Small Business Size Regulations; Minority Small Business and Capital Ownership Development

Federal RegisterMar 18, 1994

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SMALL BUSINESS ADMINISTRATION

13 CFR Parts 121 and 124

Small Business Size Regulations; Minority Small Business and

Capital Ownership Development

AGENCY: Small Business Administration (SBA).

ACTION: Final rule.

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SUMMARY: The Small Business Administration amends its regulations

governing the Minority Small Business and Capital Ownership Development

program authorized by sections 7(j)(10) and 8(a) of the Small Business

Act. Several statutory changes have been made affecting the 8(a)

program that have not previously been incorporated in SBA's

regulations. This final rule is needed to remove the inconsistencies

that currently exist in SBA's regulations due to these statutory

provisions, as well as a procedural inconsistency that currently exists

between SBA's regulations and the Federal Acquisition Regulations.

EFFECTIVE DATE: April 18, 1994.

FOR FURTHER INFORMATION CONTACT:

Judith A. Roussel, Office of Minority Small Business and Capital

Ownership Development, (202) 205-6410.

SUPPLEMENTARY INFORMATION: On August 21, 1989, SBA published a final

rule in the Federal Register, 54 FR 34692, amending its regulations

with respect to the Minority Small Business and Capital Ownership

Development program authorized by sections 7(j)(10) and 8(a) of the

Small Business Act, 15 U.S.C. Secs. 636(j)(10) and 637(a). That rule

finalized SBA's implementation of the Business Opportunity Development

Reform Act of 1988, Public Law 100-656, 102 Stat. 3853. SBA published

technical amendments to this rule on August 27, 1990, 55 FR 34901.

Several statutory changes have been made affecting the 8(a) program

since these regulatory revisions and need to be incorporated into SBA's

regulations. This final rule is needed to remove the inconsistencies

that currently exist in SBA's regulations due to these statutory

provisions.

Section 203 of the Small Business Administration Reauthorization

and Amendments Act of 1990, Public Law 101-574, 104 Stat. 2818,

statutorily amended SBA's requirement that an applicant concern be in

business for two years in order for it to be eligible for Program

Participation. That law authorizes SBA to establish a minimum time in

business requirement only if a possible waiver of that requirement is

also provided. SBA's regulation concerning the two-year in business

requirement, contained in 13 CFR 124.107, needs to be amended to

identify the criteria for a waiver to the two-year in business rule.

Confusion among 8(a) applicants has arisen because this regulation has

not yet been amended.

Public Law 101-574 also made three statutory changes, relating to

participation in the 8(a) program by tribally-owned concerns, that need

to be implemented in the regulations. The first of these changes

overrides SBA's previous regulation concerning affiliation of tribally-

owned concerns for size purposes. Section 204 of Public Law 101-574,

104 Stat. 2819, amended section 7(j)(10)(J)(ii) of the Small Business

Act, 15 U.S.C. 636(j)(10)(J)(ii), to specify that, for purposes of the

8(a) program, the size of a tribally-owned concern generally shall be

determined without regard to its affiliation with the tribe, any entity

of the tribal government, or any other business enterprise owned by the

tribe. SBA's previous regulation permitted affiliation to be found with

other tribally-owned entities based on one or more relationships other

than common tribal ownership. This final rule incorporates the

statutory language into SBA's regulations. The other two statutory

changes pertain to 8(a) joint ventures between tribally-owned concerns

and large businesses. Section 205 of Public Law 101-574, 104 Stat.

2819-20, increased the number of 8(a) joint ventures authorized between

tribally-owned concerns and large businesses from two to five and

extended, through September 30, 1994, the authorization for tribally-

owned 8(a) concerns to enter joint ventures with large businesses. This

final rule incorporates these changes into the regulations.

Additionally, Section 206 of Public Law 101-574, 104 Stat. 2820,

extended SBA's surety bond waiver authority in section 7(j)(13)(D)(iii)

of the Small Business Act, 15 U.S.C. 636(j)(13)(D)(iii), from October

1, 1992, to October 1, 1994. This final rule adds that statutory

revision.

Section 207 of Public Law 101-574, 104 Stat. 2820, amended section

8(a)(1) of the Small Business Act, 15 U.S.C. 637(a)(1), to authorize

SBA to award a competitive 8(a) contract to a concern whose term of

participation in the 8(a) program has expired if the concern was an

eligible Program Participant on the date specified for receipt of

offers contained in the contract solicitation. This final rule

incorporates this provision into the regulations.

Finally, a second, contract-specific waiver to SBA's

nonmanufacturer rule (the requirement that, for a supply contract, a

small business concern that is not itself the manufacturer must provide

the product of a small business manufacturer) is added to the

substantive size regulations for both 8(a) and small business set-aside

contracts. This change incorporates the statutory change to the Small

Business Act made by Section 210 of Public Law 101-574, 104 Stat. 2821.

While the procedures for requesting and receiving such a waiver were

published as a proposed rule in the Federal Register on September 21,

1993, 58 FR 48981, a change is also needed to the substantive size

rules recognizing this type of waiver.

In addition to these changes (necessitated by Public Law 101-574),

Section 10 of the Alaska Land Status Technical Corrections Act of 1992,

Public Law 102-415, 106 Stat. 2112, 2115, eliminated the need for SBA

to determine whether a specific Alaska Native Corporation (ANC) is

economically disadvantaged in determining the eligibility of an ANC-

owned business entity for the 8(a) program. This final rule deletes

SBA's regulatory provision requiring SBA to determine the economic

disadvantage of an ANC prior to determining eligibility of an ANC-owned

business entity. SBA's regulations concerning eligibility

determinations in competitive 8(a) acquisitions are not consistent with

the FAR regarding the same subject. The FAR authorize procuring agency

contracting officers, in negotiated competitive 8(a) acquisitions, to

submit to SBA for an eligibility determination only the 8(a) offeror

determined by the procuring agency to be the apparent successful

offeror. 48 CFR 19.805-2(c)(2). SBA's regulations have permitted a

procuring agency contracting officer to submit all 8(a) offerors

determined to be in the competitive range for eligibility

determinations. The conflict in the two regulations has caused

confusion and friction between SBA and procuring agencies. SBA believes

that the FAR approach to eligibility determinations in negotiated

competitive 8(a) acquisitions is the better approach and adopts it in

this final rule.

This final rule corrects a typographical error in the 8(a)

regulations which, in a cross reference, inadvertently refers to the

``developmental'' stage of program participation instead of the

``transitional'' stage of program participation. It also changes

references to the ``Office of Program Eligibility'' or ``OPE'' to the

``Division of Program Certification and Eligibility'' or ``DPCE.''

Section by Section Analysis

The following is a section by section analysis of each provision of

SBA's regulations that is affected by this final rule:

Paragraphs 121.1102(a) and 124.112(c)(2) are amended to take into

account the statutory amendments to the Small Business Act regarding

affiliation of tribally-owned 8(a) concerns made by Section 204 of the

Small Business Administration Reauthorization and Amendments Act of

1990, Public Law 101-574, 104 Stat. 2814, 2819. This statute specifies

that, in determining the size of a small business concern owned by a

socially and economically disadvantaged Indian tribe (or a wholly owned

business entity of such tribe) for either 8(a) program entry or

contract award, each firm's size shall be determined independently

without regard to its affiliation with the tribe, any entity of the

tribal government, or any other business enterprise owned by the tribe,

unless the Administrator determines that one or more such tribally-

owned business concerns have obtained, or are likely to obtain, a

substantial unfair competitive advantage within an industry category.

Prior to this statutory change, ownership by an Indian tribe, by

itself, would not cause SBA to determine an 8(a) applicant/concern to

be affiliated with the tribe or other entities owned by the tribe.

Affiliation with other tribally-owned entities could have been caused

by circumstances other than common tribal ownership (for example,

affiliation through common management or common facilities). The two

relevant paragraphs of SBA's regulations (one in the size regulations

and one in the 8(a) regulations) are amended to provide for the

statutory change.

Paragraphs 121.906(b)(3) (for small business set aside contracts)

and 121.1106(b)(3) (for 8(a) contracts) are amended to provide for a

second exception to SBA's nonmanufacturer rule. The nonmanufacturer

rule requires that, for a supply contract, a small business that is not

itself the manufacturer of the items being procured must supply the

product of a small business manufacturer. SBA's regulations previously

provided for an exception to this requirement where there are no small

business manufacturers or processors in the Federal market. Section 210

of Public Law 101-574, 104 Stat. 2814, 2821, amended the Small Business

Act to authorize a second exception where the Administrator accepts a

determination by the contracting officer that no small business

manufacturer or processor reasonably can be expected to offer a product

meeting the specifications (including period for performance) required

of an offeror by the solicitation. The regulations are amended to

incorporate this statutory change.

Section 124.107 is amended to take into account the statutory

amendments to SBA's two-year in business rule made by Section 203 of

the Small Business Administration Reauthorization and Amendments Act of

1990, Public Law 101-574, 104 Stat. 2818-19. The statutory criteria for

waiver of the two-year rule are repeated in this final rule. In

addition, the rule clarifies that, if an applicant concern has

performed only government contracts or only private sector contracts,

the applicant's performance on those contracts alone will be reviewed

to determine whether the applicant possesses a record of successful

performance. This implementation avoids the possible interpretation

that a waiver is available only to those concerns that have

successfully performed both public and private sector contracts.

Paragraph 124.111(a)(2)(ii) is amended to correct a typographical

error. The paragraph speaks of maintaining eligibility in the

transitional stage of Program Participation, but cross references to

information on the developmental stage of Program Participation. This

final rule amends the cross reference to refer to the transitional

stage of Program Participation.

Paragraphs 124.112(a)(1) and 124.112(c) are amended to include a

reference to entities which are themselves owned by wholly-owned

business entities of Indian tribes, in accord with section 204(b) of

Public Law 101-574, 104 Stat. 2819.

Paragraph 124.112(a)(3) is amended to eliminate the regulatory

provision requiring SBA to determine whether a specific ANC is

economically disadvantaged. Section 10 of the Alaska Land Status

Technical Corrections Act of 1992, Public Law 102-415, 106 Stat. 2112,

2115, amended Section 29(e) of the Alaska Native Claims Settlement Act

(43 U.S.C. 1626(e)) to provide as follows:

(e)(1) For all purposes of Federal law, a Native Corporation

shall be considered to be a corporation owned and controlled by

Natives and a minority and economically disadvantaged business

enterprise if the Settlement Common Stock of the corporation and

other stock of the corporation held by holders of Settlement Common

Stock and by Natives and descendants of Natives, represents a

majority of both the total equity of the corporation and the total

voting power of the corporation for the purposes of electing

directors.

This rule would merely put the substance of this statutory provision

into SBA's 8(a) regulations.

Redesignated paragraph 124.112(c)(2)(iv) and paragraph

124.321(h)(2) are both amended to increase from two to five the number

of 8(a) joint venture opportunities that an 8(a) tribally-owned concern

is authorized to enter into with large business concerns. These

amendments implement the change made to the Small Business act by

Section 205 of Public Law 101-574, 104 Stat. 2814, 2819.

Paragraph 124.305(f) is amended to reflect an extension of the

surety bond exemption authority from October 1, 1992 to October 1,

1994. This change is statutorily authorized by Section 206 of Public

Law 101-574, 104 Stat. 2820.

Section 124.307 is amended by adding a new paragraph (e) and

Section 124.311 is amended by adding a new paragraph (i) to authorize

SBA to award a competitive 8(a) contract to a concern whose program

term has expired if the concern was an eligible Program Participant on

the date specified in the contract solicitation for the receipt of

offers. The change in Sec. 124.307 recognizes the authority established

in Sec. 124.311(i) as an exception to the general requirement that an

8(a) contract can be awarded only to a concern that is still a current

Program Participant on the date of contract award. These changes are

necessary to take into account the statutory revisions made by Section

207 of Public Law 101-574, 104 Stat. 2820. Consistent with these

changes, with current Sec. 19.805-2(c) of the Federal Acquisition

Regulations (FAR), Title 48 of the Code of Federal Regulations, and

with current SBA policy, Sec. 124.311(f)(4) is also amended to state

that eligibility in the competitive 8(a) context is to be determined as

of the date of a Participant's submission of its initial offer which

includes price. In other words, so long as a firm was eligible on the

date that it submitted its initial offer which included price, it would

remain eligible despite changes in circumstances prior to award. So

long as the award of the contract would be within the Participant's

approved support level on the date that it submits its initial offer

which includes price, the receipt of additional 8(a) contract support

after that date and prior to award would not affect the concern's

support level eligibility.

Paragraph 124.311(f)(4) also is amended to make SBA's regulations

consistent with the FAR in connection with eligibility determinations

for competitive 8(a) awards. While it is SBA's view that because SBA is

the agency charged with the responsibility of implementing the Small

Business Act, including the 8(a) program, its regulations take

precedence over the FAR in all matters interpreting the Small Business

act, SBA believes that the FAR's approach to eligibility determinations

in the context of negotiated procurements is the better approach. The

change to SBA's regulations is needed to clear up the confusion that

exists with procuring agency contracting officers and SBA personnel

that are attempting to implement conflicting provisions of the FAR and

SBA's regulations. SBA's regulations had permitted a procuring agency

to submit all offerors within the competitive range. Under the approach

taken by the FAR, and adopted in this rule by SBA, in a negotiated

competitive 8(a) procurement, the procuring agency would submit to SBA

for an eligibility determination only the 8(a) offeror determined by

the procuring agency to be the apparent successful offeror.

SBA believes that the revised rule is more consistent with the way

size eligibility is determined in the small business set-aside context.

In that area, when requested by the procuring agency contracting

officer, SBA will determine the size eligibility only of the apparent

successful offeror, not of some broader group of offerors. For 8(a)

competitive requirements, if the apparent successful offeror is found

to be ineligible, SBA then would go to the second highest ranked

offeror, and so on, until an eligible 8(a) Participant was found. This

rule would not preclude procuring agencies from sending a list of

highest to lowest ranked Participants as determined by the procuring

agency, but it would limit SBA's eligibility determination to one firm

at a time until an eligible offeror was determined. Because this

provision is a procedural rule, it is adopted as a final rule without

the necessity of a proposed rule and an opportunity for public comment.

Paragraph 124.321(h)(3) is amended by changing the sunset date for

authorizing 8(a) joint ventures between tribally-owned 8(a) concerns

and large businesses from September 30, 1991 to September 30, 1994.

Paragraph 124.601(c) is amended by changing the reference to the

procedures for size protests for the Department of Defense's Small

Disadvantaged Business program from ``Sec. 121.9'' to ``Secs. 121.1601-

121.1608.'' The reference to Sec. 121.9 contained in Sec. 124.601(c) is

a reference to the procedures relating to size protests and requests

for size determinations. At the time Sec. 124.601(c) was added to SBA's

regulations, Sec. 121.9 was entitled ``Protest of small business

status.'' 13 CFR 121.9 (1989). When SBA's size regulations were amended

in December 1989, see 54 Fed. Reg. 52634 (Dec. 21, 1989), the reference

in Sec. 124.601(c) was not correspondingly changed. The substance of

former Sec. 121.9 is currently contained in Secs. 121.1601 through

121.1608. These sections are now entitled ``Procedures for Size

Protests and Requests for Formal Size Determinations.'' 13 CFR

121.1601-121.1608 (1993). Thus, this change merely updates the citation

to SBA's size protest procedures.

Paragraphs 124.602(f), 124.602(g), 124.604, 124.605(a)(3), and

124.605(c)(1) are amended by changing the phrase ``Office of Program

Eligibility'' to read ``Division of Program Certification and

Eligibility.'' Paragraphs 124.602(g), 124.604, 124.607(d), 124.608(a),

124.608(b), 124.608(b)(1), 124.608(b)(3), 124.608(c), 124.609(a), and

124.609(b) are amended by changing the term ``OPE'' to read ``DPCE.''

These changes are intended to reflect an internal restructuring of

SBA's Office of Minority Small Business and Capital Ownership

Development.

Compliance With Executive Orders 12612, 12778, and 12866, the

Regulatory Flexibility Act (5 U.S.C. 601, et seq.), and the Paperwork

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

SBA certifies that this final rule will not be considered a

significant rule within the meaning of Executive Order 12866 and will

not have a significant economic impact on a substantial number of small

entities within the meaning of the Regulatory Flexibility Act, 5 U.S.C.

601, et seq. This rule is necessary to resolve several points relating

to eligibility for SBA's Section 8(a) program. It will have no effect,

however, on the amount or dollar value of any contract requirement or

the number of requirements reserved for the 8(a) program. As such, it

is not likely to have an annual economic effect of $100 million or

more, result in a major increase in costs or prices, or have a

significant adverse effect on competition or the United States economy.

For purposes of the Paperwork Reduction Act, 44 U.S.C. Ch. 35, SBA

certifies that this final rule contains no new reporting or record

keeping requirements.

For purposes of Executive Order 12612, SBA certifies that this rule

does not have any federalism implications warranting the preparation of

a Federalism Assessment.

For purposes of Executive Order 12778, SBA certifies that this rule

is drafted, to the extent practicable, in accordance with the standards

set forth in Section 2 of that Order.

List of Subjects

13 CFR Part 121

Government procurement, Government property, Grant programs--

business, Loan programs--business, Small businesses.

13 CFR Part 124

Government procurement, Minority businesses, Tribally-owned

concerns, Hawaiian natives, Reporting and recordkeeping requirements,

Technical assistance.

For the reasons set forth above, parts 121 and 124 of Title 13,

Code of Federal Regulations, are amended as follows:

PART 121--[AMENDED]

1. The authority citation for 13 CFR part 121 continues to read as

follows:

Authority: 15 U.S.C. 632(a), 634(b)(6), 637(a) and 644(c).

2. Section 121.906(b)(3) is revised to read as follows:

Sec. 121.906 Manufactured products under small business set-aside

procurements.

* * * * *

(b) * * *

(3) The Administrator may waive the requirement set forth in

paragraph (b)(1)(iii) of this section that the end item must be

manufactured by a small business manufacturer, for a particular

procurement, after reviewing and accepting a determination by the

contracting officer that no small business manufacturer or processor

reasonably can be expected to offer a product meeting the

specifications (including period for performance) required of an

offeror by the solicitation, or for a product or class of products,

after determining that no small business manufacturer or processor is

available to participate in the Federal procurement market.

* * * * *

3. Section 121.1102 is amended by adding new paragraph (a)(3) to

read as follows:

Sec. 121.1102 Establishment of the size standard.

(a) * * *

(3) In determining the size of a small business concern owned by a