Small Business Size Regulations; Minority Small Business and Captial Ownership Development Assistance

SMALL BUSINESS ADMINISTRATION

13 CFR Parts 121 and 124

Small Business Size Regulations; Minority Small Business and

Captial Ownership Development Assistance

AGENCY: Small Business Administration.

ACTION: Final rule.

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SUMMARY: The Small Business Administration (SBA) hereby 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, 15 U.S.C. 636(j)(10), 637(a). This final rule

amends both eligibility requirements for and contractual assistance

provisions within the 8(a) program. It is designed to streamline the

operation of the 8(a) program and to ease certain restrictions

perceived to be burdensome on Program Participants.

EFFECTIVE DATE: Except for Sec. 124.311(a)(2), this rule is effective

on June 7, 1995.

Section 124.311(a)(2) shall be effective August 7, 1995. It is

applicable for all 8(a) requirements accepted by SBA on or after August

7, 1995.

FOR FURTHER INFORMATION CONTACT:

Michael P. McHale, Deputy Associate Administrator for Minority

Enterprise Development, (202) 205-6410.

SUPPLEMENTARY INFORMATION: On August 30, 1994, SBA published a proposed

rule in the Federal Register (59 FR 44652) to amend both eligibility

requirements for and contractual assistance provisions within the SBA's

section 8(a) program. That proposal called for a 30-day comment period

which was scheduled to close on September 29, 1994. In response to

concerns raised that the 30-day comment period may not have been a

sufficient amount of time to permit proper and thoughtful public

comments, SBA, on October 27, 1994, extended the comment period through

November 28, 1994. 59 FR 53947.

SBA received a total of 175 comments in response to its proposed

rule. After reviewing these comments, SBA now issues this final rule.

SBA proposed this rule initially in order to simplify the operation

of the [[Page 29970]] 8(a) program, to make clarifying changes to the

regulations deemed necessary through experience, and to permit program

participants to proceed in a more entrepreneurial manner, while

maintaining a high degree of program integrity. After considering the

comments received, and after further review of all proposed changes,

SBA has concluded that the number and scope of the proposed changes was

broader than was necessary to achieve SBA's immediate and most

important objectives. Accordingly, this final rule is limited to only

those changes that will streamline the operation of the 8(a) program or

are particularly significant, as set forth below. The remaining

proposed changes will be considered as part of a more far-reaching

review of the 8(a) program and will not be implemented at the present

time.

This rule makes eleven significant revisions to current

regulations, as follows:

(1) It permits participation in the 8(a) program by qualified small

businesses owned by Community Development Corporations to an extent

that is not consistent with the requirements of the 8(a) program as

imposed by the Small Business Act.

(2) It simplifies 8(a) contracting procedures by eliminating the

distinction established in SBA's regulations between ``local buy'' and

``national buy'' requirements, except with regard to construction

projects.

(3) It eliminates the restriction on the dollar value of 8(a)

contracts received by Program Participants previously imposed by SBA

regulations.

(4) It eliminates the separate treatment for applying the

requirements for 8(a) competitive procurements which has existed for

indefinite quantity or indefinite delivery type contracts.

(5) It eliminates the separate treatment for individuals who are

owners and participants of 8(a) concerns in the developmental stage of

program participation so that they, like owners and principals of 8(a)

concerns in the transitional stage, are eligible if their includable

net worth is $750,000 or less.

(6) It streamlines procedures by eliminating the requirement that

an 8(a) concern be notified twice of a termination or graduation

action.

(7) It makes it easier for an 8(a) firm to add SIC codes to its

business plan. Previously, concerns would have to show that a proposed

new business SIC was a logical progression from its existing SIC. Under

the new regulations, a concerned need merely show that it has a sound

business explanation for requesting the new SIC code.

(8) It eases the ownership restrictions placed on former Program

Participants.

(9) It streamlines SBA regulations by eliminating provisions

dealing with SBA's expired authority to grant exemptions to the

requirements of the Walsh-Healey Act and Miller Act.

(10) In response to a Court of Federal Claims directive, it

establishes eligibility requirements for small disadvantaged business

joint ventures.

(11) It reduces reporting requirements imposed on program

participants.

Each of these changes is discussed below in SBA's summary of and

response to the comments received to its August 30, 1994 proposed rule.

This final rule also makes various technical changes to the regulations

necessary to implement these significant revisions.

Summary of Issues Raised by Public Comment

Initially, many commenters objected to the brevity of the 30-day

comment period and requested that SBA extend it. As a result of these

requests, SBA extended the comment period until November 28, 1994.

SBA received many comments regarding provisions for its 8(a)

regulations that were not the subject of proposed changes.

Because such comments are outside the scope of this rulemaking

process, SBA does not respond to them in this final rule. One commenter

objected to the process by which the regulations were proposed on the

grounds that SBA failed to adhere to economic analysis, planning,

review, and comment requirements mandated by Executive Order 12866. SBA

maintains that its issuance of the proposed rule was proper. SBA

submitted the proposed rule to the Office of Management and Budget

(OMB) in conformity with the requirements of the Executive Order. OMB

did not believe that a full analysis of the proposed rule under

Executive Order 12866 was necessary and directed SBA to publish the

rule without its review under the Executive Order.

Addition of CDC-owned businesses to the 8(a) Program.

The rule adds a new Sec. 124.114 which specifically authorizes CDC-

owned small business concerns to participant in the 8(a) program. The

regulation prohibits more than one concern with the same primary

industry classification owned by the same CDC from entry into the

program. It also establishes that disadvantaged individuals involved in

the management and control of the business are not considered to have

used up their eligibility under Sec. 124.108(c) even if their personal

disadvantage is used to establish eligibility of the CDC-owned concern.

This rule also makes a technical amendment to Sec. 121.401(b) that

recognizes that concerns owned by a Community Development Corporation

(CDC), authorized by 42 U.S.C. 9805 et seq., are not deemed to be

affiliated with the CDC. This exemption from affiliation is contained

in the proposed rule at Sec. 124.114(b). SBA believes that it should

also appear in this section as well. In making this amendment, the

final rule separates the various provisions of Sec. 121.401(b) into

distinct paragraphs for clarity and ease of use.

This final rule adds definitions of the term ``CDC-owned concern''

and ``Community Development Corporation or CDC'' to Sec. 124.100.

Finally, the rule makes minor technical changes to Secs. 124.101(a),

124.101(b), 124.102(a), 124.103, 124.104, and 124.109(d) in order to

recognize the eligibility of CDC-owned concerns for participation in

the 8(a) program.

A number of commenters objected to the participation of CDCs in the

8(a) program generally. As noted in the proposed rule, the

participation of CDCs in the 8(a) program is required by statute and

cannot be administratively eliminated by SBA.

In addition, one commenter, an association representing CDCs, urged

that SBA not require that the management and control of a CDC-owned

business be in the hands of one or more disadvantaged individuals. The

commenter pointed out that CDCs may acquire already existing business

concerns, and that it may not be a prudent business decision to

immediately replace nondisadvantaged managers of such a concern in

order to meet 8(a) eligibility requirements. After further review, SBA

has decided to revise the rule.

In issuing regulations implementing the inclusion of CDCs pursuant

to 42 U.S.C. 9815, SBA has analogized CDCs to Indian tribes. In the

case of an applicant concern that is tribally-owned, section

8(a)(4)(B)(ii) of the Small Business Act, 15 U.S.C. 637(a)(4)(B)(ii),

permits the management and daily business operations of the concern to

be controlled by one or more members of an economically disadvantaged

Indian tribe. Thus, a tribally-owned concern need not be controlled by

an individual determined to be socially and economically disadvantaged.

SBA believes that similar treatment can be provided to CDC-owned

companies. This result is also consistent with the treatment of

concerns owned by Alaska Native Corporations (ANCs), which are entities

established for the economic [[Page 29971]] development of their

villages or regions. ANC-owned concerns are not required to be

controlled by Alaska Natives in order to participate in the 8(a)

program. The Alaska Native Claims Settlement Act provides that a

concern owned by an ANC shall be deemed to be both owned and controlled

by such ANC. Thus, the final rule provides that a concern that is at

least 51% owned by a CDC shall be deemed to be controlled by such CDC

and eligible for participation in the 8(a) program, provided that it

meets other eligibility criteria and its management and daily business

operations are conducted by one or more individuals determined to have

managerial or technical experience and competency directly related to

the primary industry in which the applicant concern is seeking

certification. Because of this change, the requirement that a CDC-owned

concern be controlled by socially and economically disadvantaged

individuals is deleted from the final rule.

Simplifying 8(a) Contracting Procedures by Eliminating the Distinction

Established in SBA's Regulations Between ``Local Buy'' and ``National

Buy'' Requirements, Except With Regard to Construction Projects

The rule eliminates the definitions for ``local buy'' and

``national buy'' requirements from Sec. 124.100. The limitations in

former Sec. 124.311 (h)(3) and (h)(4) effecting who may bid on local

contracts has been eliminated, except for construction contracts. All

requirements other than construction requirements will now be open to

eligible 8(a) Participants nationally. Construction requirements are

exempt from this change because section 8(a)(11) of the Small Business

Act, 15 U.S.C. 637(a)(11), requires, ``to the maximum extent

practicable,'' that 8(a) construction contracts ``be awarded within the

county or State where the work is to be performed.'' The final rule

limits competition for 8(a) construction contracts to those Program

Participants within the geographical boundaries of one or more SBA

district offices. SBA believes that a Program Participant may be

considered as being located within a geographical boundary if it

regularly maintains an office which employs at least one full-time

individual within that geographical boundary. SBA also believes that a

procuring agency may offer a local sole source 8(a) construction

requirement to SBA on behalf of a concern that regularly maintains an

office which employs at least one full-time individual within that

geographical boundary.

Several commenters expressed concern that eliminating the

distinction between local and national buy requirements will adversely

affect new or smaller 8(a) firms. Based on its experience with the

operation of the present regulations, SBA believes that the adverse

effect on new and smaller 8(a) firms will be negligible. In addition,

SBA believes that the elimination of the local/national buy distinction

will eliminate artificial barriers and promote national competition,

something necessary for the survival of 8(a) concerns once they leave

the program.

One commenter claimed that the elimination of the local/national

buy distinction would restrict procurement opportunities to all but

those firms located around major procurement centers such as

Washington, DC, and Los Angeles, CA. SBA believes that the physical

location of firms will have little bearing on where they can market

themselves. In fact, 8(a) firms will have more opportunities to market

themselves because they will not be restricted by district or regional

boundaries.

One Federal agency opposed the elimination of the definitions for

local and national buys because it believed that such elimination would

create an increased opportunity for fraud and abuse. SBA does not

believe fraud and abuse will increase simply by permitting 8(a)

concerns to seek 8(a) contracts nationwide. SBA remains committed,

however, to opposing any kind of fraud in the 8(a) program, and will

work with procuring agencies to thwart such possibilities.

Eliminating Support Requirements

Section 124.307 is amended by redesignating paragraph (d) as

paragraph (e) and by adding a new paragraph (d) that eliminates

approved 8(a) support levels as a basis for denying 8(a) contract

awards in excess of those levels. Most of the commenters supported the

proposed rule. One commenter recommended that 124.307(d) be amended by

adding the clause ``or approved remedial plan'' after the words

``competitive business mix'' and before the words ``imposed by

124.312'' for clarification. SBA believes that this is a logical

clarification of the intent of this proposed rule, and as such, it is

to be incorporated into the final rule.

The SBA Inspector General recommended that there should be some

type of support level requirements. He urged that if annual levels are

impractical, SBA should establish an overall dollar limit of 8(a)

contracts that any individual company can receive. According to the

comment, this would simplify administration of the program concerning

continued eligibility and would eliminate concentration of 8(a)

contracts within a small number of companies. SBA believes that a

maximum support level, whether on an annual or some other basis, is not

necessary with careful enforcement of competitive business mix

requirements. SBA also believes that support levels unnecessarily

impede the growth of 8(a) firms that are in full compliance with the

mix requirements. Therefore, this recommendation was not incorporated

into the final rule.

Indefinite Quantity, Indefinite Delivery

This rule also amends Sec. 124.311(a) concerning how the

competitive threshold requirements should be applied for indefinite

quantity and indefinite delivery (IDIQ) requirements. Before this

amendment, Sec. 124.311(a)(2) specified that ``[f]or purposes of

indefinite quantity/delivery contracts, the thresholds will be applied

to the guaranteed minimum value of the contract.'' Based on its

experience with the rule, SBA now believes this provision to be

unacceptable because of the wide differences commonly occurring between

the ``guaranteed minimum'' amounts on procurements offered to the 8(a)

program and the amounts actually expended under the procurements.

The prior regulation was subject to substantial criticism. Under

the prior rule, procuring agencies could offer very large procurement

requirements to the 8(a) program as indefinite quantity type

requirements with guaranteed minimum amounts below the applicable 8(a)

competitive threshold in order that such contracts could be procured on

a sole source basis, even though the procurement would very likely

exceed the applicable competitive threshold during the performance of

the contract. SBA believes that requirements that traditionally were

procured through other contract types were being offered and accepted

into the 8(a) program as indefinite quantity requirements solely to

take advantage of the guaranteed minimum rule and avoid the necessity

for competition. In order to eliminate this potential abuse, SBA

proposed to amend its regulation to specify that the competitive

threshold requirements which would be applied for all types of

contracts, including quantity/delivery contracts, would be the

Government estimate of the requirement, including options, as

identified by the procuring agency.

SBA received 96 comments regarding this proposal. Most of the

comments [[Page 29972]] objected to the proposed change. Many comments

suggested that the change would result in a decline in the number of

requirements being offered to the 8(a) program, and that this would

increase costs to Program Participants as they would have to compete

for requirements outside the confines of the 8(a) program that were

previously accepted as sole source 8(a) awards.

Many of the individual comments that opposed the proposed change

were reflected also in the comments made by the National Association of

Minority Business (NAMB). NAMB opposed the change because it contended

that many IDIQ contracts do not exceed the guaranteed minimum value,

and that many procuring activities do not exercise options on such

contracts. Accordingly, they believed that the guaranteed minimum

amount is a more accurate reflection of the value of the contract than

any other figure. NAMB also claimed that the expansion work under an

IDIQ contract is the direct result of strong performance by the 8(a)

company, and that the proposed change would, therefore, penalize 8(a)

firms for good performance.

SBA's Inspector General and the Department of the Treasury

submitted strong comments in support of the proposed change, citing

various abuses they have found conducting periodic reviews of 8(a)

contracts.

SBA shares some of the same concerns voiced by NAMB.

Clearly, not all IDIQ contracts ultimately exceed the guaranteed

minimum amount. Many commenters, NAMB among them, argue that most

contracts do not exceed the guaranteed minimum amount and some fall

short even of that figure. Certainly, reliance on a contract's maximum

authorized amount as a basis for determining the contract's value could

leave small disadvantaged firms with inflated expectations and

adversely affect their business development under the 8(a) program. It

is for these same reasons that SBA initially adopted the separate

competitive threshold requirement for IDIQ requirements.

SBA now believes, however, that the frequency of abuses to the 8(a)

procurement process caused by the inappropriate use of IDIQ contracts

outweighs the possible disruption to business planning caused when a

guaranteed minimum amount is not exceeded. Because of the overriding

need for controlling the potential for abuse in this area, SBA adopts

the proposed language in this final rule, although the formatting of

the section is changed for clarity from the proposed rule.

In addition, as pointed out in the NAMB analysis, SBA believes that

a majority of IDIQ contracts, even when measured by the Government

estimate, do not exceed the applicable competitive threshold amount.

Because most IDIQ contracts will not exceed the competitive threshold,

the change made in this final rule should not greatly affect the number

of requirements offered to the 8(a) program.

Other commenters felt that no change was needed to the IDIQ

requirement because the newly enacted Government-wide Small

Disadvantaged Business (SDB) program will consolidate competitive

requirements and will result in the entry of fewer firms into the 8(a)

program. However, SBA does not believe that the enactment of a

Government-wide SDB program lessens SBA's responsibility to deal with

the inappropriate use of 8(a) IDIQ contracts.

Because of the change concerning IDIQ requirements, one commenter

was concerned that procuring agencies would circumvent the competitive

threshold requirement, and, thus, perpetuate past abuses of the

program, by dividing one contract that exceeds the threshold amount

into several smaller contracts, each below the competitive threshold

amount and all to be awarded as sole source 8(a) contracts to the same

Program Participant. SBA agrees that such a division would not be

appropriate where a procuring agency seeks to award one large

requirement to one 8(a) concern through a series of smaller sole source

8(a) awards. SBA has made a change to the regulation to take this

concern into account. Specifically, the new provision will state that

an 8(a) requirement with an estimated value exceeding the applicable

competitive threshold amount shall not be divided into several

requirements for lessor amounts in order to use 8(a) sole source

procedures for award to a single contractor. SBA does not, however,

believe that it would be inappropriate for a procuring agency to divide

a large contract into smaller sole source contracts where different

Program Participants would be awarded the smaller contracts. Such an

action would be consistent with the developmental purposes of the 8(a)

program and with the statutory requirement that SBA equitably

distribute 8(a) awards.

Under the prior rule, contracting agencies were obligated to let

contracts competitively among 8(a) concerns if the estimated value of

the contract was more than $5 million for manufacturing work or more

than $3 million for all other types of work. Where the anticipated

price of the contracts was less than this threshold, the contracting

agency was permitted to use a sole source even when the negotiated

contract amount exceeded the threshold. A requirement of good faith on

the part of the contracting agencies was implicit in the prior rule.

The new rule makes the good faith requirement explicit, and requires

that the ultimate price arrived at through negotiations not be

significantly higher than the competitive threshold amount.

Economic Disadvantage Threshold for Individuals Who Are Principals or

Owners of Concerns in the Developmental Stage

This rule also amends Sec. 124.111(a)(2) to establish a $750,000

net worth economic disadvantage threshold for Program Participants in

either the development or transitional stage. Previously, concerns in

the developmental stage were subject to possible termination or

graduation from the program if their principals had an includable net

worth in excess of $500,000. This rule operated to penalize success in

the program and to discourage entrepreneurship and risk-taking. Under

the amended rules, concerns in the developmental stage have the same

threshold as concerns in the transitional stage. SBA received no

objections to this proposed elimination of a different net worth figure

for firms in the developmental stage of program participation.

Streamlining Termination and Graduation

Sections 124.208(c) and 124.209(b) streamline the procedures

governing graduation and termination of 8(a) Program Participants

respectively. This rule eliminates the second letter of notification

and the second 45 day response period provided in Sec. 124.208(c) and

Sec. 124.209(b). SBA received no objections to this amendment, which

will improve SBA's efficiency by eliminating an unneeded procedural

step.

Making it Easier To Add SIC Codes to a Concern's Business Plan

Section 124.302 eases the restrictions on adding SIC codes once a

concern is admitted to the 8(a) program, and shortens the time it takes

SBA to respond to a request for a change in SIC code designations from

45 days to 30 days. Henceforth, a concern need not show that the new

SIC Codes will be a logical extension of the old ones; just that there

is a sound business reason for them. These amendments will make it

easier for 8(a) concerns to maintain a diversified portfolio of

products and [[Page 29973]] services. No comments were received

regarding these provisions, and they remain unchanged in the final

rule.

Easing Ownership Restrictions on Former Program Participants

Section 124.103 is amended to permit a former Program Participant

(except those that have been terminated from 8(a) program participation

pursuant to Sec. 124.209) to have an equity ownership interest of up to

20 percent in a current 8(a) concern in the same or similar line of

business. SBA believes that allowing such ownership, and thus easing

the previous restriction imposed by SBA, will enhance the development

of both current and former 8(a) Participants. SBA received forty-four

comments in support of this provision. Two commenters, however, were

concerned that this change would permit current 8(a) concerns to become

``fronts'' for former 8(a) concerns, and, thus, prolong their

participation, albeit indirect, in the 8(a) program. SBA believes that

there are enough safeguards in place to protect against abuse of this

sort. The regulations require that management and control be in the

hands of the disadvantaged owners of current 8(a) concerns. Failure to

meet this requirement, which is confirmed yearly during the annual

review process, is grounds for termination from the 8(a) program under

Sec. 124.209 and may cause termination of previously awarded 8(a)

contracts under Sec. 124.317. In addition, Sec. 124.314 requires the

current 8(a) concern itself (and not a subsidiary of or another concern

affiliated with the 8(a) concern) to perform specified percentages of

awarded 8(a) contracts. Thus, a current 8(a) participant could not

shift performance of an 8(a) contract to the former 8(a) concern

partial owner. Finally, one commenter recommended that SBA increase the

allowable equity ownership interest by a former Program Participant to

35%. SBA believes that such an increase could give former Program

Participants undue influence in current 8(a) Participants, and, thus,

rejects it.

Streamlining Regulations by Removing References to Expired Authority

The final rule repeals Sec. 124.304, (implementing statutory

authority given SBA to grant Program Participants in the developmental

stage of program participation a maximum of two exemptions to the

requirements of the Walsh-Healey Act). It also repeals Sec. 124.305

(implementing statutory authority given SBA to grant Program

Participants exemptions from Miller Act bonding requirements). The rule

reserves these sections. The former legislative authority expired on

October 1, 1992, and the latter on October 1, 1994.

Establishing Joint Venture Rules for Small Disadvantaged Businesses

The final rule institutes criteria for joint ventures for small

disadvantaged business (SDB) set-asides and for SDB evaluation

preferences. The majority of such joint venture's earnings must accrue

to the socially and economically disadvantaged individuals in the small

disadvantaged business, and disadvantaged individuals must own at least

51% of the joint venture as a whole. Thus, as the examples make

explicit, where a small disadvantaged concern which is 51% owned by one

or more disadvantaged individuals enters a joint venture with a small

concern which is 100% owned by nondisadvantaged individuals, the joint

venture is not eligible even if the small disadvantaged concern earns

90% of the contract's proceeds, since 51% of 90% is only 45.9%.

SBA received seven comments pertaining to the section. For the most

part, the commenters concurred with the provisions proposed by SBA.

However, some commenters urged more restrictive provisions to protect

against the possibility that a small disadvantaged business will

``front'' for a nondisadvantaged business. SBA has concluded that the

present language, which requires that both a majority of the joint

venture's proceeds and 51% of its ownership accrue directly to

disadvantaged individuals, is sufficient protection against abuse.

Eliminating Quarterly Reporting Requirements

Section 124.501 adds a new paragraph (c) and redesignates current

paragraph (c) as paragraph (d). The newly established Sec. 124.501(c)

requires the submission of annual audited financial statements only by

larger 8(a) Program Participants, those with revenues in excess of $5

million. The requirement to submit such financial statements is not a

change in SBA policy. The requirement for financial statements is

currently contained in Secs. 124.312 (b)(7) and (c)(10) (which have

elsewhere been redesignated as paragraphs (b)(4) and (c)(7) in this

final rule), and failure to comply with it is referenced as a basis for

finding good cause to terminate a Program Participant in

Sec. 124.209(a)(6)(i). An earlier SBA Notice had established guidelines

regarding these reporting requirements.

A majority of the comments concerning this provision of the

proposed rule opposed it because of cost. Taking into account this

concern, SBA has determined that it should reduce the overall reporting

requirements imposed by SBA on Program Participants. Accordingly, this

rule eliminates the quarterly reporting requirements previously imposed

by Secs. 124.312 (b)(7) and (c)(10), and the reference to a failure to

submit quarterly financial statements as a basis for termination

contained in Sec. 124.209. This will lessen the paperwork burden

imposed on Program Participants, and is consistent with the Agency's

initiative to streamline the operation of the 8(a) program.

SBA is particularly sensitive to imposing administrative burdens on

8(a) participants. The rule as proposed was designed to make compliance

as inexpensive as possible. Only Program Participants with annual gross

income of $5 million or more need submit audited financial statements

prepared by a licensed independent public accountant. Program

Participants with a gross annual income of at least $1 million and less

than $5 million need only submit reviewed financial statements prepared

by a licensed independent public accountant. Program Participants with

annual gross revenues of less than $1 million need merely submit an

annual statement prepared by a licensed independent public accountant.

The actual cost of this last type of report is negligible, and in many

cases is prepared as part of tax preparation. In addition, the

regulation authorizes the District Director to waive the requirement

for an audited financial statement for the first year a concern is

required to submit one, and authorizes the Associate Administrator for

Minority Enterprise Development to waive the requirement in subsequent

years. One of the grounds for waiver can be financial hardship. SBA

believes that the benefits to program integrity which will result from

clear and accurate financial accounting requirements is significant,

and that the elimination of quarterly financial statements will reduce

the overall administrative burden placed on 8(a) concerns.

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

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

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

SBA certifies that this rule does not have a significant economic

impact on a substantial number of small entities within the meaning of

Executive Order 12866 or the Regulatory Flexibility Act, 5 U.S.C. 601,

et seq. This rule is necessary to resolve several points regarding

eligibility for SBA's Section [[Page 29974]] 8(a) program, eliminate

certain regulatory restrictions imposed on the amount of 8(a) contract

dollars and the type of 8(a) contracts received by a given 8(a) Program

Participant, and to ensure that the statutory requirement governing

which 8(a) requirements must be competed among eligible 8(a) Program

Participants not be circumvented. Whether a particular 8(a) concern is

eligible for participation in, or once in, whether it, as opposed to

another 8(a) concern, would be awarded a particular 8(a) contract can

be affected by the rule.

As discussed above in the supplementary information, several

commenters were concerned that the change in this rule relating to the

application of the competitive threshold requirement in the IDIQ

context would cause a reduction in the number of procurement

requirements offered to the 8(a) program. SBA does not believe that any

such possible reduction will be significant. In addition, also as

discussed above, SBA believes that the potential for abuse that a

failure to change the regulation would perpetuate outweighs any loss of

contract dollars to the program. Therefore, 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 rule contains no new reporting or record keeping

requirements. In fact, it eliminates a prior requirement imposed on

Program Participants to submit quarterly financial statements to SBA.

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

has no 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; Hawaiian natives; Minority businesses;

Reporting and recordkeeping requirements; Technical assistance;

Tribally-owned concerns.

For the reasons set forth above, SBA hereby amends part 121 of

title 13, Code of Federal Regulations, and subpart A, part 124 of title

13, Code of Federal Regulations (CFR), 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); and

Pub. L. 102-486, 106 Stat. 2776, 3133.

2. Section 121.401(b) is revised to read as follows:

Sec. 121.401 Affiliation.

* * * * *

(b) Exclusion from affiliation coverage. (1) Portfolio or client

concerns owned in whole or substantial part by investment companies

licensed, or development companies qualifying, under the Small Business

Investment Act of 1958, as amended, or by Investment Companies

registered under the Investment Company Act of 1940, as amended, are

not considered affiliates of such investment companies or development

companies.

(2) Business concerns owned and controlled by Indian Tribes, Alaska

Regional or Village Corporations organized pursuant to the Alaska

Native Claims Settlement Act (43 U.S.C. 1601, et seq.), or Native

Hawaiian Organizations are not considered affiliates of such tribes,

Alaska Regional or Village Corporations, or Native Hawaiian

Organizations, or with other concerns owned by these entities solely

because of their common ownership. However, affiliation with other

concerns owned by these entities may be caused by circumstances other

than common ownership under this section.

(3) Business concerns owned and controlled by a Community

Development Corporation (CDC) authorized by 42 U.S.C. 9805 et seq. are

not considered affiliates of such CDC or with other concerns owned by

the CDC solely because of their common ownership. However, affiliation

with other concerns owned by a CDC may be caused by circumstances other

than common ownership under this section.

* * * * *

PART 124--[AMENDED]

Subpart A--Minority Small Business and Capital Ownership

Development

3. The authority citation for part 124 is revised to read as

follows:

Authority: 15 U.S.C. 634(b)(6), 636(j), 637(a), and 637(d), Pub.

L. 99-661, sec. 1207, Pub. L. 100-656, Pub. L. 101-37, Pub. L. 101-

574, and 42 U.S.C. 9815.

Sec. 124.7 [Amended]

4. Section 124.7(b) is amended by removing paragraph (b)(1) and by

redesignating paragraph (b)(2) as paragraph (b).

5. Section 124.100 is amended by removing the terms ``Local buy

item'' and ``National buy item'', and adding, in alphabetical order,

the following new definitions of the terms ``Community Development

Corporation or CDC'', and ``CDC-owned concern'':

Sec. 124.100 Definitions.

* * * * *

CDC-owned concern means any concern at least 51 percent owned by a

Community Development Corporation as defined in this section.

* * * * *

Community Development Corporation or CDC means a nonprofit

organization responsible to residents of the area it serves which has

received financial assistance under 42 U.S.C. 9805 et seq.

* * * * *

6. Section 124.101 is amended by adding the following new sentence

after the third sentence in paragraph (a), and by revising the first

sentence in paragraph (b) to read as follows:

Sec. 124.101 The 8(a) program: General eligibility.

(a) * * * An applicant concern owned and controlled by a Community

Development Corporation must meet the requirements set forth in

Sec. 124.114 and in Secs. 124.102 through 124.109, as applicable. * * *

(b) In order to continue its participation in the 8(a) program, a

Program Participant must continue to meet all eligibility requirements

described in Secs. 124.102 through 124.109, Sec. 124.111(a), and

Sec. 124.112, Sec. 124.113 or Sec. 124.114, if applicable. * * *

* * * * *

7. Section 124.102(a) is revised to read as follows:

Sec. 124.102 Small business concern.

(a) In order to be approved for participation in the 8(a) program,

an applicant concern must qualify as a small business concern as

defined in part 121 of this title. The particular size standard to be

applied will be based on the primary industry classification of the

applicant concern. The size of a tribally-owned concern, a concern

owned by a Native Hawaiian Organization, or a concern owned by a

Community Development Corporation shall be additionally determined by

reference to Sec. 124.122, Sec. 124.113 or Sec. 124.114, respectively.

* * * * * [[Page 29975]]

8. Section 124.103 is amended by revising the introductory text and

the first sentence of paragraph (h) to read as follows:

Sec. 124.103 Ownership requirements.

Except for concerns owned by Indian tribes, Alaska Native

Corporations, Native Hawaiian Organizations, or Community Development

Corporations, as defined in Sec. 124.110, in order to be eligible to

participate in the 8(a) program, an applicant concern must be at least

51 percent unconditionally owned by an individual(s) who is a citizen

of the United States (specifically excluding permanent resident

alien(s)) and who is determined by SBA to be socially and economically

disadvantaged. Special ownership requirements for concerns owned by

Indian tribes and Alaska Native Corporations are set forth in

Sec. 124.112. Ownership requirements for Native Hawaiian Organizations

are set forth in Sec. 124.113. Ownership requirements for Community

Development Corporations are set forth in Sec. 124.114.

* * * * *

(h) A non-8(a) concern in the same or similar line of business is

prohibited from having an equity ownership interest in an 8(a) concern

which exceeds 10 percent, except that a former Program Participant

(except those that have been terminated from 8(a) program participation

pursuant to Sec. 124.209) may have an equity ownership interest of up

to 20 percent in a current 8(a) concern in the same or similar line of

business. * * *

* * * * *

9. Section 124.104 is amended by revising the introductory text to

read as follows:

Sec. 124.104 Control and management.

Except for concerns owned by Indian tribes, Alaska Native

Corporations (ANCs), Native Hawaiian Organizations, or Community

Development Corporations (CDCs), as defined in Sec. 124.100, an

applicant concern's management and daily business operations must be

conducted by one or more owners of the applicant concern who have been

determined to be socially and economically disadvantaged. (See

Sec. 124.112 for the requirements for tribally-owned entities and those

owned by ANCs, Sec. 124.113 for requirements for concerns owned by

Native Hawaiian Organizations, and Sec. 124.114 for requirements for

CDC-owned concerns). In order for a disadvantaged individual to be

found to control the concern, that individual must have managerial or

technical experience and competency directly related to the primary

industry in which the applicant concern is seeking certification.

* * * * *

10. Section 124.109 is amended by revising paragraph (d) to read as

follows:

Sec. 124.109 Ineligible businesses.

* * * * *

(d) Non-profit organizations. A non-profit organization does not

meet the general definition of a concern as set forth in part 121 and

Sec. 124.100 of these regulations and is, therefore, ineligible for

8(a) program participation. In addition, a business entity owned by a

non-profit organization is not eligible for 8(a) program participation

because such a concern does not meet the requirement of being owned and

controlled by disadvantaged individuals. Nothing in this paragraph

affects the eligibility of a for-profit concern owned and controlled by

an Indian tribe, including an Alaskan Native Corporation, a Native

Hawaiian Organization or a Community Development Corporation (see

Secs. 124.112, 124.113 and 124.114).

* * * * *

11. Section 124.111 is amended by revising paragraph (a)(2) to read

as follows:

Sec. 124.111 Continued 8(a) program eligibility.

(a) * * *

(2) In order for a Program Participant to maintain continued 8(a)

program eligibility, the net worth of an individual claiming to be

socially and economically disadvantaged cannot exceed $750,000, as

calculated pursuant to Sec. 124.106(a)(2)(i). An individual whose

personal net worth exceeds $750,000, as calculated pursuant to

Sec. 124.106(a)(2)(i), will not be considered economically

disadvantaged.

* * * * *

12. A new Sec. 124.114 is added to read as follows:

Sec. 124.114 Concerns owned by Community Development Corporations.

(a) Concerns owned at least 51% by Community Development

Corporations (CDCs), as defined in Sec. 124.100, are eligible for

participation in the 8(a) program and other federal programs requiring

SBA to determine social and economic disadvantage as a condition of

eligibility. Such concerns must meet all eligibility criteria set forth

in Secs. 124.102 through 124.109 and Sec. 124.111(a) of this part.

(b) A concern that is at least 51% owned by a CDC shall be deemed

to be controlled by such CDC and eligible for participation in the 8(a)

program, provided it meets all eligibility criteria set forth or

referred to in this section and its management and daily business

operations are conducted by one or more individuals determined to have

managerial or technical experience and competency directly related to

the primary industry in which the applicant concern is seeking

certification.

(c) A concern owned by a CDC must qualify as a small business

concern as defined for purposes of Government procurement in part 121

of this title. The particular size standard to be applied shall be

based on the primary industry classification of the applicant concern.

Ownership by the CDC will not, in and of itself, cause affiliation with

the CDC or with other CDC-owned entities. However, affiliation with the

CDC or other CDC-owned entities may be caused by circumstances other

than common CDC ownership.

(d) No CDC shall own more than one current or former 8(a) Program

Participant having the same primary industry classification.

(e) SBA does not deem an individual involved in the management or

daily business operations of a CDC-owned concern to have used his or

her individual eligibility within the meaning of Sec. 124.108(c).

13. Section 124.208 is amended by removing paragraph (c)(2), by

redesignating paragraphs (c)(3), (c)(4), (c)(5), and (c)(6) as

paragraphs (c)(2), (c)(3), (c)(4), and (c)(5), and by revising the

first sentence in newly redesignated paragraph (c)(2) to read as

follows:

Sec. 124.208 Program graduation.

* * * * *

(c) * * *

(2) Recommendation of the Division. Following the 45 day response

period, the Division Director will consider the facts of the proposed

graduation, including all information submitted by the Participant. * *

*

* * * * *

14. Section 124.209 is amended by removing paragraph (b)(2), by

redesignating paragraphs (b)(3), (b)(4), (b)(5) and (b)(6) as

paragraphs (b)(2), (b)(3), (b)(4) and (b)(5), by revising the first

sentence of paragraph (a)(6)(i) and newly redesignated paragraph

(b)(2), and by adding the following new sentence to the end of newly

redesignated paragraph (b)(3) to read as follows:

Sec. 124.209 Program termination

(a) General. * * *

(6) * * *

(i) Failure by the concern to provide required financial statements

to SBA [[Page 29976]] pursuant to Secs. 124.312 (b)(4), 124.312(c)(7),

and 124.501(c). * * *

* * * * *

(b) * * *

(2) Recommendation of the Division. Following the 45-day response

period, the Division Director will have 15 days to consider the facts

of the proposed termination, including all information submitted by the

Participant. The Division Director may, if he/she deems it necessary,

request additional information from the Participant. If the grounds for

the proposed termination continue to exist, the Division Director shall

recommend in writing to the AA/MSB&COD that the Participant be

terminated.

(3) Decision of the AA/MSB&COD. * * * Unless appealed to OHA, the

decision of the AA/MSB&COD to terminate a Program Participant shall be

effective 45 days after its issuance.

* * * * *

15. Section 124.302 is amended by revising paragraph (c)(1)(i)(A)

and (c)(2) to read as follows:

Sec. 124.302 Review and modification of business plan.

* * * * *

(c) Changes in SIC code designations. * * *

(1) * * *

(i)(A) A sound business explanation exists for obtaining the

requested SIC code, including, for example, the acquisition of the

capability to perform contracts in an industry, even if unrelated to

the 8(a) concern's primary SIC code;

* * * * *

(2) SBA will make a decision on such request within 30 days from

the date it receives the request.

* * * * *

Sec. 124.303 [Amended]

16. Section 124.303 is amended by removing paragraphs (c)(3) and

(c)(4), and by redesignating paragraphs (c) (5) through (7) of

paragraph (c) as paragraphs (c)(3) through (c)(5).

17. Section 124.303 is further amended by changing the reference in

paragraph (d)(1) to ``paragraphs (c)(1), (c)(2), (c)(6) and (c)(7) of

this section'' to a reference to ``paragraphs (c)(1), (c)(2), (c)(4)

and (c)(5) of this section.''

Sec. 124.304 [Removed and Reserved]

18. Section 124.304 is removed and reserved.

Sec. 124.305 [Removed and Reserved]

19. Section 124.305 is removed and reserved.

20. Section 124.307 is amended by redesignating paragraphs (d) and

(e) as paragraphs (e) and (f), and by adding the following new

paragraph (d):

Sec. 124.307 Contractual assistance.

* * * * *

(d) While a Program Participant's projected level of 8(a) contract

support is required as part of its business plan under Sec. 124.302(b)

as a planning and development tool, the level approved by SBA will not

prevent contract awards above that level so long as SBA determines the

concern to be competent and responsible to perform any such contracts

and the Participant is in compliance with any applicable competitive

business mix requirement, or approved remedial plan, imposed by

Sec. 124.312.

* * * * *

21. Section 124.308 is amended by revising paragraph (d), the first

sentence of paragraph (f)(1), and paragraph (f)(2), to read as follows:

Sec. 124.308 Procedures for obtaining and accepting procurements for

the 8(a) program.

* * * * *

(d) Acceptance of the requirement. Upon receipt of the procuring

agency's offer of a procurement requirement, SBA will determine whether

it will accept the requirement for the 8(a) program. SBA's decision

whether to accept the requirement will be transmitted to the procuring

agency in writing within 15 working days of receipt of the written

offering letter, unless SBA requests, and the procuring agency grants,

an extension. SBA is not required to accept any particular procurement

offered to the 8(a) program.

(1) Where SBA decides to accept an offering of a sole source 8(a)

procurement, SBA will accept the offer both on behalf of the program

and in support of the approved business plan of a specific 8(a) Program

Participant.

(2) Where SBA decides to accept an offering of a competitive 8(a)

procurement, SBA will accept the offer for the 8(a) program generally.

(3) Except for requirements assigned a construction SIC code by the

procuring agency contracting officer, all competitive 8(a) requirements

accepted by SBA may be competed among all eligible 8(a) Program

Participants nationally. The only geographic restrictions pertaining to

8(a) competitive requirements, other than those for construction

requirements, would be those imposed by the solicitations themselves.

* * * * *

(f) Open requirements. * * *

(1) If the procurement is a construction requirement, SBA will

examine the portfolio of 8(a) concerns for the SBA district office

where the work is to be performed for selection of a qualified 8(a)

concern. * * *

(2) If the procurement is anything other than a construction

requirement, SBA may select any eligible, responsible Program

Participant nationally to perform the contract.

* * * * *

Sec. 124.308 [Amended]

22. Section 124.308 is further amended by removing the words

``approved 8(a) business support level or the'' contained in paragraph

(e)(1)(iii).

23. Section 124.311 is amended by revising paragraph (a)(2), by

removing paragraph (b), by redesignating paragraphs (c), (d), (e), (f),

(g), (h), and (i) as paragraphs (b), (c), (d), (e), (f), (g), and (h),

respectively, by adding a sentence to the end of newly redesignated

paragraph (d) introductory text, by removing newly redesignated (d)(1)

and (d)(2), and by revising newly redesignated paragraphs (g)(3) and

(g)(4), to read as follows:

Sec. 124.311 8(a) competition.

(a) * * *

(2) The anticipated award price of the contract, including options,

will exceed $5,000,000 for contracts assigned manufacturing Standard

Industrial Classification (SIC) codes and $3,000,000 for all other

contracts.

(i) For all types of contracts, the applicable competitive

threshold amounts will be applied to the procuring agency estimate of

the total value of the contract, including all options.

(ii) Where a procuring agency good faith estimate of the total

value of a proposed 8(a) contract is less than the applicable

competitive threshold amount and the requirement is accepted as a sole

source requirement on that basis, award may be made even though the

ultimate price arrived at through negotiations exceeds the competitive

threshold, provided that the ultimate price is not significantly

greater than the competitive threshold amount.

Example. If the anticipated award price for a professional

services requirement is determined to be $2.7 million and it is

accepted as a sole source 8(a) requirement on that basis, a sole

source award will be valid even if the contract price arrived at

after negotiation is $3.1 million.

(iii) A proposed 8(a) requirement with an estimated value exceeding

the applicable competitive threshold amount shall not be divided into

several requirements for lesser amounts in order [[Page 29977]] to use

8(a) sole source procedures for award to a single contractor.

* * * * *

(d) Sole source above thresholds. * * * SBA will accept a contract

opportunity above the applicable competitive threshold as a sole source

8(a) requirement only if there are not two eligible offerors in the

United States capable of performing the requirement at a fair price.

* * * * *

(g) Restricted Competition. * * *

(3) Construction competitions. Where a construction requirement

offered to the 8(a) program exceeds the $3 million competitive

threshold, SBA will determine, based on its knowledge of the 8(a)

portfolio, whether the competition should be limited only to those

Program Participants located within the geographical boundaries of one

or more SBA district offices, an entire SBA regional office, or

adjacent SBA regional offices. Only those Participants located within

the appropriate geographical boundaries are eligible to submit offers.

(4) Competition for all non-construction requirements. Except for

construction requirements, all eligible Program Participants nationally

may submit offers in response to any solicitation for a competitive

8(a) procurement requirement.

* * * * *

24. Section 124.311 is further amended by removing the Example

following newly redesignated paragraph (e)(4)(iii), by adding the word

``and'' after the semi-colon (``;'') in newly redesignated paragraph

(e)(5)(iii), by removing newly redesignated paragraph (e)(5)(iv) in its

entirety, by redesignating paragraph (e)(5)(v) as paragraph (e)(5)(iv),

and by revising newly redesignated paragraph (e)(5)(iv) to read as

follows:

Sec. 124.311 8(a) competition.

* * * * *

(e) * * *

(5) * * *

(iv) If the firm is in the transitional stage of program

participation, whether it has achieved its competitive business mix

targets under Sec. 124.312, or is in compliance with a remedial plan

that does not include the denial of future 8(a) contracts.

* * * * *

Sec. 124.311 [Amended]

25. Section 124.311 is further amended by revising the reference in

newly redesignated paragraph (e)(7) to ``paragraph (f)(5) of this

section'' to a reference to ``paragraph (e)(5) of this section.''

26. Section 124.312 is amended by removing paragraphs (b)(4),

(b)(5), and (b)(6), by redesignating paragraph (b)(7) as paragraph

(b)(4), and by revising the first sentence of newly redesignated

paragraph (b)(4) to read as follows:

Sec. 124.312 Competitive business mix.

* * * * *

(b) * * *

(4) Reporting and verification of business activity. Once admitted

to the 8(a) program, a Program Participant must provide annual

financial statements to SBA in accord with Sec. 124.501(c). * * *

27. Section 124.312 is further amended by removing paragraphs

(c)(2), (c)(3), and (c)(9), by redesignating paragraphs (c)(4), (c)(5),

(c)(6), (c)(7), (c)(8), (c)(10), (c)(11), and (c)(12) as paragraphs

(c)(2), (c)(3), (c)(4), (c)(5), (c)(6), (c)(7), (c)(8), and (c)(9),

respectively, by revising the reference to ``paragraphs (c)(4) and

(c)(5)'' in the last sentence of newly redesignated paragraph (c)(7) to

a reference to ``paragraphs (c)(2) and (c)(3)'', and by revising the

first sentence of newly redesignated paragraph (c)(7) to read as

follows:

Sec. 124.312 Competitive business mix.

* * * * *

(c) * * *

(7) Reporting and verification of business activity. Program

Participants during the transitional stage shall provide annual

financial statements to SBA with a breakdown of 8(a) and non-8(a)

revenue in accord with Sec. 124.501(c). * * *

* * * * *

Sec. 124.312 [Amended]

28. Section 124.312 is further amended by changing the reference in

paragraph (c)(1) to ``paragraph (c)(4) of this section'' to a reference

to ``paragraph (c)(2) of this section'' and by changing the reference

in the same paragraph to ``paragraph (c)(5) of this section'' to a

reference to ``paragraph (c)(3) of this section''.

29. Section 124.312 is further amended by changing the reference in

newly designated paragraph (c)(8) to ``paragraph (c)(12) of this

section'' to a reference to ``paragraph (c)(9) of this section''.

30. Section 134.312 is further amended by changing the reference in

newly designated paragraph (c)(9) to ``paragraphs (c)(4) and (c)(5) of

this section'' to a reference to ``paragraphs (c)(2) and (c)(3) of this

section''.

31. Section 124.321 is amended by adding a new paragraph (i) to

read as follows:

Sec. 124.321 Joint venture agreements.

* * * * *

(i) Joint ventures for Small Disadvantaged Business Set-Asides and

Small Disadvantaged Business Evaluation Preferences. Joint ventures are

permitted for Small Disadvantaged Business (SDB) set-asides and SDB

evaluation preferences, provided that the requirements set forth in

this paragraph are met.

(1) For purposes of this paragraph, the term joint venture has the

same meaning as that set forth in Sec. 121.401(l) of this chapter. Two

or more concerns that form an ongoing relationship to conduct business

would not be considered ``joint venturers'' within the meaning of this

paragraph, and would also not be eligible as an entity owned and

controlled by one or more socially and economically disadvantaged

individuals.

(2) A concern that is owned and controlled by one or more socially

and economically disadvantaged individuals entering into a joint

venture agreement with one or more other business concerns is

considered to be affiliated for size purposes with such other

concern(s). The combined annual receipts or employees of the concerns

entering into the joint venture must meet the applicable size standard

corresponding to the SIC code designated for the contract.

(3) The majority of the venture's earnings must accrue directly to

the socially and economically disadvantaged individuals in the SDB

concern(s) in the joint venture.

(4) The percentage ownership involvement in a joint venture by

disadvantaged individuals must be at least 51 percent.

Example 1. Small business concern A is 100% owned by

disadvantaged individuals. Small business concern B is 100% owned by

nondisadvantaged individuals. The percentage involvement by concern

A in a joint venture between A and B must be at least 51%.

Example 2. Small business concern C is 51% owned by

disadvantaged individuals. Small business concern D is 100% owned by

nondisadvantaged individuals. Any joint venture between C and D

would be ineligible because the amount of ownership involvement in

such a joint venture by disadvantaged individuals would be less than

51%. Even a 90% involvement by concern C in a joint venture with D

would mean an overall ownership involvement by disadvantaged

individuals of only 45.9% (51% of 90), and an overall ownership

involvement by nondisadvantaged individuals of 54.1% (10+(49% of

90)).

32. Section 124.501 is amended by redesignating paragraph (c) as

paragraph [[Page 29978]] (d) and by adding the following new paragraph

(c):

Sec. 124.501 Miscellaneous reporting requirements.

* * * * *

(c) Submission of financial statements. (1) Program Participants

with actual gross annual receipts of $5,000,000 or more must submit to

SBA audited annual financial statements prepared by a licensed

independent public accountant (as defined in part 107, appendix I,

paragraph II. B) within 120 days after the close of the concern's

fiscal year.

(i) Upon request by the Program Participant, SBA may waive the

requirement for audited financial statements. Waivers under this

paragraph may be granted by the appropriate District Director only for

the first year that audited financial statements are required. Beyond

such first year, only the AA/MSB&COD may waive this requirement for

good cause shown by the Program Participant.

(ii) Circumstances where waivers of audited financial statements

may be granted include, but are not limited to, the following:

(A) The concern has an unexpected increase in sales towards the end

of its fiscal year that creates an unforeseen requirement for audited

statements;

(B) The concern unexpectedly experiences severe financial

difficulties which would make the cost of audited financial statements

a particular burden; and

(C) The concern has been an 8(a) Program Participant less than 12

months.

(2) Program Participants with actual gross annual receipts of

$1,000,000 to $4,999,999 shall submit to SBA reviewed annual financial

statements prepared by a licensed independent public accountant (as

defined in part 107, appendix I, paragraph II. B) within 90 days after

the close of the concern's fiscal year.

(3) Program Participants with actual gross annual receipts of less

than $1,000,000 shall submit to SBA an annual statement prepared in-

house or a compilation statement prepared by a licensed independent

public accountant (as defined in part 107, appendix I, paragraph II.

B), verified as to accuracy by an authorized officer, partner, or sole

proprietor of the 8(a) concern, by signature and date, within 90 days

after the close of the concern's fiscal year.

(4) Any audited financial statements submitted to SBA pursuant to

Sec. 124.501(c) shall be prepared in accordance with Generally Accepted

Accounting Principles and reflect the independent public accountant's

opinion.

(5) While financial statements need not be submitted until 90 or

120 days after the close of an 8(a) concern's fiscal year, depending on

the receipts of the concern, a concern seeking to be awarded an 8(a)

contract between the close of its fiscal year and such 90 or 120-day

time period must submit a final sales report signed by the CEO or

President to SBA in order for SBA to determine/verify the concern's

size and its compliance with competitive business mix targets. This

report must show a breakdown of 8(a) and non-8(a) sales.

(6) Notwithstanding a concern's gross annual receipts, audited or

reviewed annual and/or quarterly statements may be required whenever

SBA determines it is necessary to obtain a more thorough verification

of a concern's assets, liabilities, income and/or expenses, or to

determine the concern's capacity to perform a specific 8(a) contract.

* * * * *

Dated: April 5, 1995.

Philip Lader,

Administrator.

[FR Doc. 95-13722 Filed 6-6-95; 8:45 am]

BILLING CODE 8025-01-M