520) will be 

deemed small provided the prote ́ge ́

qualifies as small for the size standard 

corresponding to the NAICS code 

assigned to the contract and has not 

reached the dollar limits set forth in 

§ 124.519. 

* * * * * 

PART 125—GOVERNMENT 

CONTRACTING PROGRAMS 

■ 17. The authority citation for 13 CFR 

part 125 is revised to read as follows: 

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

637, 644, 657(f), 657q; and 657s. 

■ 18. Amend § 125.1 by adding 

paragraph (x) to read as follows: 

§ 125.1 What definitions are important to 

SBA’s Government Contracting Programs? 

* * * * * 

(x) Similarly situated entity is a 

subcontractor that has the same small 

business program status as the prime 

contractor. This means that: For a 

HUBZone requirement, a subcontractor 

that is HUBZone certified; for a small 

business set-aside, partial set-aside, or 

reserve a subcontractor that is a small 

business concern; for an SDVO SBC 

requirement, a subcontractor that is a 

self-certified SDVO SBC; for an 8(a) 

requirement, a subcontractor that is an 

8(a) certified; or a WOSB or EDWOSB 

contract, a subcontractor that is selfcertified as a WOSB or EDWOSB. In 

addition to sharing the same small 

business program status as the prime 

contractor, a similarly situated entity 

must also be small for the NAICS code 

that is assigned to the procurement. 

■ 19. Amend § 125.2 as follows: 

■ a. Revise paragraph (b)(1)(i)(A); 

■ b. Add paragraph (b)(1)(i)(F); 

■ c. Revise paragraph (b)(1)(ii); 

■ d. Revise paragraph (b)(1)(iii)(C); 

■ e. Add paragraphs (b)(1)(iv) and (v); 

■ f. Remove paragraph (b)(2) and 

redesignate paragraph (b)(3) as 

paragraph (b)(2); and 

■ g. Revise redesignated paragraph 

(b)(2). 

§ 125.2 What are SBA’s and the procuring 

agency’s responsibilities when providing 

contracting assistance to small 

businesses? 

* * * * * 

(b) * * * 

(1) * * * 

(i) * * * 

(A) SBA has PCRs who are generally 

located at Federal agencies and buying 

activities which have major contracting 

programs. At the SBA’s discretion, PCRs 

will review all acquisitions that are not 

totally set aside for small businesses to 

determine whether a set aside or sole 

source award to a small business under 

one of SBA’s programs is appropriate 

and to identify alternative strategies to 

maximize the participation of small 

businesses in the procurement. PCRs 

also advocate for the maximum 

practicable utilization of small business 

concerns in Federal contracting, 

including by advocating against the 

consolidation or bundling of contract 

requirements, as defined in § 125.1, and 

reviewing any justification provided by 

the agency for consolidation or 

bundling. This review includes 

acquisitions that are Multiple Award 

Contracts where the agency has not setaside all or part of the acquisition or 

reserved the acquisition for small 

businesses. It also includes acquisitions 

where the agency has not set-aside 

orders placed against Multiple Award 

Contracts for small business concerns. 

* * * * * 

(F) PCRs also advocate competitive 

procedures and recommend the 

breakout for competition when 

appropriate. They may appeal the 

failure by the buying activity to act 

favorably on a recommendation in 

accord with the appeal procedures in 

paragraph (b)(2) of this section. PCRs 

also review restrictions and obstacles to 

competition and make 

recommendations for improvement. 

(ii) PCR recommendations. The PCR 

must recommend to the procuring 

activity alternative procurement 

methods that would increase small 

business prime contract participation if 

a PCR believes that a proposed 

procurement includes in its statement of 

work goods or services currently being 

performed by a small business and is in 

a quantity or estimated dollar value the 

magnitude of which renders small 

business prime contract participation 

unlikely; will render small business 

prime contract participation unlikely 

(e.g., ensure geographical preferences 

are justified); or is for construction and 

seeks to package or consolidate discrete 

construction projects. If a PCR does not 

believe a bundled or consolidated 

requirement is necessary and justified 

the PCR shall advocate against the 

consolidation or bundling of such 

requirements and recommend to the 

procuring activity alternative 

procurement methods which would 

increase small business prime contract 

participation. Such alternatives may 

include: 

* * * * * 

(iii) * * * 

(C) Recommending that the small 

business subcontracting goals be based 

on total contract dollars in addition to 

goals based on a percentage of total 

subcontracted dollars; 

* * * * * 

(iv) PCRs will consult with the agency 

OSDBU with regard to agency decisions 

to convert an activity performed by a 

small business concern to an activity 

performed by a Federal employee. 

(v) PCRs may receive unsolicited 

proposals from small business concerns 

and shall transmit those proposals to the 

agency personnel responsible for 

reviewing such proposals. The agency 

personnel shall provide the PCR with 

information regarding the disposition of 

such proposal. 

(2) Appeals of PCR recommendations. 

In cases where there is disagreement 

between a PCR and the contracting 

officer over the suitability of a particular 


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acquisition for a small business setaside, partial set-aside or reserve, 

whether or not the acquisition is a 

bundled, substantially bundled or 

consolidated requirement, the PCR may 

initiate an appeal to the head of the 

contracting activity. If the head of the 

contracting activity agrees with the 

contracting officer, SBA may appeal the 

matter to the Secretary of the 

Department or head of the agency. The 

time limits for such appeals are set forth 

in FAR 19.505 (48 CFR 19.505). 

* * * * * 

■ 20. Amend § 125.3 as follows: 

■ a. Add paragraphs (c)(8) and (c)(9); 

■ b. Revise the first sentence of 

paragraph (f)(1); 

■ c. Revise paragraph (f)(5); and 

■ d. Add paragraph (f)(8) to read as 

follows: 

§ 125.3 What types of subcontracting 

assistance are available to small 

businesses? 

* * * * * 

(c) * * * 

(8) A prime contractor that identifies 

a small business by name as a 

subcontractor in a proposal, offer, bid or 

subcontracting plan must notify those 

subcontractors in writing prior to 

identifying the concern in the proposal, 

bid, offer or subcontracting plan. 

(9) Anyone who has a reasonable 

basis to believe that a prime contractor 

or a subcontractor may have made a 

false statement to an employee or 

representative of the Federal 

Government, or to an employee or 

representative of the prime contractor, 

with respect to subcontracting plans 

must report the matter to the SBA Office 

of Inspector General. All other concerns 

as to whether a prime contractor or 

subcontractor has complied with SBA 

regulations or otherwise acted in bad 

faith may be reported to the Government 

Contracting Area Office where the firm 

is headquartered. 

* * * * * 

(f) Compliance Reviews. (1) A prime 

contractor’s performance under its 

subcontracting plan is evaluated by 

means of on-site compliance reviews 

and follow-up reviews, as a supplement 

to evaluations performed by the 

contracting agency, either on a contractby-contract basis or, in the case of 

contractors having multiple contracts, 

on an aggregate basis. * * * 

* * * * * 

(5) Any contractor that fails to comply 

with paragraph (f)(4) of this section, or 

any contractor that fails to demonstrate 

a good-faith effort, as set forth in 

paragraph (d) of this section: 

(i) may be considered for liquidated 

damages under the procedures in 48 

CFR 19.705–7 and the clause at 52.219– 

16; and 

(ii) shall be in material breach of such 

contract or subcontract, and such failure 

to demonstrate good faith must be 

considered in any past performance 

evaluation of the contractor. This action 

shall be considered by the contracting 

officer upon receipt of a written 

recommendation to that effect from the 

CMR. The CMR’s recommendation must 

include a copy of the compliance report 

and any other relevant correspondence 

or supporting documentation. 

Furthermore, if the CMR has a 

reasonable basis to believe that a 

contractor has made a false statement to 

an employee or representative of the 

Federal Government, or to an employee 

or representative of the prime 

contractor, the CMR must report the 

matter to the SBA Office of Inspector 

General. All other concerns as to 

whether a prime contractor or 

subcontractor has complied with SBA 

regulations or otherwise acted in bad 

faith may be reported to the Area 

Government Contracting Office where 

the firm is headquartered. 

* * * * * 

(8) The head of the contracting agency 

shall ensure that: 

(i) the agency collects and reports data 

on the extent to which contractors of the 

agency meet the goals and objectives set 

forth in subcontracting plans; and 

(ii) the agency periodically reviews 

data collected and reported pursuant to 

paragraph (f)(8)(i) of this section for the 

purpose of ensuring that such 

contractors comply in good faith with 

the requirements of this section. 

* * * * * 

■ 21. Amend § 125.5 by adding a 

paragraph (f)(3) to read as follows: 

§ 125.5 What is the Certificate of 

Competency Program? 

* * * * * 

(f) * * * 

(3) Where a contracting officer finds a 

concern to be nonresponsible for 

reasons of financial capacity on an 

indefinite delivery or indefinite quantity 

task or delivery order contract, the Area 

Director will consider the firm’s 

maximum financial capacity. If the Area 

Director issues a COC, it will be for a 

specific amount that is the limit of the 

firm’s financial capacity for that 

contract. The contracting officer may 

subsequently determine to exceed the 

amount, but cannot deny the firm award 

of an order or contract on financial 

grounds if the firm has not reached the 

financial maximum the Area Director 

identified in the COC letter. 

* * * * * 

■ 22. Revise § 125.6 by revising the 

heading and text to read as follows: 

§ 125.6 What are the prime contractor’s 

limitations on subcontracting? 

(a) General. In order to be awarded a 

full or partial small business set-aside 

contract, an 8(a) contract, an SDVO SBC 

contract, a HUBZone contract, a WOSB 

or EDWOSB contract pursuant to part 

127 of this chapter, with a value greater 

than $150,000, a small business concern 

must agree that: 

(1) In the case of a contract for 

services (except construction), no more 

than 50% of the amount paid by the 

government to the prime may be paid to 

firms, at any tier, that are not similarly 

situated. Any work that a similarly 

situated entity further subcontracts to an 

entity that is not similarly situated will 

count towards the 50% subcontract 

amount that cannot be exceeded. 

(2) In the case of a contract for 

supplies or products (other than from a 

nonmanufacturer of such supplies), no 

more than 50% of the amount paid by 

the government to the prime may be 

paid to firms, at any tier, that are not 

similarly situated. Any work that a 

similarly situated entity further 

subcontracts to an entity that is not 

similarly situated will count towards 

the 50% subcontract amount that cannot 

be exceeded. 

(iii) In the case of a contract for 

supplies from a nonmanufacturer, the 

concern shall supply the product of a 

domestic small business manufacturer 

or processor, unless a waiver as 

described in § 121.406(b)(5) of this 

chapter is granted. 

(3) Where a contract combines 

services and supplies, the contracting 

officer shall select the appropriate 

NAICS code as prescribed in 

§ 121.402(b) of this chapter. The 

contracting officer’s selection of the 

applicable NAICS code is determinative 

as to which limitation on subcontracting 

and performance requirement applies. 

In no case shall the requirements of 

paragraph (a)(1) and (a)(2) of this section 

both apply to the same contract. The 

relevant limitation on subcontracting in 

paragraph (a)(1) or (a)(2) of this section 

shall apply only to that portion of the 

contract award amount. 

Example to paragraph (a)(3). A procuring 

agency is acquiring both services and 

supplies through a small business set aside. 

The total value of the requirement is 

$3,000,000, with the supply portion 

comprising $2,500,000, and the services 

portion comprising $500,000. The 

contracting officer appropriately assigns a 

manufacturing NAICS code to the 

requirement. Because the services portion of 

the contract is excluded from consideration, 

a small business manufacturer, together with 


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one or more similarly situated small business 

manufacturers, must perform at least 50% of 

the cost of manufacturing the supplies or 

products, or at least 50% of the $2,500,000 

supply portion of the requirement (not 

including the costs of materials). 

(4) In the case of a contract for general 

construction, no more than 85% of the 

amount paid by the government to the 

prime may be paid to firms, at any tier, 

that are not similarly situated. Any work 

that a similarly situated entity further 

subcontracts to an entity that is not 

similarly situated will count towards 

the 15% subcontract amount that cannot 

be exceeded. 

(5) In the case of a contract for special 

trade contractors, no more than 75% of 

the amount paid by the government to 

the prime may be paid to firms, at any 

tier, that are not similarly situated Any 

work that a similarly situated entity 

further subcontracts to an entity that is 

not similarly situated will count 

towards the 75% subcontract amount 

that cannot be exceeded. 

(b) Subcontracts to similarly situated 

entities. A small business concern prime 

contractor that receives a contract listed 

in § 125.6(a) and spends contract 

amounts on a subcontractor that is a 

similarly situated entity shall not 

consider those subcontracted amounts 

as subcontracted for purposes of 

determining whether the small business 

concern prime contractor has violated 

§ 125.6(a). Moreover, such subcontract 

to a similarly situated entity shall also 

be excluded from consideration under 

the ostensible subcontractor rule 

(§ 121.103(h)(4)). 

(1) A small business concern prime 

contractor must enter a written 

agreement with every similarly situated 

entity to detail the percentage of work 

forecasted to be performed by each 

entity. The agreement must identify the 

solicitation number at issue, be signed 

by each entity, and be attached to the 

prime contractor’s offer. 

(2) Whether particular specific 

entities perform the forecasted amount 

of work is not material, as long as the 

similarly situated entities collectively 

meet the performance of work 

requirement. 

(3) SBA may consider any party’s 

failure to comply with the spirit and 

intent of such a subcontract as a basis 

for debarment on the grounds, including 

but not limited to, that the parties have 

violated the terms of a Government 

contract or subcontract pursuant to FAR 

9.406–2(b)(1)(i). 

Example 1 to paragraph (b): An SDVO SBC 

sole source contract is awarded in the total 

amount of $500,000 for hammers. The prime 

contractor is a manufacturer and subcontracts 

51% of the total amount received, less the 

cost of materials ($100,000) or $204,000, to 

an SDVO SBC subcontractor that 

manufactures the hammers in the U.S. The 

prime contractor does not violate the 

limitation on subcontracting requirement 

because the amount subcontracted to a 

similarly situated entity (less the cost of 

materials) is excluded from the limitation on 

subcontracting calculation. 

Example 2 to paragraph (b): A competitive 

8(a) BD contract is awarded in the total 

amount of $1,000,000 for janitorial services. 

The prime contractor subcontracts $800,000 

of the janitorial services to another 8(a) BD 

certified firm. The prime contractor does not 

violate the limitation on subcontracting for 

services because the amount subcontracted to 

a similarly situated entity is excluded from 

the limitation on subcontracting. 

Example 3 to paragraph (b): A WOSB setaside contract is awarded in the total amount 

of $1,000,000 for landscaping services. The 

prime contractor subcontracts $500,001 to an 

SDVO SBC subcontractor that is not also a 

WOSB under the WOSB program. The prime 

contractor is in violation of the limitation on 

subcontracting requirement because it has 

subcontracted more than 50% of the contract 

amount to an SDVO SBC subcontractor, 

which is not considered similarly situated to 

a WOSB prime contractor. 

(c) Certification to meet limitations on 

subcontracting. A small business 

concern submitting an offer for a 

contract listed in § 125.6(a) must certify 

that it will meet the applicable 

limitation on subcontracting. If it is not 

apparent in the offer that the applicable 

limitation on subcontracting will be 

met, the contracting officer may seek a 

Certificate of Competency pursuant to 

§ 125.5. The procuring agency 

contracting officer must be satisfied that 

the small business concern prime 

contractor will satisfy the applicable 

limitation on subcontracting at the time 

of award. 

(d) Identify subcontractors and 

percentage of award amount 

subcontracted. If a small business 

concern prime contractor that receives a 

contract listed in § 125.6(a) intends to 

use similarly situated entities in order to 

comply with the limitations on 

subcontracting, it must identify the 

similarly situated entities in its offer 

and the percentage of the prime contract 

award amount that will be spent on 

each similarly situated entity must be 

identified in a written agreement, in 

compliance with § 125.6(b). 

(e) Modifications of award amount. If 

the prime contractor modifies a 

subcontractor’s award amount after 

award of the prime contract, increasing 

the percentage of the prime contractor’s 

award amount spent on subcontractors 

that are not similarly situated entities 

such that the prime contractor is no 

longer in compliance with the 

requirements of § 125.6(a), the prime 

contractor must notify the contracting 

officer in writing of the change and how 

the change will affect the prime 

contractor’s compliance with the 

limitations on subcontracting. 

(f) HUBZone procurement for 

commodities. In the case of a HUBZone 

contract for the procurement of 

agricultural commodities, a HUBZone 

SBC may not purchase the commodity 

from a subcontractor if the 

subcontractor will supply the 

commodity in substantially the final 

form in which it is to be supplied to the 

Government. 

(g) Request to change applicable 

limitation on subcontracting. SBA may 

use different percentages if the 

Administrator determines that such 

action is necessary to reflect 

conventional industry practices among 

small business concerns that are below 

the numerical size standard for 

businesses in that industry group. 

Representatives of a national trade or 

industry group or any interested SBC 

may request a change in subcontracting 

percentage requirements for the 

categories defined by six digit industry 

codes in the North American Industry 

Classification System (NAICS) pursuant 

to the following procedures: 

(1) Format of request. Requests from 

representatives of a trade or industry 

group and interested SBCs should be in 

writing and sent or delivered to the 

Director, Office of Government 

Contracting, U.S. Small Business 

Administration, 409 3rd Street SW., 

Washington, DC 20416. The requester 

must demonstrate to SBA that a change 

in percentage is necessary to reflect 

conventional industry practices among 

small business concerns that are below 

the numerical size standard for 

businesses in that industry category, 

and must support its request with 

information including, but not limited 

to: 

(i) Information relative to the 

economic conditions and structure of 

the entire national industry; 

(ii) Market data, technical changes in 

the industry and industry trends; 

(iii) Specific reasons and justifications 

for the change in the subcontracting 

percentage; 

(iv) The effect such a change would 

have on the Federal procurement 

process; and 

(v) Information demonstrating how 

the proposed change would promote the 

purposes of the small business, 8(a), 

SDVO, HUBZone, WOSB, or EDWOSB 

programs. 

(2) Notice to public. Upon an 

adequate preliminary showing to SBA, 

SBA will publish in the Federal 

Register a notice of its receipt of a 


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request that it considers a change in the 

subcontracting percentage requirements 

for a particular industry. The notice will 

identify the group making the request, 

and give the public an opportunity to 

submit information and arguments in 

both support and opposition. 

(3) Comments. SBA will provide a 

period of not less than 30 days for 

public comment in response to the 

Federal Register notice. 

(4) Decision. SBA will render its 

decision after the close of the comment 

period. If SBA decides against a change, 

SBA will publish notice of its decision 

in the Federal Register. Concurrent with 

the notice, SBA will advise the 

requester of its decision in writing. If 

SBA decides in favor of a change, SBA 

will propose an appropriate change to 

this part. 

(h) Determining compliance with 

applicable limitation on subcontracting. 

The period of time used to determine 

compliance for a total or partial setaside contract will be the base term and 

then each subsequent option period. For 

an order set aside under a full and open 

contract or a full and open contract with 

reserve, the agency will use the period 

of performance for each order to 

determine compliance unless the order 

is competed amongst small and otherthan-small businesses (in which case 

the subcontracting limitations will not 

apply). 

(1) The contracting officer, in his or 

her discretion, may require the concern 

to perform the applicable percentage of 

work or comply with the 

nonmanufacturer rule for each order 

awarded under a total or partial set 

aside contract. 

(2) Compliance will be considered an 

element of responsibility and not a 

component of size eligibility. 

(i) Small Business Teaming 

Arrangements (SBTAs). Where an 

offeror is exempt from affiliation under 

§ 121.103(b)(9) of this chapter and 

qualifies as a small business concern for 

a reserve of a bundled contract, the 

limitations on subcontracting apply to 

the cooperative effort of the small 

business team members of the Small 

Business Teaming Arrangement, not its 

individual members. The contracting 

officer must document a small business 

concern’s compliance with the 

limitations on subcontracting as part of 

the small business’ performance 

evaluation in accordance with the 

procedures set forth in FAR 42.1502. 

The contracting officer must also 

evaluate compliance for future contract 

awards in accordance with the 

procedures set forth in FAR 9.104–6. 

(j) Inapplicability of limitations on 

subcontracting. The performance 

requirements (limitations on 

subcontracting) do not apply to: (1) 

small business set-aside contracts with 

a value greater than the micro-purchase 

threshold but not greater than the 

simplified acquisition threshold; or (2) 

subcontracts. 

(k) Penalties. Whoever violates the 

requirements set forth in § 125.6(a) shall 

be subject to the penalties prescribed in 

15 U.S.C. 645(d), except that the fine 

shall be treated as the greater of 

$500,000 or the dollar amount spent, in 

excess of permitted levels, by the entity 

on subcontractors. 

■ 23. Amend § 125.15 by revising 

paragraphs (a)(3), (b)(1), and (b)(3) to 

read as follows: 

§ 125.15 What requirements must an 

SDVO SBC meet to submit an offer on a 

contract? 

(a) * * * 

(3) It will comply with the limitations 

on subcontracting requirements set forth 

in § 125.6; 

* * * * * 

(b) * * * 

(1) Size of concerns to an SDVO SBC 

joint venture. A joint venture of at least 

one SDVO SBC and one or more other 

business concerns may submit an offer 

as a small business for a competitive 

SDVO SBC procurement, or be awarded 

a sole source SDVO contract, so long as 

each concern is small under the size 

standard corresponding to the NAICS 

code assigned to the procurement. 

* * * * * 

(3) Limitations on subcontracting. For 

any SDVO contract, the joint venture 

must comply with the applicable 

limitations on subcontracting required 

by § 125.6 of this chapter. 

* * * * * 

§ 125.20 [Amended] 

■ 24. Amend § 125.20 as follows: 

■ a. In paragraph (b)(1), remove 

‘‘$5,500,000’’ and add in its place 

‘‘$6,000,000’’; and 

■ b. In paragraph (b)(2), remove 

‘‘$3,000,000’’ and add in its place 

‘‘$3,500,000’’. 

§ 125.26 [Amended] 

■ 25. Amend § 125.26 by removing the 

phrase ‘‘Associate Administrator for 

Government Contracting’’ and adding in 

its place the phrase ‘‘Director, Office of 

Government Contracting’’ in paragraph 

(b). 

PART 126—HUBZONE PROGRAM 

■ 26. The authority citation for part 126 

continues to read as follows: 

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

644, and 657a. 

■ 27. Amend § 126.200 by revising 

paragraph (b)(6) and removing 

paragraph (d) to read as follows: 

§ 126.200 What requirements must a 

concern meet to receive SBA certification 

as a qualified HUBZone SBC? 

* * * * * 

(b) * * * 

(6) Subcontracting. The concern must 

represent, as provided in the 

application, that it will comply with the 

applicable limitations on subcontracting 

requirements in connection with any 

procurement that it receives as a 

qualified HUBZone SBC, as set forth in 

§ 126.5 and § 126.700. 

* * * * * 

■ 28. Amend § 126.601 by revising 

paragraph (f) to read as follows: 

§ 126.601 What additional requirements 

must a HUBZone SBC meet to bid on a 

contract? 

* * * * * 

(f) A qualified HUBZone SBC may 

submit an offer on a HUBZone contract 

for supplies as a nonmanufacturer if it 

meets the requirements of the 

nonmanufacturer rule set forth at 

§ 121.406 of this chapter. 

* * * * * 

■ 29. Amend § 126.700 by revising the 

title and text to read as follows: 

§ 126.700 What are the limitations on 

subcontracting requirements for HUBZone 

contracts? 

A prime contractor receiving an 

award as a qualified HUBZone SBC 

must meet the limitations on 

subcontracting requirements set forth in 

§ 125.6 of this chapter. 

PART 127—WOMEN-OWNED SMALL 

BUSINESS FEDERAL CONTRACT 

PROGRAM 

■ 30. The authority citation for part 127 

continues to read as follows: 

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

637(m), and 644. 

■ 31. Amend § 127.504 by revising 

paragraph (b) to read as follows: 

§ 127.504 What additional requirements 

must a concern satisfy to submit an offer 

on an EDWOSB or WOSB requirement? 

* * * * * 

(b) The concern must also meet the 

applicable limitations on subcontracting 

requirements as set forth in § 125.6 of 

this chapter. 

■ 32. Amend § 127.506 by revising 

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

§ 127.506 May a joint venture submit an 

offer on an EDWOSB or WOSB 

requirement? 

* * * * * 


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(a) Size of concerns. A joint venture 

of at least one WOSB EDWOSB and one 

or more other business concerns may 

submit an offer as a small business for 

a competitive WOSB or EDWOSB 

procurement so long as each concern is 

small under the size standard 

corresponding to the NAICS code 

assigned to the procurement; 

* * * * * 

(d) The joint venture must comply 

with the limitations on subcontracting, 

as required by § 125.6 of this chapter; 

* * * * * 

Dated: December 10, 2014. 

Maria Contreras-Sweet, 

Administrator. 

[FR Doc. 2014–29753 Filed 12–24–14; 8:45 am] 

BILLING CODE 8025–01–P 

DEPARTMENT OF TRANSPORTATION 

Federal Aviation Administration 

14 CFR Part 39 

[Docket No. FAA–2014–0929; Directorate 

Identifier 2014–NM–118–AD] 

RIN 2120–AA64 

Airworthiness Directives; The Boeing 

Company Airplanes 

AGENCY: Federal Aviation 

Administration (FAA), DOT. 

ACTION: Notice of proposed rulemaking 

(NPRM). 

SUMMARY: We propose to adopt a new 

airworthiness directive (AD) for certain 

The Boeing Company Model 767 

airplanes. This proposed AD was 

prompted by reports that six fasteners 

may not have been installed in the left 

and right stringer 37 (S–37) between 

body station (BS) 428 and 431 lap 

splices on certain airplanes. This 

proposed AD would require a general 

visual inspection of S–37 lap splices for 

missing fasteners; and all applicable 

related investigative and corrective 

actions. We are proposing this AD to 

detect and correct missing fasteners, 

which could result in cracks in the 

fuselage skin that could adversely affect 

the structural integrity of the airplane. 

DATES: We must receive comments on 

this proposed AD by February 12, 2015. 

ADDRESSES: You may send comments, 

using the procedures found in 14 CFR 

11.43 and 11.45, by any of the following 

methods: 

• Federal eRulemaking Portal: Go to 

http://www.regulations.gov. Follow the 

instructions for submitting comments. 

• Fax: 202–493–2251. 

• Mail: U.S. Department of 

Transportation, Docket Operations, M– 

30, West Building Ground Floor, Room 

W12–140, 1200 New Jersey Avenue SE., 

Washington, DC 20590. 

• Hand Delivery: Deliver to Mail 

address above between 9 a.m. and 5 

p.m., Monday through Friday, except 

Federal holidays. 

For service information identified in 

this proposed AD, contact Boeing 

Commercial Airplanes, Attention: Data 

& Services Management, P. O. Box 3707, 

MC 2H–65, Seattle, WA 98124–2207; 

telephone 206–544–5000, extension 1; 

fax 206–766–5680; Internet https://

www.myboeingfleet.com. You may view 

this referenced service information at 

the FAA, Transport Airplane 

Directorate, 1601 Lind Avenue SW., 

Renton, WA. For information on the 

availability of this material at the FAA, 

call 425–227–1221. 

Examining the AD Docket 

You may examine the AD docket on 

the Internet at http://

www.regulations.gov by searching for 

and locating Docket No. FAA–2014– 

0929; or in person at the Docket 

Management Facility between 9 a.m. 

and 5 p.m., Monday through Friday, 

except Federal holidays. The AD docket 

contains this proposed AD, the 

regulatory evaluation, any comments 

received, and other information. The 

street address for the Docket Office 

(phone: 800–647–5527) is in the 

ADDRESSES section. Comments will be 

available in the AD docket shortly after 

receipt. 

FOR FURTHER INFORMATION CONTACT: 

Berhane Alazar, Aerospace Engineer, 

Airframe Branch, ANM–120S, FAA, 

Seattle Aircraft Certification Office 

(ACO), 1601 Lind Avenue SW., Renton, 

WA 98057–3356; phone: 425–917–6590; 

fax: 425–917–6590; email: 

Berhane.Alazar@faa.gov. 

SUPPLEMENTARY INFORMATION: 

Comments Invited 

We invite you to send any written 

relevant data, views, or arguments about 

this proposal. Send your comments to 

an address listed under the ADDRESSES

section. Include ‘‘Docket No. FAA– 

2014–0929; Directorate Identifier 2014– 

NM–118–AD’’ at the beginning of your 

comments. We specifically invite 

comments on the overall regulatory, 

economic, environmental, and energy 

aspects of this proposed AD. We will 

consider all comments received by the 

closing date and may amend this 

proposed AD because of those 

comments. 

We will post all comments we 

receive, without change, to http://

www.regulations.gov, including any 

personal information you provide. We 

will also post a report summarizing each 

substantive verbal contact we receive 

about this proposed AD. 

Discussion 

We received reports that six fasteners 

may not have been installed in the left 

and right stringer 37 (S–37) between BS 

428 and 431 lap splices on certain 

airplanes during production. This 

condition, if not corrected, could result 

in cracks in the fuselage skin that could 

adversely affect the structural integrity 

of the airplane. 

Relevant Service Information 

We reviewed Boeing Alert Service 

Bulletin 767–53A0251, dated August 7, 

2013. For information on the procedures 

and compliance times, see this service 

information at http://

www.regulations.gov by searching for 

and locating Docket No. FAA–2014– 

0929. 

FAA’s Determination 

We are proposing this AD because we 

evaluated all the relevant information 

and determined the unsafe condition 

described previously is likely to exist or 

develop in other products of these same 

type designs. 

Proposed AD Requirements 

This proposed AD would require 

accomplishing the actions specified in 

the service information described 

previously, except as discussed under 

‘‘Differences Between this Proposed AD 

and the Service Information.’’ 

The phrase ‘‘related investigative 

actions’’ is used in this proposed AD. 

‘‘Related investigative actions’’ are 

follow-on actions that (1) are related to 

the primary action, and (2) further 

investigate the nature of any condition 

found. Related investigative actions in 

an AD could include, for example, 

inspections. 

The phrase ‘‘corrective actions’’ is 

used in this proposed AD. ‘‘Corrective 

actions’’ are actions that correct or 

address any condition found. Corrective 

actions in an AD could include, for 

example, repairs. 

Explanation of ‘‘RC’’ Steps in Service 

Information 

The FAA worked in conjunction with 

industry, under the Airworthiness 

Directives Implementation Aviation 

Rulemaking Committee, to enhance the 

AD system. One enhancement was a 

new process for annotating which steps 

in the service information are required 

for compliance with an AD. 

Differentiating these steps from other 

tasks in the service information is 


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