Ownership and Control and Contractual Assistance Requirements for the 8(a) Business Development Program

SMALL BUSINESS ADMINISTRATION

13 CFR Parts 121, 124, 125, 126, 127, and 128

RIN 3245-AH70

Ownership and Control and Contractual Assistance Requirements for the 8(a) Business Development Program

AGENCY:

U.S. Small Business Administration.

ACTION:

Final rule.

SUMMARY:

This final rule makes several changes to the ownership and control requirements for the 8(a) Business Development (BD) program, including recognizing a process for allowing a change of ownership for a former Participant that is still performing one or more 8(a) contracts and permitting an individual to own an applicant or Participant where the individual can demonstrate that financial obligations have been settled and discharged by the Federal Government. The rule also makes several changes relating to 8(a) contracts, including clarifying that a contracting officer cannot limit an 8(a) competition to Participants having more than one certification and clarifying the rules pertaining to issuing sole source 8(a) orders under an 8(a) multiple award contract. The rule also makes several other revisions to incorporate changes to SBA's other government contracting programs, including changes to implement a statutory amendment from the National Defense Authorization Act for Fiscal Year 2022, to include blanket purchase agreements in the list of contracting vehicles that are covered by the definitions of consolidation and bundling, and to more clearly specify the requirements relating to waivers of the nonmanufacturer rule.

DATES:

This rule is effective on May 30, 2023. It applies to all solicitations issued on or after that date.

FOR FURTHER INFORMATION CONTACT:

Mark Hagedorn, U.S. Small Business Administration, Office of General Counsel, 409 Third Street SW, Washington, DC 20416; (202) 205-7625;

mark.hagedorn@sba.gov.

SUPPLEMENTARY INFORMATION:

On September 9, 2022, SBA published in the

Federal Register

a comprehensive proposal that primarily proposed changes to the 8(a) Business Development (BD) program, but also proposed changes to SBA's size regulations and SBA's other small business contracting programs. 87 FR 55642. Specifically, the rule proposed to make several changes to the ownership and control requirements for the 8(a) BD program, including recognizing a process for allowing a change of ownership for a former Participant that is still performing one or more 8(a) contracts and permitting an individual to own an applicant or Participant where the individual can demonstrate that financial obligations have been settled and discharged by the Federal Government, and to provisions relating to the award of 8(a) contracts, including clarifying that a contracting officer cannot limit an 8(a) competition to Participants having more than one certification and clarifying the rules pertaining to issuing sole source 8(a) orders under an 8(a) multiple award contract. The rule also proposed to make several other revisions to incorporate changes to SBA's other government contracting programs, including changes to implement a statutory amendment from the National Defense Authorization Act for Fiscal Year 2022, to include blanket purchase agreements in the list of contracting vehicles that are covered by the definitions of consolidation and bundling, and to more clearly specify the requirements relating to waivers of the nonmanufacturer rule. Contemporaneously, on August 26, 2022, SBA also published a Notice in the

Federal Register

announcing that SBA intended to conduct tribal consultations and listening sessions relating to a proposal to require a Community Benefits Plan laying out how a tribe, Alaska Native Corporation (ANC) or Native Hawaiian Organization (NHO) that owned and controlled one or more 8(a) BD Participants intended to give benefits back to the Native community as a result of its 8(a) BD participation. 87 FR 52602. SBA held consultations in Anchorage, AK on September 14, 2022, in Albuquerque, NM on September 20, 2022, in Oklahoma City, OK on September 22, 2022, and in Washington, DC on October 5, 2022. In addition, SBA held a listening session on this topic in Honolulu, HI on September 28, 2022. The tribal, ANC and NHO representatives overwhelmingly opposed SBA imposing any target that a certain percentage of an entity's 8(a) receipts should be distributed to benefit the affected Native community or that there should be any specific consequences if the benefit targets were not reached. They believed that any such requirement infringed on self-determination and tribal sovereignty, that the entity (tribe/ANC/NHO) is in the best position to determine how and when to best reinvest in the 8(a) Participant for long-term growth, and that the tribal members or ANC shareholders, and not SBA, are the ones who determine what type of benefits the tribe/ANC provides. SBA listened to the concerns voiced at the tribal consultations. In response to those concerns, at the October 5, 2022, consultation in Washington, DC, SBA announced that the SBA Administrator determined that this final rule would not change any current requirements relating to Native community benefits. As such, the proposed changes to § 124.604 regarding the imposition of a Community Benefits Plan are not included in this final rule. In addition, the questions raised in the proposed rule and the August 26, 2022,

Federal Register

Notice regarding benefit targets or consequences for failure to meet those targets are also not included in this final rule.

During the proposed rule's 60-day comment period, SBA timely received over 650 comments from 125 commenters, with a high percentage of commenters favoring the proposed changes. A substantial number of commenters applauded SBA's effort to clarify and address ambiguities contained in the current rules. For the most part, the comments supported the substantive changes proposed by SBA.

Section-By-Section Analysis

Section 121.103(h)

Section 121.103(h) sets forth the rules pertaining to affiliation through joint ventures. SBA proposed to make several changes to this section. SBA first proposed to take some of the language currently contained in the introductory paragraph and add it to a new § 121.103(h)(1) for ease of use. SBA believes that the current introductory paragraph is overly complex and separating some of the requirements into a separate subparagraph will be easier to understand and use. In adding a new § 121.103(h)(1), the proposed rule also made corresponding numbering and cross reference adjustments. SBA received no objections to these changes. As such, they are adopted as final in this rule.

SBA's regulations currently provide that a specific joint venture generally may not be awarded contracts beyond a two-year period, starting from the date of the award of the first contract, without the partners to the joint venture being deemed affiliated for the joint venture. The proposed rule added a sentence to the introductory text of § 121.103(h) to capture SBA's current policy that allows orders to be issued under previously awarded contracts

beyond the two-year period (since the restriction is on additional contracts, not continued performance on contracts already awarded). All comments that SBA received regarding this provision supported the clarification pertaining to orders. As such, the final rule adopts the clarification as proposed.

The proposed rule also sought to clarify SBA's distinct treatment of populated and unpopulated joint ventures. The current regulation provides that if a joint venture exists as a formal separate legal entity, it may not be populated with individuals intended to perform contracts awarded to the joint venture. The proposed rule clarified that this requirement was meant to apply only to contracts set aside or reserved for small business (

i.e.,

small business set-aside, 8(a), women-owned small business (WOSB), HUBZone, and service-disabled veteran owned small business (SDVOSB) contracts). The proposed rule clarified that a populated joint venture could be awarded a contract set aside or reserved for small business where each of the partners to the joint venture were similarly situated (

e.g.,

both partners to a joint venture seeking a HUBZone contract were certified HUBZone small business concerns). Any time the size of a populated joint venture is questioned, the proposed rule also clarified that SBA will aggregate the revenues or employees of all partners to the joint venture. Commenters supported the change to clarify that a populated joint venture could be awarded a contract set aside or reserved for small business where each of the partners to the joint venture were similarly situated. Although several commenters agreed with the language in the proposed rule aggregating the size of joint venture partners where a joint venture is populated, two commenters recommended that populated joint ventures should be permitted for set-aside contracts as long as each party to the joint venture individually qualifies as small under the size standard corresponding to the North American Classification System (NAICS) code assigned to the contract and has any socioeconomic designation that may be required for the contract (

i.e.,

is similarly situated). SBA disagrees. SBA has consistently stated its view that a joint venture is not an on-going business entity, but rather something that is formed for a limited purpose and duration. If two or more separate business entities seek to join together through another entity on a continuing, unlimited basis, SBA views that as a separate business concern with each partner affiliated with each other. Where two or more parties form a separate business entity (

e.g.,

a limited liability company or partnership) and populate that entity with employees intended to perform work on behalf of that entity, SBA similarly views that as an ongoing business entity and will aggregate the receipts/employees of the parties that formed the separate business entity in determining its size. SBA's joint venture regulations provide generally that as long as each partner to the joint venture individually qualifies as small under the NAICS code assigned to the contract, the joint venture will qualify as small. However, that rule assumes that each partner to the joint venture individually performs work under a contract won by the joint venture with its own separate employees. That is not the case where two or more parties form a separate legal entity, populate that entity with employees, and intend to perform contracts with the employees hired by that separate entity. As such, the final rule adopts the language contained in the proposed rule that where two parties form a populated joint venture, the joint venture will qualify as small only where the parties to the joint venture meet the applicable size standard in the aggregate.

In addition, the proposed rule revised the ostensible subcontractor rule in redesignated § 121.103(h)(3) in two ways. First, it clarified how the ostensible subcontractor rule should apply to general construction contracts. Second, it proposed to add factors to consider in determining whether a specific subcontractor should be considered an ostensible subcontractor to comport with recent decisions of SBA's Office of Hearings and Appeals (OHA).

The proposed rule clarified that the primary role of a prime contractor in a general construction project is to oversee and superintend, manage, and schedule the work, including coordinating the work of various subcontractors. Those are the functions that are the primary and vital requirements of a general construction contract and ones that a prime contractor must perform. Although the prime contractor for a general construction contract must meet the limitation on subcontracting requirement set forth in § 125.6(a)(3), SBA recognizes that subcontractors often perform the majority of the actual construction work because the prime contractor frequently must engage multiple subcontractors specializing in a variety of trades and disciplines. As such, SBA believes that the ostensible subcontractor rule for general construction contracts should be applied to the management and oversight of the project, not to the actual construction or specialty trade construction work performed. The prime contractor must retain management of the contract but may delegate a large portion of the actual construction work to its subcontractors. SBA received 17 comments regarding the proposed clarification to the ostensible subcontractor rule for general construction contracts. All 17 comments supported the clarification. A few commenters suggested adding the word “supervise” and to specifically identify that one of the primary functions of a general construction prime contractor is to coordinate the work of subcontractors. Although SBA does not see a real distinction between oversight and supervision, the final rule nevertheless adds supervision as a primary and vital requirement as well as adding the coordination of subcontractor work. One commenter recommended adding more specificity as to what managing the contract entails. SBA believes that a general requirement to supervise, oversee, manage, and schedule the work on a contract, including coordinating the work of various subcontractors, is sufficient. SBA is concerned that adding any specificity beyond that or highlighting one or two specific items of managing a contract might be read as SBA believing those one or two items are more important in the analysis than any others. That is not SBA's intent, and SBA believes that an SBA Size Specialist should have discretion to analyze all the facts in determining whether an arrangement rises to the level of an ostensible subcontractor.

One commenter noted that the proposed rule also amended § 126.401(d) to provide that SBA will find that a prime HUBZone contractor is performing the primary and vital requirements of the contract or order and is not unduly reliant on one or more subcontractors that are not HUBZone-certified, where the prime contractor can demonstrate that it, together with any subcontractors that are certified HUBZone small business concerns, will meet the limitations on subcontracting provisions. The commenter sought clarification of that provision in light of the proposed language relating to general construction contractors. Specifically, the commenter believed the two provisions might conflict because a general contractor could perform 15 percent of a construction contract but still be unduly reliant on a

large business for the supervision and oversight of the contract. SBA agrees. For a services, specialty trade construction, or supply contract or order, SBA believes that meeting the applicable limitation on subcontracting requirement is sufficient to overcome any claim of the existence of an ostensible subcontractor. However, as the commenter noted, for a general construction contract a prime contractor could conceivably perform 15 percent of the contract but subcontract out all the supervision and oversight responsibilities to another business entity. If that business entity is not a similarly situated entity, that subcontracting could render the prime contractor ineligible due to the ostensible subcontractor rule. The final rule amends § 121.103(h)(3) to clarify the distinction between meeting the limitation on subcontracting for contracts or orders for services, specialty trade construction or supplies and those for general construction. To ensure consistency between the various programs, the final rule also makes similar changes to § 126.601(d) for the HUBZone program, to § 127.504(g) for the WOSB program, and to § 128.401(g) for the SDVO program.

SBA further proposed to revise the ostensible subcontractor rule in light of the decision of SBA's Office of Hearings and Appeals (OHA) in

Size Appeal of DoverStaffing, Inc.,

SBA No. SIZ-5300 (2011). In that decision, OHA created a four-factor test to indicate when a prime contractor's relationship with a subcontractor is suggestive of unusual reliance under the ostensible subcontractor rule. The four factors are (1) the proposed subcontractor is the incumbent contractor and ineligible to compete for the procurement, (2) the prime contractor plans to hire the large majority of its workforce from the subcontractor, (3) the prime contractor's proposed management previously served with the subcontractor on the incumbent contract, and (4) the prime contractor lacks relevant experience and must rely upon its more experienced subcontractor to win the contract. Under OHA's decisions, when these factors are present, violation of the ostensible subcontractor rule is more likely to be found if the subcontractor will perform 40% or more of the contract. SBA proposed to add two of these four factors to the ostensible subcontractor rule: the reliance on incumbent management and the reliance on the subcontractor's experience. SBA did not include plans to hire a large majority of its intended workforce on a contract from the incumbent contractor as a factor because a successful concern is often required to offer to qualified employees of a predecessor contract the right of first refusal on a subsequent contract, and must hire such individuals if they so opt. Because of this and other practical reasons, it is common for the same individuals to work for multiple different business concerns over time while performing the same function on follow-on contracts.

SBA received comments on both sides of this issue, with seven commenters agreeing with including the identified

Doverstaffing

factors and nine commenters opposing their inclusion. Those opposing the inclusion of these factors into the regulations highlighted that leveraging the experience of a subcontractor is a tool needed to assist a small business gain experience necessary to compete and win work. They believed that reliance on a subcontractor's experience alone should never result in a finding of an ostensible subcontractor. One commenter argued that as long as the new prime contractor is meeting the limitation on subcontracting requirement, SBA should not care who the subcontractor is. Another commenter believed that it should not matter whether a subcontractor previously performed the requirement or was the incumbent contractor, and that all that should be looked at is determining whether a subcontractor is performing primary and vital requirements of the contract. One commenter similarly argued that whether the prime contractor's proposed management previously served with the subcontractor on the incumbent contract is also irrelevant. The commenter believed that as long as those individuals are now employed by and under the control of the prime contractor, that should not negatively affect whether the subcontractor is an ostensible subcontractor. Even three of the commenters who favored adding the two identified factors to regulatory text believed that identifying factors to consider was appropriate as long as SBA did not apply any mechanically. SBA agrees that the ultimate determination in every case depends upon who is performing the primary and vital requirements of a contract or order and whether a prime contractor is unusually reliant on a subcontractor. SBA also agrees that no factor is determinative and that a prime contractor should be able to use the experience and past performance of its subcontractors to strengthen its offer, even where a subcontractor is the incumbent contractor. As with the existing rule, SBA intends to consider all aspects of the prime contractor's relationship with the subcontractor and would not limit its inquiry to any enumerated factors. SBA continues to believe that the SBA Area Offices should be given discretion to consider and weigh all factors in rendering a formal size determination, and that unique circumstances could lead to a result that does not fully align with the

DoverStaffing

analysis. That being said, SBA believes that identifying factors that can be considered is helpful to contractors. As such, the final rule retains factors that SBA may consider but adds a provision identifying that no single factor is determinative. The final rules also specifically clarifies that a prime contractor may use the experience and past performance of a subcontractor to enhance or strengthen its offer, including that of an incumbent contractor. It also reenforces that it is only where that subcontractor will perform primary and vital requirements of a contract or order, or where the prime contractor is unusually reliant on the subcontractor, that SBA will find the subcontractor to be an ostensible subcontractor.

One commenter requested that SBA clarify that the ostensible subcontractor rule does not apply to similarly-situated entities. SBA believes that is unnecessary as the current rule already specifies that an “ostensible subcontractor is a subcontractor that is not a similarly situated entity” and that language has been retained in this final rule.

One commenter also questioned whether the ostensible subcontractor rule applied to contracts below the Simplified Acquisition Threshold (SAT). SBA notes that the limitations on subcontracting requirements do not apply to small business acquisitions with an estimated value between the micro-purchase threshold and the simplified acquisition threshold.

See

13 CFR 121.406(c). That being the case, a small business can subcontract to any business for such contracts and it does not matter who is performing the primary and vital functions of the contract. Although SBA believes that can be inferred from the current regulatory language, the final rule adds clarifying language to § 121.406(c) to eliminate any confusion.

Finally, the proposed rule revised redesignated § 121.103(h)(4) to clarify how receipts are to be counted where a joint venture hires individuals to perform one or more specific contracts (

i.e.,

where the joint venture is populated). Although SBA requires joint ventures to be unpopulated for purposes of performing set-aside contracts in order to properly track work performed

and benefits derived by the lead small/8(a)/HUBZone/WOSB/SDVOSB entity to the joint venture, some joint ventures are nevertheless populated for other purposes. Generally, the appropriate share of a joint venture's revenues that a partner to the joint venture must include in its own revenues is the same percentage as the joint venture partner's share of the work performed by the joint venture. However, that general rule cannot apply to populated joint ventures. Where a joint venture is populated, each individual partner to the joint venture does not perform any percentage of the contract—the joint venture entity itself performs the work. As such, revenues cannot be divided according to the same percentage as work performed because to do so would give each partner $0 corresponding to the 0% of the work performed by the individual partner. In such a case, SBA believes that revenues must be divided according to the same percentage as the joint venture partner's percentage ownership share in the joint venture. The proposed rule specifically incorporated into redesignated § 121.103(h)(4) SBA's belief that revenues should be divided by ownership interest. Comments supported this clarification, and SBA adopts the proposed language in the final rule.

In connection with the comments relating to the proposed changes to § 121.103, SBA also received comments seeking clarification to the joint venture provisions in § 125.8. Specifically, several commenters recommended that SBA provide further guidance regarding what decisions non-managing partners to the joint venture can participate in. The regulations provide that the managing venturer must control all aspects of the day-to-day management and administration of the contractual performance of the joint venture, and that other partners to the joint venture may participate in all corporate governance activities and decisions of the joint venture as is commercially customary. One commenter recommended that SBA add language providing that a non-managing joint venture partner could participate in decisions that were customary for joint ventures outside of the small business Government contracting environment. SBA believes that is unnecessary as it does not add anything substantively different from the current regulatory language. Another commenter recommended that SBA specifically include in the regulation instances in which a non-managing joint venture partner's concurrence could be required and identified the ability of the joint venture to initiate litigation on behalf of the joint venture as such an instance. As previously noted, the managing joint venture partner must independently control all aspects of the day-to-day management and administration of the contractual performance of the joint venture. SBA believes that initiating contract litigation is outside the scope of the management of daily contractual performance and instead represents a decision that reasonably falls into the exception that allows other joint venture partners to participate in commercially customary decisions. A joint venture is a mutual agreement between joint venture partners to combine resources for a specific contract or contracts, and litigation is sometimes required to protect those resources. Litigation on behalf of the joint venture is a decision that carries significant risk for both partners and as a result, it is unreasonable and outside the bounds of customary commercial practices to limit that decision to only one partner. Similarly, SBA believes that requiring the concurrence of a non-managing joint venture partner in deciding what contract opportunities the joint venture should seek is also something that would be commercially customary. The partners to a joint venture have formed a joint venture in order to seek contract opportunities. Since the parties will be jointly and severally liable for any contracts awarded to the joint venture, it makes sense that all parties to the joint venture should have a say in what opportunities the joint venture pursues. The final rule adds language specifying that a non-managing venturer's approval may be required in determining what contract opportunities the joint venture should seek and in initiating litigation on behalf of the joint venture. That addition is not meant to be the only decisions in which a non-managing member may participate but is merely illustrative of corporate governance activities and decisions of the joint venture that SBA believes non-managing venturer participation is commercially customary.

Another commenter also sought clarification to a perceived inconsistency in the regulations between § 125.8(b)(2)(xii) and § 125.8(h)(2). Paragraph 125.8(b)(2)(xii) provides that a joint venture must submit a project-end performance-of-work report to SBA and the relevant contracting officer no later than 90 days after completion of the contract. Paragraph (h)(2) provides that at the completion of every contract set aside or reserved for small business that is awarded to a joint venture between a protégé small business and its SBA-approved mentor, and upon request by SBA or the relevant contracting officer, the small business partner to the joint venture must submit a report to the relevant contracting officer and to SBA. The commenter believed that § 125.8(b)(2)(xii) required a performance-of-work report at contract completion while § 125.8(h)(2) stated that such a report must be submitted only when requested by SBA or the contracting officer. The commenter misunderstood SBA's intent in § 125.8(h)(2). That provision meant to require the submission of a performance-of-work report in two instances: first, always at the completion of the contract; and second, whenever requested to do so by SBA or the contracting officer prior to completion of the contract. In order to eliminate any confusion, the final rule adds clarifying language to § 125.8(h)(2).

Section 121.103(i)

The proposed rule put back into the regulations a paragraph pertaining to affiliation based on franchise and license agreements. This provision was inadvertently deleted from § 121.103 when SBA deleted other provisions of § 121.103 in its October 2020 rulemaking. The proposed rule merely added back into the regulations the provision that was inadvertently removed. Several commenters supported adding this provision back into the regulations and no comments opposed. As such, SBA the final rule adopts adding this provision back into the regulations.

Section 121.404

SBA proposed to clarify § 121.404(a)(1)(iv), which provides that size is determined for a multiple award contract at the time of initial offer on the contract even if the initial offer might not include price. The proposed clarification intended to treat orders issued pursuant to a multiple award contract that did not itself include price similarly to orders under multiple award contracts generally. SBA believes there is no justification for treating orders issued on these contracts differently, simply because the contract did not require price with initial offer. Thus, size for set-aside orders will be determined in accordance with subparagraphs (a)(1)(i)(A), (a)(1)(i)(B), (a)(1)(ii)(A), or (a)(1)(ii)(B), as appropriate, which means that for orders issued under any set-aside contract, size will be determined at the time of offer for the multiple award contract and not at the time of each

individual order unless a contracting officer requests size recertification with respect to an individual order.

SBA received comments both supporting and opposing this clarification. Commenters generally agreed that orders for multiple award contracts should be treated similarly whether offers included price for the underlying multiple award contract itself. Several commenters, however, repeated previous concerns raised with SBA regarding the amendments to § 121.404 that were made in 2020. Section 121.404 states that where an order under an unrestricted multiple award contract is set-aside exclusively for small business (

i.e.,

small business, 8(a) small business, service-disabled veteran-owned small business, HUBZone small business, or women-owned small business), a concern must recertify its size status and qualify as a small business at the time it submits its initial offer, which includes price, for the particular order. Although the proposed rule did not seek to change that provision, several commenters voiced the view that that provision should not apply to previously awarded multiple award contracts.

A firm's status as a small business does not generally affect whether the firm does or does not qualify for the award of an unrestricted multiple award contract. As such, competitors are very unlikely to protest the size of a concern that self-certifies as small for an unrestricted multiple award contract. In SBA's view, when a contracting officer sets aside an order for small business under an unrestricted multiple award contract, the order is the first time that size status is important because competition is being limited under the contract. That is the first time that some firms will be eligible to compete for the order while others will be excluded from competition because of their size status. SBA never intended to allow a firm's self-certification for the underlying unrestricted multiple award contract to control whether a firm is small at the time of an order is set-aside for small business years after the multiple award contract was awarded. These few commenters believed that SBA attempted to retroactively change the rules pertaining to previously awarded unrestricted multiple award contracts. SBA disagrees. Small business set-aside orders under unrestricted vehicles are completely discretionary. When a contracting officer exercises this discretion, Federal Acquisition Regulation (FAR, Title 48 of the Code of Federal Regulations) Part 19 and SBA rules apply and change the eligibility requirements of the contract for that order. For example, the contractor must comply with the applicable limitations on subcontracting for that order (whereas the limitations on subcontracting do not generally apply to unrestricted contracts). When a procuring agency for the first time decides to set aside a specific order under an unrestricted multiple award contract for small business, the agency is making an exception to the fair opportunity regularly provided to all the contract holders to be considered for each order under the unrestricted contract. Thus, it follows that a business concern must qualify as small for an order set aside for small business under SBA's regulations in effect at the time of the order to ensure that the exception is applied appropriately at the order level because being a small business concern was not a requirement for any awardees under the unrestricted contract and verifying awardees' size status was not prerequisite to awarding the unrestricted contract. Moreover, the applicable size standard for any specific order set-aside for small business would be the one currently codified in SBA's regulations (not the one that was in effect at the time the underlying multiple award contract was awarded). All firms that self-certified as small for the underlying multiple award contract will continue to be considered to be small businesses for goaling purposes for all orders issued under the multiple award contract on an unrestricted basis.

SBA also proposed to clarify when size recertification is required in connection with a sale or acquisition. In 2016, SBA amended its regulation regarding recertification of size to add the word “sale” in addition to mergers and acquisitions as an instance when recertification is required.

See

81 FR 34243, 34259 (May 31, 2016). Since that time, some have questioned whether recertification of size status may be required whenever any sale of stock occurs, even de minimis amounts. That was not SBA's intent. Recertification is required whenever there is a merger. However, recertification in connection with a “sale” or “acquisition” is required only where the sale or acquisition results in a change in control or negative control of the concern. Recertification is not required where small sales or acquisitions of stock that do not appear to affect the control of the selling or acquiring firm occur. The proposed rule added language to clarify SBA's current intent. The comments supported this clarification, and SBA adopts the proposed language in this final rule.

The proposed rule also clarified the recertification requirements set forth in § 121.404(g) for joint ventures. Specifically, the proposed rule added a new § 121.404(g)(6) which set forth the general rule that a joint venture can recertify its status as a small business where all parties to the joint venture qualify as small at the time of recertification, or the protégé small business in a still active mentor-protégé joint venture qualifies as small at the time of recertification. The proposed rule also clarified that the two-year limitation on contract awards to joint ventures set forth in § 121.103(h) does not apply to recertification. In other words, recertification is not a new contract award, and thus can occur even if its timing is more than two years after the joint venture received its first contract. Commenters supported both of those clarifications. As such, SBA adopts them as final.

Sections 121.404(a)(1)(i)(B), 121.404(a)(1)(ii)(B), 124.501(h), and 124.502(a)

Sections 121.404(a)(1)(i)(B) and 121.404(a)(1)(ii)(B) provide generally that a business concern that qualifies as small at the time of an offer for a multiple award contract that is set aside or reserved for the 8(a) BD program will be deemed a small business for each order issued against the contract, unless a contracting officer requests a size recertification for a specific order. However, for sole source 8(a) orders issued under a multiple award contract set-aside for exclusive competition among 8(a) Participants, § 124.503(i)(1)(iv) requires an agency to offer and SBA to accept the order into the 8(a) program on behalf of the identified 8(a) contract holder. As part of the offer and acceptance process, SBA must determine that a concern is currently an eligible Participant in the 8(a) BD program at the time of award.

See

§ 124.501(h). The proposed rule clarified that because size is something SBA looks at in making an eligibility determination in accepting a sole source offering, a Participant must currently qualify as a small business for any sole source award in addition to currently being a Participant in the program (

i.e.,

firms that have graduated from or otherwise left the 8(a) BD program are not eligible for any 8(a) sole source award). The proposed rule amended §§ 121.404(a)(1)(i)(B), 121.404(a)(1)(ii)(B), 124.501(h), and 124.502(a) to clarify that position. Although a few commenters opposed this clarification, the majority of commenters supported it. It has always been SBA's interpretation of its statutory authority that a firm must be an eligible Participant on the date of any

8(a) sole source award. As noted, an eligibility determination includes size. As such, the final rule adopts the language proposed that a Participant must currently qualify as a small business for any sole source award.

Section 121.411(c)

The proposed rule corrected an inconsistency between § 121.411(c) and § 125.3(c)(1)(viii). In requiring a prime contractor to notify unsuccessful small business offerors of the apparent successful offeror on subcontracts, § 125.3(c)(1)(viii) provides that a prime contractor must provide pre-award written notification to unsuccessful small business offerors on all subcontracts over the simplified acquisition threshold, while § 121.411(c) requires a prime contractor to inform each unsuccessful subcontract offeror in connection with any competitive subcontract. The proposed rule added the over the simplified acquisition threshold condition to § 121.411(c) and adjusted the language in § 125.3(c)(1)(viii) to make the two provisions consistent. SBA received three comments regarding this provision. All three supported SBA's proposal to resolve the inconsistency in the regulations. As such, SBA adopts the proposed language in this final rule.

Section 121.413

Section 121.413 is currently a Reserved section, with no text. This final rule merely removes § 121.413 entirely. Section 121.401 currently refers to the rules set forth §§ 121.401 through 121.413. With the elimination of § 121.413, the final rule also amends this reference to instead refer to the rules set forth in §§ 121.401 through 121.412.

Sections 121.506 and 121.507

The Small Business Timber Set-Aside Program establishes small business set-aside sales of sawtimber from the federal forests managed by the U.S. Department of Agriculture's Forest Service and the U.S. Department of the Interior's Bureau of Land Management. Current regulations require that a small business concern cannot resell or exchange more than 30% of the sawtimber volume to “other than small” businesses. SBA regulations do not address situations where a small business concern is unable to meet the 30% requirement due to circumstances outside of its control such as natural disasters, national emergencies, or other extenuating circumstances.

As proposed, SBA added § 121.507(d) to allow the SBA's Director of Government Contracting (D/GC) to grant a waiver in limited circumstances when a small business is unable to meet the 30% requirement due to circumstances out of its control. SBA sought comments on the following: whether a waiver is needed; if it is needed, under what circumstances should a waiver be granted; whether SBA should allow partial waivers (

i.e.,

for some but not all of the 30/70 requirement); and how SBA should evaluate a waiver request.

SBA received ten comments on the proposed rule with five supporting the proposed amendment and five opposing it. Commenters in opposition focused on the importance of the 30/70 requirement to ensure access to timber for small businesses and expressed concern that the waiver could weaken the program. While generally in opposition to the waiver, two of the five comments suggested that if SBA were to finalize the proposed amendment, a waiver request must meet a set of strict criteria to ensure that all avenues for compliance have been exhausted. SBA recognizes that the 30/70 requirement is an integral part of the Small Business Timber Set-Aside Program and is committed to a full and fair implementation of the program. SBA does not intend to weaken the requirement with this amendment, it merely establishes the D/GC's authority to approve a waiver in limited circumstances when justified. Historically, SBA has granted few waivers and only in extremely rare circumstances. Due to that rarity, SBA has no internal procedure to process requests or established criteria to evaluate and approve waivers when needed. This amendment gives SBA the opportunity to set procedure and criteria for processing waiver requests in the future. SBA will continue to apply a strict standard and does not intend to grant a waiver in circumstances of inconvenience, changes in market value, ignorance of contract requirements, or unsupported claims of changed conditions. Accordingly, SBA implements the § 121.507(d) as proposed.

SBA also received comments that urged the agency to amend regulations to reflect the revised terms of the Memorandum of Understanding (MOU) signed by SBA and Forest Service (FS) in 2020. With the updated terms of the MOU, SBA and FS agreed to revise the computation of market share to include timber volume sold under Stewardship Integrated Resource Timber Contracts. To date, SBA has not amended its regulations to reflect the revised agreed upon computation of market share. The commenter recommended that SBA's regulations should be updated to merely include the policy included in the MOU agreed upon by SBA and FS to ensure that that policy is consistently applied and to avoid any confusion regarding the policy. SBA agrees and adopts this comment.

The MOU governs timber sales by FS under the Small Business Timber Set-Aside Program and establishes guidelines for determining “fair proportion,” sets a five-year re-computation period for determining the base average shares of timber purchases and establishes a “trigger” mechanism for initiating set-aside timber sales. In 2016, SBA proposed a change to regulations that included both Integrated Resource Timber Contracts and Integrated Services Timber Contracts in the small business market share calculation. (81 FR 66199). Although SBA received comments supporting the amendment, it did not become final due to ongoing negotiations with FS on the updated MOU. Ultimately, the MOU included only Integrated Resource Timber Contracts in the small business market share calculation. To reflect the 2020 update to the MOU, SBA amends its regulations at § 121.506 to add relevant definitions and adds § 121.507(e) to include Integrated Resource Timber Contracts in the small business market share calculation.

Section 121.702

Section 121.702 sets forth the size and eligibility standards that apply to the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs. Paragraph (c)(7) provides guidance relating to the ostensible subcontractor rule in the SBIR/STTR programs. That rule treats a prime contractor and its subcontractor or subgrantee as joint venturers when a subcontractor or subgrantee performs primary and vital requirements of an SBIR or STTR funding agreement. The proposed rule clarified that when an SBIR/STTR offeror is determined to be a joint venturer with its ostensible subcontractor, all rules applicable to joint ventures apply. This means that SBA will apply § 121.702(a)(1)(iii) or § 121.702(b)(1)(ii), which contains the ownership and control requirements for SBIR/STTR joint ventures. This clarification is consistent with how SBA treats entities that are determined to be joint venturers with an ostensible subcontractor for other small business program set-asides. SBA received five comments in response to this clarification. All five supported the change. The commenters felt that if SBA determines that a subcontractor really is a joint venture partner because it is

performing primary and vital aspects of the requirement, it makes sense that all requirements that apply to joint ventures generally would apply to the relationship deemed in effect to be a joint venture. SBA adopts the proposed language in this final rule.

Section 121.702(c) relates to size and affiliation for the SBIR/STTR programs. Some of the exceptions to affiliation that are applicable to the SBIR/STTR programs are listed in § 121.702(c). However, others are listed in the general exceptions to size affiliation that are located in section 121.103(b). Currently, there is an exception to affiliation noted in § 121.103(b)(1) for business concerns owned in whole or substantial part by Small Business Investment Companies (SBICs) licensed under the Small Business Investment Act of 1958, as amended. Pursuant to § 121.103(b)(8), this exception applies to entities awarded SBIR or STTR contracts or grants that are wholly or substantially owned by SBICs. SBA received a comment recommending that SBA specifically clarify that the exception applies to the SBIR/STTR programs. In response, the final rule clarifies this longstanding exception to affiliation and its applicability to the SBIR/STTR programs by specifically referencing the exception at § 121.103(b)(1) in a new § 121.702(c)(11).

Section 121.1001

Section 121.1001 identifies who may initiate a size protest or request a formal size determination in any circumstances. Currently, the language identifying who may protest the size of an apparent successful offeror is not identical for all of SBA's programs. For small business set-aside contracts and competitive 8(a) contracts, any offeror that the contracting officer has not eliminated from consideration for any procurement-related reason may initiate a size protest. For contracts set aside for WOSBs or SDVOSBs, any concern that submits an offer may initiate a size protest. For contracts set aside for certified HUBZone small business concerns, any concern that submits an offer and has not been eliminated for reasons unrelated to size may submit a size protest. SBA believes that making the language for all programs identical will remove any confusion and provide more consistent implementation of the size protest procedures. The proposed rule adopted the language currently pertaining to small business set-asides and competitive 8(a) contracts to all of SBA's programs. Thus, any offeror that the contracting officer has not eliminated from consideration for any procurement-related reason could initiate a size protest in each of those programs. SBA received ten comments on this change. All commenters supported making the protest language for all SBA small business programs identical. As such the final rule make conforming changes in § 121.1001(a)(6)(i) for the HUBZone program, in § 121.1001(a)(8)(i) for the SDVO program, and in § 121.1001(a)(9)(i) for the WOSB program.

With respect to 8(a) contracts, § 121.1001(a)(2) identifies interested parties who may protest the size status of an apparent successful offeror for an 8(a) competitive contract, and § 121.1001(b)(2)(ii) identifies those who can request a formal size determination with respect to a sole source 8(a) contract award. Pursuant to § 124.501(g), before a Participant may be awarded either a sole source or competitive 8(a) contract, SBA must determine that the Participant is eligible for award. SBA will determine eligibility at the time of its acceptance of the underlying requirement into the 8(a) BD program for a sole source 8(a) contract, and after the apparent successful offeror is identified for a competitive 8(a) contract. For a sole source contract, if SBA determines a Participant to be ineligible because SBA believes the concern to be other than small, § 121.1001(b)(2)(ii) authorizes the Participant determined to be ineligible to request a formal size determination. However, § 121.1001(b)(2)(ii) does not currently authorize a Participant determined to be ineligible based on size to request a formal size determination in connection with a competitive 8(a) contract award. SBA does not believe that the protest authority of § 121.1001(a)(2) was meant to apply to this situation since protests normally relate to another firm challenging the small business status of the apparent successful offeror, not the apparent successful offeror challenging its own size status. The proposed rule provided specific authority to allow a firm determined to be ineligible for a competitive 8(a) award based on size to request a formal size determination. It also authorized the contracting officer, the SBA District Director in the district office that services the Participant, the Associate Administrator for Business Development, and the SBA's Associate General Counsel for Procurement Law to do so as well. SBA received four comments supporting this change. Without any opposing comments, SBA adopts the language as proposed.

Sections 121.1004(a)(ii), 126.801(d)(2)(i), and 127.603(c)(2)

In the context of a sealed bid procurement, SBA's regulations provide that an interested party must protest the size or socioeconomic status (

i.e.,

service-disabled veteran-owned small business (SDVOSB), HUBZone or women-owned small business (WOSB)/economically-disadvantaged women-owned small business (EDWOSB)) of the low bidder prior to the close of business on the fifth business day after bid opening. However, the regulations do not specifically take into account the situation where a low bidder is timely protested and found to be ineligible, the procuring agency identifies another low bidder, and an interested party seeks to challenge the size or socioeconomic status of the newly identified low bidder. In such a situation, the new low bidder is identified well beyond five days of bid opening. As such, it is impossible for an interested party to file a timely protest (

i.e.,

one within five days of bid opening). It was not SBA's intent to disallow size protests in these circumstances. SBA believes that a protest in these circumstances should be deemed timely if it is received within five days of notification of the new low bidder. The proposed rule specifically provided that where the identified low bidder is determined to be ineligible for award, a protest of any other identified low bidder would be deemed timely if received within five business days after the contracting officer has notified the protestor of the identity of that new low bidder. Eight commenters supported this change, noting that the change was needed in order to preserve protests rights when an initial low bidder ultimately does not receive the award. SBA adopts the proposed provision in this final rule.

The final rule makes this change in § 121.1004(a)(ii) for size protests, in § 126.801(d)(2)(i) for protests relating to HUBZone status, and in § 127.603(c)(2) for protests relating to WOSB or EDWOSB status. Although the proposed rule also amended § 125.28(d)(2) for protests relating to SDVO status, this final rule does not amend provisions relating to the timeliness of SDVO status protests because SBA included the same provision in the final rule implementing the Veteran Small Business Certification Program and is already contained in § 134.1004(a)(4) of SBA's regulations.

See

87 FR 73400 (Nov. 29, 2022).

Section 121.1004

The proposed rule added § 121.1004(f) to specify that size protests may be filed only against an apparent

successful offeror (or offerors) or an offeror in line to receive an award. SBA will not consider size protests relating to offerors who are not in line for award. This is the current SBA policy, and the proposed rule merely provided additional clarity to § 121.1004(e), which specifies that premature protests will be dismissed. SBA received three comments, all supporting this clarification. The final rule adopts the proposed language.

Where an agency decides to reevaluate offers as a corrective action in response to a protest at the Government Accountability Office (GAO), the proposed rule added a new § 121.1004(g) providing that SBA would dismiss any size protest relating to the initial apparent successful offeror. When offerors are made aware of the new or same apparent successful offeror after reevaluation, the proposed rule authorized them to again have the opportunity to protest the size of the apparent successful offeror within five business days after such notification. One commenter agreed with proposed § 121.1004(g) as written, and one commenter agreed with the intent of the proposal but sought further clarification. That commenter first recommended that all protests under FAR subpart 33.1 should be treated similarly, meaning that the same consequences should result where there is an agency level protest, a protest at GAO or a case filed regarding the affected procurement at the Court of Federal Claims. SBA agrees and has made that clarification in the final rule both here and in § 121.1009. Additionally, the commenter recommended that the regulation allow a procuring agency to request that a size determination be completed, and for SBA in its discretion to process the size protest, despite corrective actions. It is SBA's policy that with respect to a specific contract, SBA will generally process size protests relating only to the apparent successful offeror. Where a corrective action could cause a procuring agency to change who it selects as the apparent successful offeror, SBA would not agree to continue to process a size protest relating to the initially identified apparent successful offeror. Nevertheless, if a procuring agency can demonstrate that the corrective action would not result in a change in the apparent successful offeror, SBA believes that it could continue to process the size protest. The final rule adds language providing that SBA will complete the size determination where the procuring agency makes a written request to SBA within two business days of the agency informing SBA of the corrective action and demonstrates that the corrective action will not result in a change of the apparent successful offeror. SBA will not, however, continue to process a size protest where the size protest involves size issues that are determined as of the date of final proposal revision per § 121.404(d).

Section 121.1009

Section 121.1009 details the procedures SBA's Government Contracting Area Offices use in making formal size determinations. Paragraph 121.1009(a)(1) provides that the Area Office will generally issue a formal size determination within 15 business days after receipt of a protest or a request for a formal size determination. As noted above, with respect to a specific contract, SBA will generally process size protests relating only to the apparent successful offeror. SBA sometimes receives a size protest where the award is simultaneously being protested at the GAO. Where this happens, SBA suspends processing the size protest pending the outcome of the GAO decision since that decision may require corrective action which could affect the apparent successful offeror. Although that has been SBA's policy in practice, it is not specifically set forth in SBA's regulations. The proposed rule incorporated that policy, providing that if a protest is pending before GAO, the SBA Area Office will suspend the size determination case. Once GAO issues a decision, the proposed rule noted that the Area Office will recommence the size determination process and issue a formal size determination within 15 business days of the GAO decision, if possible. Similar to the comment in response to proposed § 121.1004(g), one commenter believed that if SBA is going to suspend processing a size protest pending the outcome of a GAO protest, the same should be done for agency level protests and cases filed with the Court of Federal Claims relating to the affected procurement. The commenter also recommended that if the bid protest is not resolved within 40 days, the SBA Area Office should resume consideration of the size protest and issue a formal size determination within 15 business days thereafter, if possible. SBA disagrees with this recommendation. Again, SBA's policy is to process size protests only regarding firms that are in line for award (

i.e.,

for firms that have been selected as the apparent successful offerors). If the apparent successful offeror could change in light of the FAR subpart 33.1 protest, it does not make sense to SBA to recommence processing a size protest regarding the firm initially determined to be the apparent successful offeror, regardless of the amount of time that has passed since the FAR subpart 33.1 protest was filed. As such, the final rule amends the language to clarify that SBA will suspend processing a size protest whenever a FAR subpart 33.1 protest is filed regarding the same procurement, but does not adopt the recommendation that SBA restart processing the protest if a certain amount of time passes. If the FAR subpart 33.1 decision does not change the apparent successful offeror, SBA will generally issue a formal size determination within 15 business days of the decision. If the decision results in a cancellation of the award or a change of the apparent successful offeror, SBA will dismiss the protest as moot. If the award is cancelled and re-evaluation or other corrective action takes place, interested parties may file a timely size protest with respect to the newly identified apparent successful offeror after the notification of award. Where re-evaluation results in the selection of the same apparent successful offeror, a timely size protest may be filed with respect to that firm.

Sections 121.1009(g)(5), 126.503(a)(2), 127.405(d), and 128.500(d)

Section 863 of the National Defense Authorization Act for Fiscal Year 2022 (NDAA FY22), Public Law 117-81, amended section 5 of the Small Business Act, 15 U.S.C. 634, to add three requirements related to size and socioeconomic status determinations. First, section 863 mandates that a business concern or SBA, as applicable, “shall” update the concern's status in

SAM.gov

not later than two days after a final determination by SBA that the concern does not meet the size or socioeconomic status requirements that it certified to be. SBA believes that the statute intends that a business concern be required to update

SAM.gov

in all instances in which it is capable of doing so. Only where a business concern is unable to change a particular status (

e.g.,

only SBA can identify a concern as a certified HUBZone small business) will the business concern not be required to change that status in

SAM.gov

. Second, section 863 requires that, in the event that the business does not update its status within this timeframe, SBA “shall” make the update within two days of the business's failure to do so. Third, section 863 requires that, where the business is required to make an update, it also must notify the contracting officer for each contract with which the business has a pending bid or offer, if the business finds, in good faith, that

the determination affects the eligibility of the concern to be awarded the contract. The proposed rule implemented these provisions by amending SBA's regulations in § 121.1009(g)(5) (for size determinations), § 125.30(g)(4) (for SDVO status determinations), § 126.503(a)(2) (for HUBZone status determinations), and § 127.405(c) (for WOSB/EDWOSB status determinations). Because only SBA can change a firm's status as a certified HUBZone small business concern in

SAM.gov

, it is not “applicable” under the statute for the business concern to do so. As such, the proposed rule did not add language requiring a HUBZone concern to change its status in

SAM.gov

within two business days of an adverse status determination. Instead, it required SBA to make such a change within four business days. Several commenters supported the proposed regulatory changes in response to the statutory change. A few commenters also complained about difficulties they encountered trying to update

SAM.gov

, but those issues are not relevant to the statutory requirements or SBA's implementation of those requirements.

The final rule adopts the language proposed with a few modifications. Because SBA renumbered all SDVO provisions when implementing the Veteran Small Business Certification Program, this final rule implements the provisions relating to section 863 for SDVO status in a new § 128.500(d) instead of § 125.30(g)(4) as proposed.

See

87 FR 73400 (Nov. 29, 2022). To take into account SBA's new authority to certify and decide protests relating to VOSB status, the final rule also includes VOSB status as something that needs to be changed in response to a final SBA determination finding a firm ineligible as a VOSB. Additionally, the final rule applies the two-day requirement on self-certifications to situations where SBA denies applicants' requests for VOSB or SDVOSB certification or for WOSB certification. Those changes are reflected in § 128.302(f) for VOSB/SDVOSB and in § 127.304(g) for WOSB. For WOSB, the two-day requirement applies where SBA's determination is based on the ownership or control of the applicant.

SBA's protest decisions are appealable to OHA, and VOSB/SDVOSB certification decisions also are appealable. If a participant or applicant has appealed SBA's determination, the two-day requirement does not apply until OHA issues a final decision finding the firm ineligible. If there is no appeal available, the two-day requirement applies immediately after the firm receives SBA's determination that the firm is ineligible. If an appeal is available but the firm ultimately chooses not to appeal the decision, the two-day requirement applies immediately after the right to appeal lapses.

One commenter sought clarification as to whether there are any consequences if a firm fails to change its status timely in

SAM.gov

. Specifically, the commenter questioned whether a failure to change status within two days would be a cause to initiate debarment or suspension proceedings. Under the provisions of section 863, the consequence of a firm failing to change its status is that SBA would have authority to change the status on behalf of the firm. SBA will work with the System for Award Management to exercise such authority, but SBA does not presently have the ability in

SAM.gov

to change a firm's certification status without the firm taking action to accept the change.

Section 863 also requires firms to alert agencies with which the firm has a pending offer when the firm receives a relevant negative status determination. Failure to do so in that instance could lead to protests or penalties. Initiating a debarment or suspension action depends on the facts. If the only thing a firm did was not change its status in

SAM.gov

within two days, SBA does not believe that would be sufficient cause for debarment or suspension. Failure to notify contracting officers on pending procurements of a firm's change in status could be if SBA believed there was an intent to misrepresent the firm's status in order to win an award. Submitting offers for new set-aside awards would be. Similarly, failure to take timely action to allow an SBA status change to be reflected on the firm's

SAM.gov

profile could also be grounds for government-wide debarment or suspension if SBA believed that the firm's failure to accept the change was an intent to conceal the status change or otherwise deceive procuring agencies of its current status. SBA does not believe that that needs to be addressed in this regulation as the debarment and suspension regulations provide authority to initiate actions where a firm intentionally misrepresents its size or status.

Sections 121.1203 and 121.1204

Section 46(a)(4)(A) of the Small Business Act, 15 U.S.C. 657s(a)(4)(A), provides that in a contract mainly for supplies a small business concern shall supply the product of a domestic small business manufacturer or processor unless a waiver is granted after SBA reviews a determination by the applicable contracting officer that no small business manufacturer or processor can reasonably be expected to offer a product meeting the specifications (including the period of performance) required by the contract. Section 121.1203 of SBA's regulations provides guidance as to when SBA will grant a waiver to the nonmanufacturer rule in connection with an individual contract, and section 121.1204 identifies the procedures for requesting and granting waivers.

The proposed rule sought to clarify perceived ambiguities relating to the effect of a waiver in a multiple item procurement. For a multiple item set-aside contract, in order to qualify as a small business nonmanufacturer, at least 50 percent of the value of the contract must come from either small business manufacturers or from any businesses for items which have been granted a waiver to the nonmanufacturer rule (or small business manufacturers plus waiver must equal at least 50 percent).

See

13 CFR 125.6(a)(2)(ii)(B). In seeking a contract-specific waiver to the nonmanufacturer rule, SBA's regulations provide that a contracting officer's waiver request must include a definitive statement of the specific item to be waived. The proposed rule clarified that for a multiple item procurement, a contracting officer must specifically identify each item for which a waiver is sought when the procuring agency believes that at least 50 percent of the estimated contract value is available only from other than small business manufacturers and processors. Of course, if at least 50% of the estimated contract value of the contract is composed of items manufactured or processed by small business, then a waiver of the nonmanufacturer rule is not required and there is no requirement that each item acquired in a multiple-item acquisition be manufactured or processed by a small business. The proposed rule also clarified that because a waiver is granted for specific items, once SBA reviews and concurs with an agency's request, SBA's waiver applies only to the specific item(s) identified, not to the entire contract.

SBA received comments both supporting and opposing the clarification that a contracting officer must specifically identify each item for which a waiver is sought. Those opposing the clarification believed it would disrupt and delay procurements, negatively affect the supply chain and the delivery of services to warfighters, and significantly harm small business opportunities. One commenter stated

that it understood why SBA proposed to require contracting officers to specifically identify each item in the multi-item procurement for which a contract-specific waiver is sought but was concerned that this will increase the administrative burden and make contracting officers less likely to request contract-specific waivers. Those supporting the clarification stated that the regulations already require this and that it is the appropriate approach to ensure that small business is actually benefitting from set-aside contracts. One commenter believed that if most of the items to be supplied through a multiple item procurement really are not made by small business manufacturers, maybe that procurement should not be set-aside for small business. It is true that small business resellers or nonmanufacturers would still benefit from such a procurement, but the value of the contract going to those small business nonmanufacturers versus the total value of the contract can be only a fraction of what could go to large business manufacturers. Another commenter stated too many times an agency uses some broad waiver (that doesn't specify exact items) to supply the product of a large business to the detriment of legitimate small business manufacturers. That commenter believed that it is fine to help small business non-manufacturers, but not at the expense of small business manufacturers.

One commenter believed that proposed § 121.1203(f) seemed to contradict § 121.406(d)(1). Section 121.406(d)(1) provides that if at least 50% of the estimated contract value of a multiple item procurement is composed of items that are manufactured by small business concerns, then a waiver of the nonmanufacturer rule is not required. Proposed § 121.1203(f) provided that for a multiple item procurement, a waiver must be sought and granted for each item for which the procuring agency believes no small business manufacturer or processor can reasonably be expected to offer a product meeting the specifications of the solicitation. SBA agrees that proposed § 121.1203(f) was misleading. SBA intended that provision to apply only where waivers were necessary to meet at least 50% of the value of the contract, not where it is clear that at least 50% of the value of the items to be procured will be supplied by small business. In addition, waivers are needed only to the extent that would enable at least 50% of the total estimated value of the items to be purchased to come from small business manufacturers or from large businesses for those items subject to a waiver. In other words, small plus waiver must equal at least 50% of the value of the contract. Small plus waiver does

not

need to equal 100% of the value of the contract. A contracting officer can select some items that are not manufactured by small business to request a waiver, but not others. As long as at least 50% of the anticipated value of the items to be procured in the aggregate come from small business or large business subject to a waiver, then the nonmanufacturer rule is met. The final rule clarifies that a waiver need not be sought if the conditions in § 121.406(d)(1) are present (

i.e.,

where at least 50% of the estimated contract value of the items to be procured are manufactured by small business concerns). The final rule also clarifies that a contracting officer need not seek a waiver for each item for which the procuring agency believes no small business manufacturer or processor can reasonably be expected to offer, but rather must seek a waiver with respect to such items in an amount that would bring the total estimated value of items to be supplied by small business and items subject to a waiver to be at least 50% of the value of the contract.

SBA again notes that prior to the proposed rule, SBA's regulations already required a contracting officer to provide “[a] definitive statement of the specific item to be waived and justification as to why the specific item is required” in order for SBA to grant a contract specific waiver. 13 CFR 121.1204(b)(1)(i). Thus, it is not a change in policy to require that in a multiple item procurement each item for which a waiver is sought must be specifically identified. However, SBA also understands the concern that specifying every part of a multifaceted end item could be overly burdensome. For example, aircraft X has many thousands of parts that make up the aircraft. To specify every part of the aircraft that might need to be replaced as a separate item for which a waiver must be sought would be burdensome. SBA does not expect that. In such a case, the waiver request should state spare parts relating to aircraft X as the item for which a waiver is sought. However, a waiver request cannot be so broad as to have no real identification (

e.g.,

all medical supplies). SBA has added clarifying language in the final rule to address what an “item” is for which a waiver needs to be sought.

SBA also does not agree that contracting officers would be less likely to use set-asides. In order to have a set-aside, at least 50% of the value of the expected items to be procured in the aggregate must come from small business manufacturers or large business manufacturers for which a waiver (either class or contract specific) has been granted. SBA has been told that more than 50% of the value of these multiple item procurements is often supplied by small businesses. When that is the case, waivers for individual items would not be required. Where at least 50% of the estimated value of items to be procured are not manufactured by small business, the contracting officer should request a waiver of one or more specific items that are required under the contract to achieve that 50% value requirement. And, as identified above, the waiver request can be somewhat broad if it is also specific (

e.g.,

all spare parts relating to aircraft X). SBA also notes that contracting officers should be able to rely on past performance. In other words, for a follow-on multiple item procurement if more than 50% of the value of the items on the previously awarded contract came from small business manufacturers or large business manufacturers for which the identified item(s) supplied were subject to a contract specific waiver, the follow-on contract should be set-aside for some type of small business. Contracting officers can project future compliance with the non-manufacturer rule based on past performance, and not knowing precisely what will be purchased under a multiple item procurement should not prevent the procurement from being set aside for small business.

The proposed rule also added a provision that prohibited contract-specific waivers for contracts with a duration of longer than five years, including options. When SBA grants an individual waiver with respect to a particular item, it does not necessarily mean that there are no small business manufacturers of that item. Instead, it could merely relate to the lack of availability of small business manufacturers for the specific contract at issue due to timing (

e.g.,

small business manufacturers are currently tied up with other commitments) or capacity (

e.g.,

there are small business manufacturers, but those manufacturers cannot provide the item in the quantity that is required). SBA firmly believes that the circumstances surrounding the availability of a specific item from small business manufacturers can greatly change in five years. Beyond five years, new small business manufacturers of a particular item could come into the market, or those previously committed to other projects or who were unable to previously supply the product in the

quantity or time constraints required by the contract could become available to meet the agency's requirements. As an alternative, SBA noted in the supplementary information to the proposed rule that SBA was also considering limiting waivers to five years for long term contracts but allowing a procuring agency to seek a new waiver for an additional five years if, after conducting market research, it demonstrates that there are no available small business manufacturers and that a waiver remains appropriate. The proposed rule specifically asked for comments on both approaches. SBA received three comments on the proposal relating to long-term contracts. All three favored the alternative approach which would allow a contracting officer to request a second contract-specific waiver to be effective after the first five years of a contract where the contracting officer can demonstrate that a waiver is still needed. SBA adopts the alternative approach in this final rule. This will make waivers relating to long-term contracts similar to what is required for a follow-on contract to a normal base and four option years contract. In that context, after a five-year contract is completed and an agency seeks to award a follow-on contract for the same requirements, an agency would be required to again conduct market research and determine that no small business manufacturer or processor reasonably can be expected to offer one or more specific products required by the new solicitation. The same will be required for a long-term contract. A procuring agency will be required to conduct new market research and demonstrate that a waiver is still needed beyond the first five years.

When an agency seeks an individual waiver to the nonmanufacturer rule in connection with a specific acquisition, SBA believes that the agency is ready to move forward with the acquisition process as soon as SBA makes a waiverdecision and expects the solicitation to be issued shortly after such a decision is made. That is why SBA's waiver decision letters provide that the waiver will expire in one year from the date of the waiver decision. SBA expects award to be made within one year. If it is not, SBA believes that the agency should come back to SBA with revised market research requesting that the waiver (or waivers in the case of a multiple item procurement) be extended. Similar to the rationale for not allowing individual waivers beyond five years on long-term contracts, the circumstances surrounding whether there are any small business manufacturers who are capable and available to supply products for a specific procurement may change in one year. Where an agency demonstrates that small business manufacturers continue to be unavailable to fulfill the requirement, SBA will extend the waiver(s). The proposed rule specifically incorporated this policy into a new § 121.1204(b)(5). SBA received three comments on this provision. Two commenters indicated that they had no objection to the proposal. One comment recommended that SBA should consider allowing a waiver decision to last for two years but did not provide accompanying rationale for that position. Presumably, the commenter believes that some procurement actions take longer than one year to finalize. As noted above, circumstances (availability and new manufacturers coming into the market) can change in a year. SBA believes that is the appropriate amount of time for a contract specific waiver to last for a pending procurement. SBA adopts the proposed language as final in this rule.

Although SBA believes that there is no current ambiguity, the proposed rule also added language specifying that an individual waiver applies only to the contract for which it is granted and does not apply to modifications outside the scope of the contract or other procurement actions. A waiver granted for one contract does not and was never intended to apply to another contract (whether that separate contract was a follow-on contract, bridge contract, or some other contract or order under another contract), but the proposed rule added this language nevertheless to dispel any possible misunderstanding. There was no opposition to this clarification, and SBA adopts it as final.

Finally, the proposed rule clarified that where an agency requests a waiver for multiple items, SBA may grant the request in full, deny it in full, or grant a waiver for some but not all of the items for which a waiver was sought. SBA's decision letter would identify the specific items that SBA identifies as waived for the procurement. SBA received no comments specifically addressing this provision. As such, SBA adopts it as final.

Section 121.1205

Section 121.1205 refers to the list of classes of products for which SBA has granted waivers to the Nonmanufacturer Rule. The reference in the current version of the regulation provides a link to a website that no longer exists. The proposed rule updated the reference to the correct website. A few commenters supported this update, and SBA adopts adding the correct website, which is

https://www.sba.gov/document/support-non-manufacturer-rule-class-waiver-list.

Section 124.102

Section 124.102(c) provides that a concern whose application is denied due to size by 8(a) BD program officials may request a formal size determination with the SBA Government Contracting Area Office serving the geographic area in which the principal office of the business is located. SBA notes that during the processing of an application SBA itself can request a formal size determination pursuant to § 121.1001(b)(2)(i). The § 124.102(c) process applies only where SBA has not requested a formal size determination with respect to a specific applicant. Under § 124.102(c), if the concern requests a formal size determination and the Area Office finds it to be small under the size standard corresponding to its primary NAICS code, the concern can immediately reapply to the 8(a) BD program. SBA believes that a concern should not need to reapply to the 8(a) BD program if size was the only reason for decline. In such a case, SBA believes that the Associate Administrator for Business Development (AA/BD) should immediately certify the firm as eligible for the 8(a) BD program. The proposed rule made a distinction for applications denied solely based on size and those where size is one of several reasons for decline. Where size is not the only reason for decline, the proposed rule provided that the concern could reapply for participation in the 8(a) BD program at any point after 90 days from the AA/BD's decline. The AA/BD would then accept the size determination as conclusive of the concern's small business status, provided the applicant concern has not completed an additional fiscal year in the intervening period and SBA believes that the additional fiscal year changes the applicant's size. SBA received seven comments on proposed § 124.102. All comments received supported the proposed change that a concern whose application is denied due to size by 8(a) BD program officials should be able to request a formal size determination. The commenters also agreed that if size is the only reason for decline and OHA reverses SBA, the firm should be admitted to the 8(a) BD program without any further action being necessary on the part of the firm. As such, SBA adopts the proposed language in this final rule.

Section 124.103

Section 124.103 describes the rules pertaining to social disadvantage status. Section 124.103(c) details how an individual who is not a member of one of the groups presumed to be socially disadvantaged may establish his or her individual social disadvantage. It provides that an individual must identify an objective distinguishing feature that has contributed to his or her social disadvantage and lists physical handicap as one such possible identifiable feature. In order to be consistent with recent changes in terms made by the General Services Administration (GSA), 87 FR 6044, as well as with the Americans with Disabilities Act, the proposed rule changed the words physical handicap to identifiable disability. SBA received two comments supporting the proposed change and no comments objecting to it. As such, SBA adopts the proposed language in this final rule.

Section 124.104

Section 124.104 specifies the rules pertaining to whether an individual may be considered economically disadvantaged. Paragraph 124.104(c)(2)(ii) provides that funds invested in an Individual Retirement Account (IRA) or other official retirement account will not be considered in determining an individual's net worth. The paragraph then requires the individual to provide information about the terms and restrictions of the account to SBA in order for SBA to determine whether the funds invested in the account should be excluded from the individual's net worth. SBA does not believe that it is necessary for an individual to provide information about the terms and restrictions of a retirement account to SBA in every instance. As such, the proposed rule changed this provision to requiring an individual to provide information about the terms and restrictions of an IRA or other retirement account only when requested to do so by SBA. SBA received four comments supporting the change and one comment in opposition. The commenter opposing the change believed that removing the requirement could water down the economically disadvantaged criteria. SBA disagrees. The change will not affect SBA's ability to seek additional information relating to an IRA where appropriate. It merely eliminates the unnecessary burden of requiring an applicant to submit such information in every instance. SBA adopts the proposed change in this final rule.

This rule also deletes current § 124.104(c)(2)(iii). That provision provides that income received from an applicant or Participant that is an S corporation, limited liability company (LLC) or partnership will be excluded from an individual's net worth where the applicant or Participant provides documentary evidence demonstrating that the income was reinvested in the firm or used to pay taxes arising in the normal course of operations of the firm. SBA does not believe that this provision is necessary because the exact provision is contained in § 124.104(c)(3)(ii) in discussing how SBA treats personal income.

Section 124.105

Section 124.105 describes the ownership requirements pertaining to applicants and Participants for the 8(a) BD program. Paragraph 124.105(h) sets forth ownership restrictions for non-disadvantaged individuals and concerns, and § 124.105(h)(2) specifies ownership restrictions for non-Participant concerns in the same or similar line of business and for principals of such concerns. Current § 124.105(h)(2) recognizes a limited exception to the general ownership restriction for a former Participant in the same or similar line of business or a principal of such a former Participant. This paragraph does not, however, refer to or recognize another exception set forth elsewhere in SBA's regulations, and that is the exception set forth in § 125.9(d)(2) which allows an SBA-approved mentor to own up to 40 percent of its protégé. This proposed rule added language clarifying that the § 125.9(d)(2) authority applies equally to mentors in the same line of business as its protégé that is also a current 8(a) BD Program Participant. SBA received four comments regarding the proposed clarification that a mentor in the same or similar line of business can own up to 40 percent of its protégé firm. All four commenters supported the clarification. The final rule adopts the proposed language.

Paragraph 124.105(i) provides guidance with respect to changes of ownership, and § 124.105(i)(1) specifies that any Participant that was awarded one or more 8(a) contracts may substitute one disadvantaged individual for another disadvantaged individual without requiring the termination of those contracts or a request for waiver under § 124.515. There has been some confusion as to whether there can be a change of ownership for a former Participant that is still performing one or more 8(a) contracts. As noted in the proposed rule, this would generally not occur with one disadvantaged individual seeking to buy out a disadvantaged principal of a former 8(a) Participant. That is because of the one-time eligibility restriction. For any change of ownership to be approved by SBA, SBA must determine that the individual seeking to replace a former principal does in fact qualify as socially and economically disadvantaged under SBA's regulations. An individual who has previously participated in the 8(a) BD program and has used his or her individual disadvantaged status to qualify one 8(a) Participant would not be deemed disadvantaged if the individual sought to replace a principal of a second 8(a) Participant. Thus, the only individuals who could seek to replace the principal of a former 8(a) Participant would be those who have never participated in the 8(a) BD program before. To do so, such individuals would have to use their one-time eligibility to complete performance on previously awarded 8(a) contracts. The business concern could not be awarded any additional contracts because it is no longer an eligible Participant. If an individual thought the opportunity was sufficient to entice him or her to forego his/her one-time eligibility, he or she might proceed with such a transaction, but SBA does not believe that would often happen. The more likely scenario would be where an entity (tribe, ANC), Native Hawaiian Organization (NHO) or Community Development Corporation (CDC)) seeks to replace the principal of a former 8(a) Participant. The one-time eligibility restriction does not apply to entities. A tribe, ANC, NHO or CDC can own more than one business concern that participates in the 8(a) BD program. As such, an entity could purchase a former Participant and complete performance of any remaining 8(a) contracts. If the tribe, ANC, NHO or CDC seeking to replace the principal of a former 8(a) Participant has or has had a Participant in the 8(a) BD program, its general eligibility has already been established. However, if this would be the first time that a specific entity would own a business seeking 8(a) BD benefits, the entity must establish its overall eligibility. In the case of an Indian tribe or NHO, it must, among other things, demonstrate that it is economically disadvantaged. The proposed rule clarified that a change of ownership could apply to a former Participant as well as to a current Participant. SBA received nine comments supporting this clarification and no comments opposing it. The final rule adopts the proposed language.

Paragraph 124.105(i)(2) permits a change of ownership to occur without receiving prior SBA approval in certain specified circumstances, including where all non-disadvantaged individual owners involved in the change of ownership own no more than a 20 percent interest in the concern both before and after the transaction. To ensure that ownership interests are not divided up among two or more immediate family members to avoid SBA's immediate review of a change of ownership, the proposed rule provided that SBA will aggregate the interests of all immediate family members in determining whether a non-disadvantaged individual involved in a change of ownership has more than a 20 percent interest in the concern. Three commenters supported the change. One commenter supported the change but sought further clarification. That commenter believed that the term “immediate family members” in the proposed rule need to be defined and suggested that SBA either reference the list of family members stated in § 121.103(f), or add a definition of the term to § 124.105(i)(2). That commenter also believed that it was inconsistent for the change to cover immediate family members, but not any other “persons with an identity of interest” under § 121.103(f). Given that SBA treats persons with an identity of interest (regardless of type) as being “one party,” the commenter recommended that SBA should add persons with an identity of interest generally, such as individuals who are not family members but through common investments are deemed to be “one party” under § 121.103(f). SBA agrees and has made those changes in the final rule.

Section 124.107

Section 124.107 describes the policies relating to potential for success. In order to be eligible for the 8(a) BD program, an applicant concern must possess reasonable prospects for success in competing in the private sector. This requirement stems from the language contained in § 8(a)(7)(A) of the Small Business Act, 15 U.S.C. 637(a)(7)(A), which provides that no small business concern shall be deemed eligible for the 8(a) BD program unless SBA determines that with contract, financial, technical, and management support the concern will be able to perform 8(a) contracts and has reasonable prospects for success in competing in the private sector. There has been some confusion as to whether an applicant must demonstrate that it has specifically performed work in the private sector prior to applying to participate in the 8(a) BD program. That is not the case. The statutory requirement is that SBA must determine that with assistance from the 8(a) BD program a business concern will have reasonable prospects for success in competing in the private sector in the future. The regulation requires an applicant to demonstrate that it has been in business and received revenues in its primary industry classification for at least two full years immediately prior to the date of its 8(a) BD application, but it does not say that those revenues must have come from the private sector. A business concern that has performed no private sector work but has demonstrated successful performance of state, local or federal government contracts is eligible to participate in the 8(a) BD program. The proposed rule added language clarifying that intent. SBA received eight comments in response to the proposed clarification to § 124.107. All eight comments supported the proposed clarification that a firm can demonstrate potential for success with prior commercial and government contracts, including state and local government contract work. As such, SBA adopts the proposed language in this final rule.

Section 124.108

Section 124.108 establishes other eligibility requirements that pertain to firms applying to and participating in the 8(a) BD program. Paragraph 124.108(e) provides that an applicant will be ineligible for the 8(a) BD program where the firm or any of its principals has failed to pay significant financial obligations owed to the Federal Government. This proposed rule added language clarifying that where the firm or the affected principals can demonstrate that the financial obligations have been settled and discharged/forgiven by the Federal Government, the applicant will be eligible for the program. Five commenters supported this clarification as proposed. One commenter believed that the terms “financial obligations owed” and “financial obligations have been settled and discharged/forgiven by the Federal Government” are vague. SBA disagrees. The eligibility requirement pertaining to owing federal obligations to the Government has been in SBA's regulations for some time without confusion as to its meaning. Specifically, the regulation prior to the proposed change provided that “[n]either a firm nor any of its principals that fails to pay significant financial obligations owed to the Federal Government . . . is eligible for admission to or participation in the 8(a) BD program.” The proposed rule merely attempted to clarify that if the Government has settled a debt (

i.e.,

accepting less than the full amount owed to discharge the debt), the firm/individual would not be barred from participating in the 8(a) BD program on that basis alone. SBA adopts the proposed language in this final rule.

Section 124.109

Section 124.109 provides specific rules applicable to Indian tribes and Alaska Native Corporations for applying to and remaining eligible for the 8(a) BD program. SBA's regulations currently provide that the articles of incorporation, partnership agreement or limited liability company articles of organization of a tribally-owned applicant or Participant must contain express sovereign immunity waiver language, or a “sue and be sued” clause which designates United States Federal Courts to be among the courts of competent jurisdiction for all matters relating to SBA's programs. The proposed rule sought to make two changes with respect to that provision. First, the proposed rule clarified that the waiver of sovereign immunity should apply only to concerns owned by Federally-recognized Indian tribes. State recognized tribes are not deemed sovereign and, thus, do not need to waive sovereign immunity because they are already subject to suit. Second, concerns that are organized under tribal law may not have articles of incorporation, partnership agreements or limited liability company articles of organization and may be unable to strictly comply with the regulatory language. In response, SBA proposed to add language allowing tribally-owned concerns organized under tribal law to waive sovereign immunity in any similar documents authorized under tribal law.

The proposed rule also sought to make a change relating to the potential for success requirement for tribes. One of the ways a tribally-owned business can demonstrate potential for success needed to be eligible for the program is to demonstrate that it has been in business for at least two years, as evidenced by income tax returns for each of the two previous tax years showing operating revenues in the primary industry in which the applicant is seeking 8(a) BD certification. Not all tribally-owned concerns file federal income tax returns. The tax return requirement is intended to be an objective means by which a tribally-owned concern can show that it has been in business for at least two years with operating revenues. SBA believes that tax returns are not the only way for

a tribally-owned concern to demonstrate its business history. The proposed rule added a provision allowing a tribally-owned applicant to submit financial statements demonstrating that it has been in business for at least two years with operating revenues in the primary industry in which it seeks 8(a) BD certification.

SBA received six comments supporting these two changes and no comments opposing them. As such, SBA adopts the proposed language as final in this rule. SBA also received two comments pertaining to other provisions of § 124.109 that were not addressed in the proposed rule. Because any potential changes pertaining to those provisions are outside the scope of this rulemaking, SBA does not address them in this final rule.

Section 124.110

The proposed rule added a new § 124.110(d)(3) to allow the individuals responsible for the management and daily operations of an NHO-owned concern to manage two Program Participants. This would make the control requirements relating to NHO-owned applicants/Participants consistent with those applying to applicants/Participants owned by tribes and Alaska Native Corporations (ANCs). Although this is a statutory exemption for firms owned by tribes and ANCs, and is not for firms owned by NHOs, SBA believes that the policies relating to all three entity-owned applicants/Participants should be consistent whenever possible. SBA does not believe that this change for NHO-owned firms in any way contradicts any statutory requirement and would merely allow more flexibility for NHO-owned firms.

In addition, the proposed rule clarified the current policy regarding NHO ownership of an applicant or Participant small business concern. Although SBA currently requires an NHO to unconditionally own at least 51 percent of the applicant or Participant, the proposed rule merely made that requirement explicit in the regulations.

SBA received six comments supporting these two changes and no comments opposing them. Although one comment supported allowing an individual to be involved in controlling two NHO-owned 8(a) concerns, the commenter questioned what SBA means by a “Native Hawaiian leader” in the context of this regulation. The proposed language provided that an individual's officer position, membership on the board of directors or position as a Native Hawaiian leader does not necessarily imply that the individual is responsible for the management and daily operations of a given concern. This language was copied from the provision in § 124.109 for tribally owned firms. In the context of a tribe, the term “leader”, as in tribal leader, has some definite meaning. SBA agrees that in the context of Native Hawaiians it does not. As such, the final rule adopts the proposed language with one change. The final rule deletes the reference to Native Hawaiian leader. SBA also received one comment questioning why NHOs cannot use holding companies as part of their ownership of 8(a) BD applicants and Participants as tribes and ANCs can. Although this issue is not part of this rulemaking, SBA will nevertheless address the reason for the disparate treatment. Section 8(a)(4)(A) of the Small Business Act, 15 U.S.C. 637(a)(4)(A), provides in pertinent part that the term “socially and economically disadvantaged small business concern” means any small business concern which is at least 51 percent unconditionally owned by “(II) an economically disadvantaged Indian tribe (or a wholly owned business entity of such tribe), or (III) an economically disadvantaged Native Hawaiian organization . . .” As noted, the statute specifically authorizes tribes (which is also defined to include ANCs) to own an 8(a) Participant through “a wholly owned business entity of such tribe” or in other words through a holding company. The statute does not provide similar authority for NHOs. NHOs have the same statutory requirement as socially and economically disadvantaged individuals, meaning that they must directly own at least 51 percent of an applicant or Participant concern. SBA does not have the authority to change that statutory requirement.

Section 124.204

Section 124.204 details how SBA processes applications for 8(a) BD program admission. It identifies that only the AA/BD can approve or decline an application for participation in the 8(a) BD program. There are, however, certain threshold issues that must be addressed before an application will be fully processed. Specifically, in SBA's electronic 8(a) application system, there are four fundamental eligibility questions that must be answered before an application will be reviewed: an applicant must be a for-profit business (

see

§§ 121.105 and 124.101); every individual claiming disadvantaged status must be a United States citizen (

see

§ 124.101); neither the applicant firm nor any of the individuals upon whom eligibility is based could have previously participated in the 8(a) BD program (

see

§ 124.108(b)); and any individually-owned applicant must have generated some revenues (

see

§§ 124.107(a) and 124.107(b)(1)(iv)). If an applicant answers that it is not a for-profit business entity, that one or more of the individuals upon whom eligibility is based is not a United States citizen (

see

§ 124.104), that the applicant or one or more of the individuals upon whom eligibility is based has previously participated in the 8(a) BD program (

see

§ 124.108(b)), or that the applicant is not an entity-owned business and has generated no revenues (

see

§§ 124.107(a) and 124.107(b)(1)(iv)), its application will be closed and it will be prevented from completing a full electronic application. Each of those four bases automatically renders the applicant ineligible for the program and further review would not be warranted. The proposed rule identified these four threshold issues that must be addressed before an application will be reviewed. SBA received two comments supporting identifying these four reasons that will stop the processing of an 8(a) BD application, one comment stating that threshold application questions are for SBA to determine, and no comments opposing this identification. The final rule adopts the proposed language.

Section 124.302

Section 124.302 addresses graduation and early graduation from the 8(a) BD program. In determining whether an applicant or Participant should be deemed economically disadvantaged, SBA previously required a concern to compare its financial condition to non-8(a) BD business concerns in the same or similar line of business. SBA eliminated that requirement as not being consistent with the statutory authority which requires only that an applicant or concern be owned and controlled by one or more individuals who are economically disadvantaged, not that the concern itself be economically disadvantaged. In addressing graduation, § 124.302(b) retained some of that same language requiring a comparison of an 8(a) BD Participant to non-8(a) businesses. SBA believes that too is inconsistent with the statutory language, which defines the term “graduated” or “graduation” to mean that a Program Participant is recognized as successfully completing the 8(a) BD program by substantially achieving the targets, objectives, and goals contained in its business plan, and demonstrating its ability to compete in the marketplace without assistance from the 8(a) BD program. 15 U.S.C. 636(j)(10)(H). As

such, the proposed rule removed § 124.302(b)(5), as not consistent with the statutory oversight responsibilities. The supplementary information to the proposed rule also noted that the requirements for graduation are adequately set forth in § 124.302(a)(1) of SBA's regulations and requested comments on whether the entire § 124.302(b) can be eliminated as unnecessary.

SBA received nine comments supporting the removal of § 124.302(b)(5). In addition, seven commenters recommended that the entire § 124.302(b) be removed as the provisions in § 124.302(a)(1) adequately establish the requirements for graduation. One commenter also believed that the language in § 124.302(b) is overly subjective and should be eliminated on that basis as well. In response to this comment, SBA more closely reviewed § 124.302(b). Although the paragraph is titled “Criteria for determining whether a Participant has met its goals and objectives,” much of § 124.302(b) pertains to the overall financial condition of the 8(a) BD Participant and not to the specific goals and objectives contained in the Participant's business plan. For that reason and because SBA agrees that § 124.302(a)(1) adequately explains what graduation means and what must occur in order for a firm to be graduated from the 8(a) BD program, the final rule removes the entire § 124.302(b) as unnecessary.

Section 124.304

Section 124.304 sets forth the procedures for early graduation and termination from the 8(a) BD program. The proposed rule added a provision to clarify that where SBA obtains evidence that a Participant has ceased its operations, the AA/BD may immediately terminate a concern's participation in the 8(a) BD program by notifying the concern of its termination and right to appeal that decision to OHA. SBA received two comments supporting this provision and no comments opposing it. The final rule adopts the proposed language. SBA continues to believe requiring SBA to go through the normal process to terminate a Participant from the 8(a) BD program (

i.e.,

providing an intent to terminate notice and a 30-day opportunity to respond) is unnecessary where it can be demonstrated that the concern has ceased its business operations. Nevertheless, the final rule requires SBA to notify the concern of its termination and provide it the right to appeal that decision to OHA.

Section 124.402

Section 124.402 requires each firm admitted to the 8(a) BD program to develop a comprehensive business plan and to submit that business plan to SBA as soon as possible after program admission. Currently, § 124.402(b) provides that SBA will suspend a Participant from receiving 8(a) BD program benefits if it has not submitted its business plan to its servicing district office within 60 days after program admission. There is a concern that § 124.402(b) does not clearly provide that a Participant's business plan must be approved by SBA before the concern is eligible for 8(a) contracts, as required by Section 7(j)(10)(D)(i) of the Small Business Act, 15 U.S.C. 636(j)(10)(D)(i). The proposed rule clarified that, consistent with the statutory language, SBA must approve a Participant's business plan before the firm is eligible to receive 8(a) contracts. However, SBA recognizes that some firms are admitted to the 8(a) BD program with self-marketed procurement commitments from one or more procuring agencies. SBA also understands that several newly admitted Participants have missed 8(a) contract opportunities in the past because SBA did not approve their business plans before the procuring agencies sought to award such procurement commitments as 8(a) contracts. SBA does not wish to discourage self-marketing activities or prevent a newly admitted Participant from receiving critical business development assistance. At the same time, SBA is constrained by the statutory language requiring business plan approval prior to the award of 8(a) contracts. The proposed rule merely prioritized business plan approval for any firm that is offered a sole source 8(a) requirement or is the apparent successful offeror for a competitive 8(a) requirement. Specifically, the proposed rule provided that where a sole source 8(a) requirement is offered to SBA on behalf of a Participant or a Participant is the apparent successful offeror for a competitive 8(a) requirement and SBA has not yet approved the Participant's business plan, SBA will approve the Participant's business plan as part of its eligibility determination prior to contract award.

SBA received 11 comments in response to the proposed change to § 124.402. Seven comments supported the rule to prioritize business plan review and approval for new 8(a) firms that were offered a sole source 8(a) requirement or were the apparent successful offeror for a competitive 8(a) requirement. Three comments opposed requiring business plan approval prior to a firm being awarded any 8(a) contract. These commenters believed that if a firm submitted its business plan to SBA within 60 days of certification, it should not matter whether SBA approved it before award. They rationalized that if the firm did everything it needed to do, the firm should not be penalized by SBA's failure to approve the business plan. As indicated above, SBA again notes that the authorizing legislation requires business plan approval prior to award. SBA cannot waive or disregard that statutory requirement. However, the intent of the proposed regulation was to ensure that business plan approval occurred in connection with a normal eligibility determination and that by doing so every Participant on whose behalf a sole source 8(a) requirement is offered or who was identified as the apparent successful offeror in an 8(a) competitive procurement would receive the award. Prioritizing business plan review and approval will ensure that such approval can be timely done and not adversely affect any 8(a) procurement. One comment recognized the statutory requirement but was concerned that performing a business plan review as part of an eligibility determination would slow down eligibility determinations and could cause procuring agencies to avoid using the 8(a) program. SBA disagrees. Currently, SBA generally performs an eligibility determination (either for a sole source offering or a competitive award) within five days, unless SBA seeks and a procuring agency agrees to a longer period. SBA's intent is to review and approve business plans within that same five-day period. Thus, SBA does not envision any additional time being added to the normal eligibility review timeframe. The final rule adopts the proposed language.

Section 124.403

Section 124.403 sets forth the requirements relating to business plans. Paragraph 124.403(a) provides that each Participant must annually review its business plan with its assigned Business Opportunity Specialist (BOS) and modify the plan as appropriate. The wording of this paragraph caused some to believe that a Participant needed to submit a business plan to SBA every year even where nothing had changed from the previous year. That was not SBA's intent. The “as appropriate” language was meant to infer that a Participant need not submit a business plan if nothing had changed from the previous year. The proposed rule clarified that a Participant must submit

a new or modified business plan only if its business plan has changed from the previous year.

SBA received seven comments supporting the provision to require business plan submissions only if a business plan had changed or been modified from the previous year and no comments opposing the provision. The commenters believed that eliminating needless submissions would reduce the paperwork burden on Participants and enable them to more thoroughly focus on business development. The final rule adopts the proposed language.

Sections 124.501, 126.609, 127.503(e), and 128.404(d)

There has been some confusion as to whether a contracting officer can limit an 8(a) competition (whether for an 8(a) contract or an order set-aside for 8(a) competition under an unrestricted contract) to Participants having more than one certification (

e.g.,

8(a)

and

HUBZone). SBA believes that § 8(a)(1)(D)(i) of the Small Business Act, 15 U.S.C. 637(a)(1)(D)(i), requires any 8(a) competition to be available to all eligible Program Participants. SBA has consistently interpreted this provision as prohibiting SBA from accepting a requirement for the 8(a) BD program that seeks to limit an 8(a) competition only to certain types of 8(a) Participants, rather than allowing competition among all eligible Participants. In other words, SBA has interpreted this authority to prohibit an agency from requiring one or more other certifications in addition to its 8(a) certification. This interpretation is currently contained in § 125.2(e)(6)(i) but is not specifically contained in the 8(a) BD regulations. Likewise, the statutory authority for HUBZone set asides, 15 U.S.C. 657a(c)(2)(B), provides authority for competition restricted to certified HUBZone small business concerns and does not permit a “dual” set-aside for firms that are both HUBZone-certified and 8(a) Participants. The proposed rule added a sentence to § 124.501(b) to clarify SBA's position that prohibits a contracting activity from restricting an 8(a) competition to Participants that are also certified HUBZone small businesses, certified WOSBs or certified SDVO small businesses. SBA also proposed to make similar clarifications to the regulations for the SDVO (in § 125.22(d)), HUBZone (in new § 126.609), and WOSB (in § 127.503(e)) programs. As noted earlier, the SDVO program regulations have been moved to a new part 128 as part of implementing the Veteran Small Business Certification Program.

See

87 FR 73400 (Nov. 29, 2022). As such, the final rule amends § 128.404(d) as opposed to § 125.22(d) as proposed.

SBA received ten comments supporting the clarification to more clearly set forth SBA's position prohibiting a contracting activity from restricting a competition to firms with multiple certifications. One commenter supported the provision but also recommended further clarification. Specifically, the commenter believed that agencies could follow the prohibition (

i.e.,

not limiting competition to firms with multiple certifications) but circumvent SBA's intent by providing significant evaluation preferences to firms with one or more other certifications, and thus exclude firms with one certification from any meaningful opportunity to be awarded a specific contract or order. The commenter recommended that SBA amend this provision to also specify that a procuring activity also cannot give additional evaluation points or any evaluation preference to firms having one or more additional certifications. SBA agrees and has added this language to each of the associated regulatory provisions: § 124.501(b) for the 8(a) BD program; § 126.609 for the HUBZone program; § 127.503(e) for the WOSB program; and § 128.404(d) for the SDVO program.

SBA also proposed to clarify § 124.501(b) by noting that an agency may award an 8(a) sole source order against a multiple award contract that was not set aside for competition only among 8(a) Participants. SBA believes that such awards are consistent with SBA's statutory authority at section 8(a)(16) of the Small Business Act, 15 U.S.C. 637(a)(16), to enter 8(a) sole source awards. Furthermore, this type of 8(a) sole source order is beneficial to both 8(a) Participants, who benefit from increased contracting opportunities, and to procuring agencies, that can take advantage of pre-negotiated terms and pricing. SBA received six comments in response to this provision. All comments received supported the proposed language. As such, SBA adopts the proposed language in this final rule.

The proposed rule also revised the introductory language to § 124.501(g). The revised language first required SBA to notify an 8(a) Participant any time SBA determines the Participant to be ineligible for a specific sole source or competitive 8(a) award. SBA notes that this is currently required in FAR 19.805-2, and is something that should occur routinely, but believes that highlighting this in SBA's regulations would be helpful. SBA also proposed to clarify that where a joint venture is the apparent successful offeror in connection with a competitive 8(a) procurement, SBA will determine whether the 8(a) partner to the joint venture is eligible for award but will not review the joint venture agreement to determine compliance with § 124.513. SBA believes that there was some confusion as to what an eligibility determination entailed in the context of a competitive 8(a) joint venture apparent successful offeror. The proposed rule sought to make clear that SBA's determination of eligibility relates solely to the 8(a) partner to the joint venture and does not represent a full review of the 8(a) joint venture under § 124.513. SBA received three comments supporting this clarification regarding the eligibility of a joint venture offeror, and no comments opposing it. One commenter also requested clarification as to whether a review of the joint venture agreement is required where a joint venture is offered a sole source order under a previously awarded competitive 8(a) multiple award contract. SBA does not believe that SBA should review the joint venture agreement itself in this context. The underlying contract is an 8(a) competitive award. SBA's regulations do not require review of joint venture agreements with respect to 8(a) competitive awards. Once awarded, SBA does not believe it should review joint venture agreements in connection with one or more individual sole source orders under the 8(a) multiple award contract. As such, SBA adopts the proposed language in this final rule with the added clarification regarding sole source orders to a joint venture under a previously competitively awarded 8(a) multiple award contract.

Finally, the proposed rule also made several clarifications to the bona fide place of business requirement contained in § 124.501(k). Section 8(a)(11) of the Small Business Act, 15 U.S.C. 637(a)(11), requires that to the maximum extent practicable 8(a) construction contracts “shall be awarded within the county or State where the work is to be performed.” SBA has implemented this statutory provision by requiring a Participant to have a bona fide place of business within a specific geographic location. In the October 2020 rulemaking,

supra,

SBA clarified that the Small Business Act does not differentiate between sole source 8(a) construction contracts and competitive 8(a) construction contracts. As such, the statutory “maximum extent practicable” requirement applies equally to sole source and competitive 8(a) contracts. SBA understands that

some have expressed the view that the “to the maximum extent practicable” statutory language should be read in a way that affords procuring agencies the discretion to broaden or do away with the bona fide place of business requirement where they deem it to be appropriate, for whatever reason. SBA disagrees that the statutory language affords such flexibility. In SBA's view, “to the maximum extent practicable” denotes Congress's intent that something be followed whenever possible, not merely when a procuring agency thinks it is the best option or appropriate in particular circumstances. Thus, SBA will continue to apply the bona fide place of business requirement to both sole source and competitive 8(a) construction procurements unless SBA determines that it is not “practicable” to do so. In this regard, because of the COVID-19 pandemic, employees in both the public and private sector were expected to telework on a significant basis. In response, SBA issued a Policy Notice temporarily placing a moratorium on the bona fide place of business requirement with respect to all 8(a) construction contracts offered to the 8(a) BD program prior to September 30, 2022, based on SBA's determination that it was not “practicable” to impose that requirement during the maximum telework policies. SBA Policy Notice 6000-819056 (August 25, 2021). Prior to the expiration of that Policy Notice, the SBA Administrator determined that requiring a bona fide place of business in a particular location continues to be impracticable due to the lingering effects of the COVID-19 pandemic and extended the moratorium on the requirement through September 30, 2023. SBA will continue to examine the practicality of the rule considering economic realities. Once the conditions exist that demonstrate that it is no longer impracticable to require a bona fide place of business, SBA will again implement the statutory provision to do so with respect to all construction requirements offered to the 8(a) program. As such, the proposed rule sought to clarify several components of the bona fide place of business requirement to be in place when the circumstances dictate that it is again practicable to enforce the rule.

Before discussing the specific proposed changes to the bona fide place of business rule and the comments received regarding those changes, SBA will first discuss the comments received to the rule in general. Several commenters agreed that current circumstances make it impracticable to require a bona fide place of business at this time and recommended that the moratorium be extended. As noted above, the moratorium is currently in place through September 30, 2023. Before the expiration of the moratorium, SBA will examine workplace realities. If telework policies and other economic conditions continue to make requiring a bona fide place of business impracticable, SBA will again extend the moratorium. SBA cannot, however, make that commitment at this point. Several other commenters urged SBA to eliminate the bona fide place of business rule entirely, believing that the rule is outdated and no longer makes sense. One commenter noted that the moratorium has demonstrated that construction work can be performed without a brick-and-mortar presence and recommended that the bona fide place of business rule be eliminated. SBA believes that it does not have the option of eliminating the requirement entirely. As noted above, the Small Business Act statutorily imposes a strong preference for local construction firms in the performance of 8(a) contracts. SBA has implemented that preference through the bona fide place of business rule. SBA cannot ignore that statutory language. A few commenters believed that the rule should apply only to competitive 8(a) construction requirements, but not to sole source 8(a) construction requirements. The statutory authority does not make a distinction between sole source and competitive requirements, but rather talks of all “construction” contracts awarded through the 8(a) BD program. As such, SBA believes that the statutory preference must be applied equally to all competitive and sole source 8(a) construction procurements. Recognizing the Small Business Act requirement, several other commenters applauded SBA's efforts to lessen the burden to establish a bona fide office. SBA will now address those proposed changes, the comments to them and SBA's response.

When SBA revised the bona fide place of business rule in October 2020, it intended that a Participant with a bona fide place of business anywhere in a particular state should be deemed eligible for a construction contract throughout that entire state (even if the state is serviced by more than one SBA district office). However, because the regulatory text used the word “may”, several Participants sought clarification of SBA's intent. The proposed rule clarified SBA's intent.

The proposed rule also clarified that where a Participant is currently performing a contract in a specific state, it would qualify as having a bona fide place of business in that state for one or more additional contracts. This clarification is specifically intended to apply to the situation where a business concern is performing a construction contract in a specific location, the procuring activity likes the work done by the business concern and seeks to award an 8(a) construction contract to the same business concern in the same location as the previous contract. SBA believes that it does not make sense to say that a business concern is not eligible for such award because it has not officially sought and approved to have a bona fide place of business in that location. The proposed clarification, however, limited that exclusion only to the state where the firm is currently performing a contract. It provided that the Participant could not use contract performance in one state to allow it to be eligible for an 8(a) contract in a contiguous state unless it officially establishes a bona fide place of business in the location in which it is currently performing a contract (or in that contiguous state or another state touching that contiguous state).

The proposed rule also clarified that a Participant could establish a bona fide place of business through a full-time employee in a home office. In addition, an individual designated as the full-time employee of the Participant seeking to establish a bona fide place of business in a specific geographic location need not be a resident of the state where he/she is conducting business. In the past, some SBA district offices have required the designated employee to possess a driver's license issued by the state corresponding to the location of the office. SBA believes that is not appropriate. There is no requirement that a specific employee must permanently reside in a specific location. A Participant merely needs to demonstrate that one or more employees are operating in an office within the identified geographic location. A Participant should be able to rotate employees in and out of a specific location as it sees fit, and as long as one individual (but not necessarily the same individual) remains at that location, that location can be considered a bona fide place of business. Finally, the proposed rule provided guidance on how SBA interprets the bona fide place of business requirement where a contract requires work to be performed in more than one location and those different locations may not be within the boundaries of the bona fide place of business. Although this is SBA's current interpretation of the bona fide place of business requirement, SBA believes

putting it in the regulations will clarify any confusion that currently exists. For a single award 8(a) construction contract requiring work in multiple locations, the proposed rule provided that a Participant is eligible if it has a bona fide place of business where a majority of the work is to be performed. For a multiple award 8(a) construction contract, the proposed rule required a Participant to have a bona fide place of business in any location where work is to be performed.

Commenters overwhelmingly supported the specific proposed changes to make it easier to meet the bona fide place of business requirement. Commenters supported the changes regarding allowing home offices to meet the bona fide place of business requirement, noting that this will reduce overhead costs. Commenters also supported the clarification that an individual need not be a full-time resident of a state in order to count as an employee for bona fide office purposes. They believed that this clarification to allow “floaters” will provide needed flexibility to enable a firm to engage with clients in different states as needed and meet client needs more efficiently at a lower cost. SBA adopts the proposed language for those provisions in this final rule.

SBA also received several comments supporting the clarification regarding having an approved bona fide place of business in one state and being eligible for work in a contiguous state. One commenter sought further clarification of that provision. Specifically, the commenter asked whether an 8(a) construction firm that has a bona fide office in Virginia, but does not have a bona fide office in North Carolina, will qualify for an 8(a) sole source construction project in North Carolina because the states border each other. The language of the rule states that a firm will be eligible for work that will be performed in the geographical area serviced by a contiguous SBA district office to where the firm has a bona fide place of business (in addition to stating a firm will be eligible for work anywhere in a state in which the firm has a bona fide place of business). There are two SBA district offices servicing Virginia: the Washington Metropolitan Area District Office services northern Virginia and the Richmond District Office services the rest of Virginia. North Carolina has only one SBA district office, so any district office whose geographic area touches any part of North Carolina will be eligible for any 8(a) construction contract anywhere in the entire state. Only the geographic area serviced by the Richmond District Office touches North Carolina. As such, a firm having a bona fide place of business in the geographic area serviced by the Richmond District Office will be eligible for 8(a) construction contracts in North Carolina. Firms having a bona fide place of business in the geographic area serviced by the Washington Metropolitan Area District Office will be not eligible because the geographic area serviced by that office is not contiguous to that of the area serviced by the North Carolina District Office. SBA believes that the proposed regulatory language clearly stated that, and thus no change is needed to the regulatory text as proposed.

Several commenters also supported the proposed change regarding the guidance on how SBA interprets the bona fide place of business requirement where a contract requires work to be performed in more than one location and those different locations may not be within the boundaries of the bona fide place of business. Commenters agreed that a firm should not be required to have a bona fide place of business in each state in which work will be performed. One commenter requested SBA to define how it will determine what a “majority” of work will be for contracts with more than one location. SBA intends to apply this by the dollar value of the work to be performed. SBA also understands that a requirement may have an indefinite aspect to it where the dollar value to be performed at each location is not exactly known at the time of contract award. As such, the final rule adds language defining majority in terms of dollar value but also ties it to the “anticipated” work to be performed. A procuring agency should be able to identify where it anticipates a majority of the dollars on a contract will be spent.

Finally, several commenters recommended that the rule allow part-time employees to count in establishing a bona fide place of business. Although several commenters agreed that part-time employees should be sufficient to establish a bona fide place of business, most did not define what they believed a “part-time” employee to be. One commenter recommended that SBA adopt the definition of part-time employee used in the HUBZone program, believing that consistency between the programs was important. One commenter recommended that an individual who works at least 20 hours per week should count in establishing a bona fide place of business. This commenter believed that 20 hours per week evidences the small business concern's commitment to establish a bona fide place of business while at the same time giving it some needed flexibility. In the HUBZone program, a part-time employee counts as a HUBZone employee if the individual works a minimum of 40 hours during the four-week period immediately prior to the relevant date of review. 13 CFR 126.103. SBA does not believe that definition works in establishing a bona fide place of business for 8(a) construction contracts. If SBA applied that definition to the bona fide place of business rule, an individual could work 40 hours in one week and the “office” could be empty and closed for the remaining three weeks of the month. As noted above, the Small Business Act directs that 8(a) construction contracts generally be awarded within the county or State where the work is to be performed. SBA believes this means that a Participant small business concern must have a legitimate presence in the geographic area close to where the work is to be performed. SBA does not believe that a firm that could be closed three weeks every month meets that legitimate presence, but rather that there should be a presence at the bona fide place of business every week. SBA agrees with the commenter that 20 hours per week creates the proper balance between establishing a legitimate presence in a location and providing needed flexibility to small business construction firms. As such, SBA amends the definition of bona fide place of business in § 124.3 to allow a Participant to demonstrate a bona fide place of business in a location with at least one employee who works at least 20 hours per week at that location.

Section 124.503(a)

Section 124.503(a) provides that SBA will decide whether to accept a requirement offered to the 8(a) BD program within ten working days of receipt of a written offering letter if the contract value exceeds the SAT. In consideration of mutual responsibilities under SBA's 8(a) Partnership Agreements with federal procuring agencies, SBA has agreed to issue an acceptance letter or rejection letter for such offers within five business days unless the agency grants an extension. This proposed rule clarified that the ten-day acceptance timeframe under section 124.503(a) applies only to 8(a) offers made outside the 8(a) Partnership Agreement authority. One commenter recommended that the ten-day period be calendar days instead of business days. The regulatory text before this clarification identified the acceptance period as ten business days. The proposed rule did not seek to alter that timeframe. Rather, it merely intended to

formally recognize in the regulation that SBA and the procuring activity may agree to a shorter timeframe for SBA's review under a Partnership Agreement delegating 8(a) contract execution functions to the agency. As such, SBA adopts the proposed language in this final rule.

Section 124.503(a)(4)(ii) authorizes a procuring activity to award an 8(a) contract without requiring an offer and acceptance where the requirement is valued at or below the SAT and SBA has delegated its 8(a) contract execution functions to the agency. The paragraph goes on to provide that in such a case, the procuring activity must notify SBA of all 8(a) awards made under this authority. Some agencies have relied on this language to justify proceeding to award an 8(a) contract under the SAT without first requesting an eligibility determination from SBA of the apparent successful 8(a) contractor (which is required by § 124.501(g)). It was not SBA's intent to allow an award without a determination of eligibility being made. To do otherwise could result in agencies awarding 8(a) contracts to ineligible firms. Although it authorizes an expedited review, the partnership agreement between SBA and procuring agencies identifies that an eligibility determination must still be made in these cases. The proposed rule merely clarified that requirement in SBA's regulations. SBA received two comments supporting the clarification that SBA determines eligibility in cases where it has delegated 8(a) contract authority to procuring agency. Thus, SBA adopts the proposed language in this final rule.

Section 124.503(a)(5) authorizes a procuring agency to seek acceptance of an 8(a) offering letter with the AA/BD where SBA does not respond to an offering letter within the ten-day period set forth under § 124.503(a). The proposed rule clarified that this ten-day time period is intended to be ten business days. One commenter supported the clarification, and one opposed it. The comment in opposition recommended instead that the time frame be measured in calendar days. Because the language in § 124.503(a) is measured in business days, SBA believes it makes sense to consistently identify time periods throughout the section in the same way. As such, SBA adopts the proposed language as final in this rule.

Section 124.503(i)(1)(ii)

SBA's current regulations require a procuring agency to notify SBA where it seeks to reprocure a follow-on requirement through a pre-existing limited contracting vehicle which is not available to all 8(a) BD Program Participants and the previous/current 8(a) award was not so limited.

See

13 CFR 124.504(d)(1). There has been some confusion as to whether this conflicts with § 124.503(i)(1)(ii), which provides that an agency need not offer or receive acceptance of individual orders into the 8(a) BD program if the underlying multiple award contract was awarded through the 8(a) BD program. These provisions were not meant to conflict. Although formal offer and acceptance is not required, it is important for SBA to be notified of any work that is intended to be moved to an 8(a) multiple award contract that was previously performed under an 8(a) contract that was not limited to specific 8(a) Participants (

i.e.,

either a sole source award to a specific Participant or an 8(a) competitive award that was open to all eligible Program Participants). As SBA noted in the supplementary information to the final rule implementing the notification requirement contained in § 124.504(d)(1), an 8(a) incumbent contractor may be seriously hurt by moving a procurement from an 8(a) sole source or competitive procurement to an 8(a) multiple award contract to which the incumbent is not a contract holder.

See

85 FR 66146, 66163 (Oct. 16, 2020). In such a case, the incumbent would have no opportunity to win the award for the follow-on contract and would have no opportunity to demonstrate that it would be adversely impacted by the loss of the opportunity to compete for the follow-on procurement. SBA believes that not allowing an incumbent 8(a) contractor to compete for a follow-on contract where that contract accounts for a significant portion of its revenues contradicts the business development purposes of the 8(a) BD program.

In order to eliminate any confusion and ensure that notification occurs where a procuring agency seeks to issue an order under an 8(a) multiple award contract and some or all of the work contemplated in that order was previously performed through one or more other 8(a) contracts, the proposed rule amended § 124.503(i)(1)(ii) to clarify that an agency must notify SBA where it seeks to issue an order under an 8(a) multiple award contract that contains work that was previously performed through another 8(a) contract. Where that work is critical to the business development of a current Participant that previously performed the work through another 8(a) contract and that Participant is not a contract holder of the 8(a) multiple award contract, SBA may request that the procuring agency fulfill the requirement through a competition available to all 8(a) BD Program Participants.

SBA received six comments agreeing that SBA should be notified when standalone 8(a) work is migrating as an order under an 8(a) multiple award contract. SBA adopts the proposed language.

Section 124.503(i)(1)(iv)

SBA's current regulations authorize a sole source 8(a) order to be awarded under a multiple award contract to a multiple award contract holder where the multiple award contract was set-aside or reserved for exclusive competition among 8(a) Participants. The procuring agency must offer, and SBA must accept, the order into the 8(a) BD program on behalf of the identified 8(a) contract holder. To be eligible for the award of a sole source order, SBA's regulations currently specify that a concern must be a current Participant in the 8(a) BD program at the time of award of the order. There has been some confusion as to whether the business activity target requirements set forth in § 124.509 apply to the award of such an order. In other words, it was not clear whether a Participant seeking a sole source 8(a) order under a multiple award contract set-aside or reserved for eligible 8(a) Participants needed to be in compliance with any applicable competitive business mix target established or remedial measure imposed by § 124.509 at the time of the offer/acceptance of the order. Because SBA is determining eligibility anew at the time of a new sole source order, it was always SBA's intent to not only require a firm to still be a current and otherwise eligible 8(a) Participant at the time of offer/acceptance of a sole source order, but to also require the firm to be in compliance with any applicable competitive business mix target established or remedial measure imposed by § 124.509. As such, the proposed rule clarified that compliance with the § 124.509 business activity target requirements will be considered before SBA will accept a sole source 8(a) order on behalf of a specific 8(a) Participant multiple award contract holder. Where an agency seeks to issue a sole source order to a joint venture, the proposed rule clarified that SBA will review and determine whether the lead 8(a) partner to the joint venture is currently an eligible Program Participant and in compliance with any applicable competitive business mix target established or remedial measure imposed by § 124.509. SBA received 21 comments in response to this proposal. Nineteen comments supported the

proposed language specifically authorizing sole source awards under 8(a) multiple award contracts and requiring eligibility and business activity target compliance at the time of the order award. These commenters believed that any sole source award, whether an individual contract or an order under a previously awarded multiple award contract, should be treated similarly. In other words, these commenters agreed with SBA's position that eligibility for a sole source 8(a) order must be determined as of the date of the order, not the underlying multiple award contract itself. Two commenters opposed the proposed change. They believed that it would harm 8(a) firms that were awarded 8(a) multiple award contracts but have grown throughout the life of the contract. SBA notes that Participants that received an 8(a) multiple award contract will generally continue to be eligible for orders that are competitively awarded under that contract throughout the life of the contract. Of course, a contracting officer may request recertification of size and/or eligibility with respect to a specific order and recertification of size and status must occur after the fifth year on a long-term contract, but firms that grow to be other than small and/or firms that have graduated or otherwise left the 8(a) BD program may be awarded competitive orders under the multiple award contract. However, SBA continues to believe that sole source awards are unique. Sole source authority does not derive directly from an underlying competitively awarded 8(a) multiple award contract. SBA believes that the rules governing the award of a sole source 8(a) contract should also apply to the award of a sole source 8(a) order. That means that a firm must still be an eligible Participant that qualifies as small as of the date the order is issued. Part of any eligibility determination for a sole source award is an examination of a Participant's compliance with its applicable business activity target. Therefore, SBA adopts the proposed language as final.

In addition, the proposed rule further clarified the rules pertaining to issuing sole source orders to joint ventures under an 8(a) multiple award contract. There has been some confusion as to whether the requirement set forth in § 121.103(h) that a joint venture may not be awarded contracts beyond a two-year period, starting from the date of the award of the first contract, applies to such sole source orders and whether SBA must approve the joint venture in connection with the sole source order as generally required by § 124.513(e)(1). The proposed rule specifically clarified that the two-year restriction does not apply to a sole source 8(a) order under an 8(a) multiple award contract. In other words, the sole source order can be issued more than two years after the date the joint venture received its first contract award. In addition, the proposed rule provided that SBA would not review and approve a joint venture where the joint venture had already been awarded a competitive 8(a) multiple award contract and is seeking a sole source 8(a) order under that multiple award contract at some point during the performance period of the contract. SBA believes that the general requirement set forth in § 124.513(e)(1) that SBA review a joint venture in connection with a sole source 8(a) award should not apply to sole source orders issued under a competitively awarded 8(a) multiple award contract because the joint venture's eligibility for the contract was already established at the award of the underlying contract. The procuring agency and other interested parties had the opportunity to challenge whether the joint venture was properly formed at that time. SBA received two comments supporting the proposed clarifications relating to joint ventures and no comments opposing them. As such, SBA adopts the proposed language in this final rule.

Finally, in making this clarification to § 124.509, SBA noticed two instances in SBA's rules where SBA intended to cross reference § 124.509, but instead cited to § 124.507. This rule amends §§ 124.303(a)(15) and 124.403(c)(1) to change the cross reference to § 124.509.

Section 124.503(i)(2)(ii)

SBA has received inquiries as to whether an agency can issue an order under the Federal Supply Schedule (FSS) as an 8(a) award, and if so, what procedures must be used. As with any unrestricted multiple award contract, SBA believes that an order can be issued under the FSS as an 8(a) award if the procedures set forth in § 124.503(i)(2) are followed. This means that the following requirements must be met: the order must be offered to and accepted into the 8(a) BD program; the order must require the concern to comply with applicable limitations on subcontracting provisions and the nonmanufacturer rule, if applicable, in the performance of the individual order; before award, SBA must verify that the identified apparent successful offeror is an eligible 8(a) Participant as of the initial date specified for the receipt of proposals contained in the order solicitation, or at the date of award of the order if there is no solicitation; and the order must be competed exclusively among only the 8(a) awardees of the underlying multiple award contract. There is some confusion as to what that last requirement means. In the case of a multiple award contract awarded under full and open competition, SBA believes that the current regulatory language is clear. All contract holders that have certified as 8(a) eligible must be able to submit an offer for the order if they choose. An agency cannot limit competition to a subset of contract holders that have claimed to be 8(a) eligible. Of course, the apparent successful offeror's eligibility must be verified by SBA prior to award to ensure that the concern was in fact an eligible Participant as of the initial date specified for the receipt of offers contained in the order solicitation, or at the date of award of the order if there is no solicitation. For an order under the FSS that an agency seeks to issue through the 8(a) BD program, there has been some confusion as to what procedures must be used to issue the order. Specifically, agencies have told SBA that it is not clear whether an agency can merely follow the FAR 8.4 requirements or must allow all FSS holders who claim 8(a) status the opportunity to compete. SBA believes that orders issued under the FSS are unique from orders issued under multiple award contracts competed using full and open competition. GSA has established procedures for issuing orders under the FSS. SBA believes that those procedures should be used when an agency seeks to issue an 8(a) award under the FSS. The proposed rule clarified that distinction. An agency need not open the order up to competition among all FSS contract holders claiming 8(a) status. However, an agency must consider the quote from any FSS contract holder claiming 8(a) status who submits one. As with 8(a) orders issued under unrestricted multiple award contracts, however, the apparent successful offeror for an 8(a) order under the FSS must be an eligible Participant as of the initial date specified for the receipt of offers contained in the request for quote, or at the date of award of the order if there is no solicitation. Several commenters supported these clarifications, and none opposed. As such, SBA adopts the proposed language as final in this rule.

Section 124.504

Section 124.504(d) sets forth the procedures authorizing release of a follow-on requirement from the 8(a) BD program. Paragraph (d)(3) provides that SBA will release a requirement where the procuring activity agrees to procure

the requirement as a small business, HUBZone, SDVO small business, or WOSB set-aside. Some procuring activities have read this to mean that SBA will always release a requirement from the 8(a) BD program if the procuring activity agrees to procure the requirement as a small business, HUBZone, SDVO small business, or WOSB set-aside. That was not SBA's intent. The 8(a) BD program is a business development program. SBA takes that purpose seriously and will always consider whether an incumbent 8(a) contractor would be adversely affected by the release of a follow-on procurement from the 8(a) BD program. Accordingly, the proposed rule amended § 124.504(d)(3) by changing the words “SBA will release” to “SBA may release” to clarify that SBA has discretion in any release decision. The fact that a procuring activity agrees to procure the requirement as a small business, HUBZone, SDVO small business, or WOSB set-aside is a positive factor for release, but SBA must still consider any adverse consequences to an incumbent 8(a) Participant. The release process has also caused some confusion regarding how a follow-on requirement may be procured if SBA agrees to release. Again, the current rule provides that release may occur only where a procuring activity agrees to procure the requirement as a small business, HUBZone, SDVO small business, or WOSB set-aside. In other words, a strict reading of the rule would not allow release where an agency seeks to award a follow-on requirement as a set-aside order under a multiple award contract that is not itself a set-aside contract. Thus, even if an agency sought to procure a follow-on requirement as an 8(a) order under an unrestricted multiple award contract, the current regulatory language could be read to preclude that approach. That was not SBA's intent. As long as an agency identifies a procurement strategy that would target small businesses for a follow-on procurement, release may occur. In fact, release to such a contract vehicle may be appropriate where the incumbent 8(a) contractor has graduated from the program but still qualifies as a small business, the requirement is critical to the incumbent contractor's overall business development, the incumbent contractor is a contract holder on an unrestricted multiple award contract, and the procuring agency has evidenced its intent to set-aside an order for small business under the multiple award contract for which the incumbent contractor is a contract holder. This would give the incumbent contractor the opportunity to compete for the follow-on procurement and ensure that award would be made to a small business. The proposed rule clarified that release may occur whenever a procuring agency identifies a procurement strategy that would emphasize or target small business participation.

SBA received 11 comments supporting this clarification and no comments opposing it. Commenters believed that an 8(a) incumbent contractor may be seriously hurt by moving a procurement from an 8(a) sole source or competitive procurement to an 8(a) multiple award contract to which the incumbent is not a contract holder (such as a FSS holder) because the incumbent, who may have done a fantastic job in the past, would have no opportunity to be awarded for the follow-on contract, nor would it have the opportunity to demonstrate that it would be adversely impacted by the loss of the opportunity to compete for the follow-on procurement. Commenters also supported the provision requiring a procuring agency to “coordinate with” SBA when it seeks to re-procure a follow-on requirement through a pre-existing, limited contracting vehicle that is not available to all 8(a) Participants. They believed that this will facilitate meaningful dialogue between the procurement agency and SBA and promote the purposes of the 8(a) program. SBA agrees with the comments and adopts the proposed language in this final rule.

Section 124.506(b)(3)

In explaining SBA's ability to accept a sole source 8(a) requirement on behalf of a tribally-owned, ANC-owned or NHO-owned Participant above the general competitive threshold amounts, § 124.506(b)(2) provided that a procurement may not be removed from competition to award it to a Tribally-owned, ANC-owned or NHO-owned concern on a sole source basis. There has been some confusion as to what the phrase “may not be removed from competition” means. Some have misinterpreted this provision to believe that a follow-on requirement to one that was previously awarded as a competitive 8(a) procurement cannot be awarded to an entity-owned firm on a sole source basis above the applicable competitive threshold. That is not SBA's intent. The provision prohibiting a procurement from being removed from competition and awarded to an entity-owned Participant on a sole source basis was meant to apply only to a current procurement, not the predecessor to a current procurement. A procuring agency may not evidence its intent to fulfill a requirement as a competitive 8(a) procurement, through the issuance of a competitive 8(a) solicitation or otherwise, cancel the solicitation or change its public intent, and then procure the requirement as a sole source 8(a) procurement to an entity-owned Participant. A follow-on procurement is a new contracting action for the same underlying requirement, and if the procuring agency has not evidenced a public intent to fulfill it as a competitive 8(a) procurement it can be fulfilled on a sole source basis to an entity-owned Participant. The proposed rule added language clarifying that intent. SBA received 12 comments supporting the clarification to allow a sole source award to an entity-owned Participant where the procuring activity has not evidenced its intent to fulfill the current requirement as a competitive 8(a) procurement and no comments opposing it. As such, SBA adopts the proposed language in this final rule.

The proposed rule also sought comments as to whether a specific provision should be added to the regulations requiring SBA to consider the effect that losing an opportunity to compete for a follow-on contract would have on an incumbent Participant's business development where the follow-on procurement is offered to SBA as a sole source 8(a) procurement on behalf of an entity-owned Participant. In response, SBA received five comments. The comments opposed adding such a provision to the regulations. Commenters noted that while they understood SBA's intent to ensure program participants are not negatively impacted when a follow-on 8(a) procurement is awarded on a sole source basis, they believed that procuring agencies should have discretion in how best to procure a requirement through the 8(a) BD program. Commenters also noted that a procuring agency oftentimes changes its procurement strategy because of an incumbent's unsatisfactory performance on a contract. They believed that a procuring agency should not be saddled with a contractor whose performance is lacking merely because the contract would advance the firm's business development. Finally, one commenter also believed that it is important to consider the business development needs of all Participants, meaning both the entity-owned Participants as well as the Participants who previously performed certain incumbent contracts in this context. SBA believes that a specific regulatory change is not needed to capture SBA's role in ensuring that

the business development purposes of the 8(a) BD program are served. As such, SBA makes no further changes to this section in the final rule.

Section 124.506(d)

The proposed rule clarified SBA's rules pertaining to the award of sole source 8(a) contracts to individually-owned 8(a) Participants. The proposed rule added a provision to § 124.506(d) to clarify that an individually-owned 8(a) Participant could receive a sole source award in excess of the $4.5M and $7M competitive threshold amounts set forth in § 124.506(a)(2) where a procuring agency has determined that one of the exceptions to full and open competition set forth in FAR 6.302 exists. For example, if a procuring agency has determined that an unusual and compelling urgency exists and has identified an individually-owned 8(a) Participant that is capable of fulfilling its needs, the agency can offer that requirement to SBA as a sole source award on behalf of the identified Participant even if the requirement exceeds the applicable competitive threshold. Because the agency could use its authority under FAR 6.302 to award a sole source contract outside the 8(a) BD program, SBA believes that it only makes sense to allow the agency to make an award as a sole source contract within the 8(a) BD program if it chooses to do so.

In addition, if such an award exceeds $25M, or $100M for a Department of Defense (DoD) agency, the proposed rule also clarified that the agency would be required to justify the use of a sole source contract under FAR 19.808-1 or Defense Federal Acquisition Regulation Supplement (DFARS) 219.808-1(a) before SBA could accept the requirement as a sole source 8(a) award. Although those justifications and approvals generally apply to sole source 8(a) contracts offered to SBA on behalf of entity-owned Program Participants, the FAR and DFARS justification and approval provisions are not restricted to entity-owned Participants. Instead, those provisions apply to any 8(a) sole source contract that exceeds the $25M or $100M threshold. As such the proposed rule merely added language to clarify what SBA believes the current requirement is and does so in order to avoid any confusion.

SBA received four comments on these proposed clarifications. Three supported the clarifications and one opposed. The one comment in opposition believed that allowing

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