Small Business Size Regulations; 8(a) Business Development/Small Disadvantaged Business Status Determinations; Rules of Procedure Governing Cases Before the Office of Hearings and Appeals

SMALL BUSINESS ADMINISTRATION

13 CFR Parts 121, 124, and 134

Small Business Size Regulations; 8(a) Business Development/Small

Disadvantaged Business Status Determinations; Rules of Procedure

Governing Cases Before the Office of Hearings and Appeals

AGENCY: Small Business Administration.

ACTION: Proposed rule.

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SUMMARY: In response to President Clinton's government-wide regulatory

reform initiative and the Department of Justice's review of Federal

procurement affirmative action programs, the Small Business

Administration (SBA) proposes to amend both the eligibility

requirements for, and contractual assistance provisions within, the

SBA's 8(a) Business Development (8(a) BD) program. The proposed rule

would change the name of the program from the Minority Small Business

and Capital Ownership Development program to the 8(a) BD program to

better reflect the purpose of the program. This rule is designed to

streamline the operation of the 8(a) BD program, to ease certain

restrictions perceived to be burdensome on Program Participants, to

clarify certain eligibility requirements, and to delete obsolete

regulations.

DATES: Comments must be submitted on or before October 14, 1997.

ADDRESSES: Written comments should be addressed to William Fisher,

Acting Associate Administrator for Minority Enterprise Development,

U.S. Small Business Administration, 409 3rd Street, SW., Suite 13,

Washington, DC 20416.

FOR FURTHER INFORMATION CONTACT: Arthur E. Collins, Jr., Assistant

Administrator for Program Development, Office of Minority Enterprise

Development, at (202) 205-6410.

SUPPLEMENTARY INFORMATION: On March 4, 1995, President Clinton issued a

Memorandum to federal agencies, directing them to simplify their

regulations. In response to this directive, SBA completed a page-by-

page, line-by-line review of all of its then existing regulations to

determine which might be revised or eliminated. Revisions to 13 CFR

Part 124 awaited a review of all Federal procurement affirmative action

programs by the Department of Justice (DOJ). On May 23, 1996, DOJ

published in the Federal Register a comprehensive proposal for

tailoring affirmative action programs in the Federal procurement arena

(see 61 FR 26042), and on May 9, 1997 the Department of Defense, the

General Services Administration, and the National Aeronautics and Space

Administration proposed amendments to the federal Acquisition

Regulation (FAR) concerning programs for small disadvantaged business

(SDB) concerns. In response to and in conjunction with the DOJ and FAR

reform proposals, SBA proposes specific amendments to 13 CFR Part 124,

its regulations governing the 8(a) Business Development (8(a) BD)

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

Business Act, 15 U.S.C. 636(j)(10), 637(a) (contained in subpart A of

part 124), and those relating to the certification and protest of small

disadvantaged businesses (subpart B of part 124). For the most part,

SBA's proposed changes in response to the DOJ and FAR proposals are

contained in subpart B of part 124. At the same time, SBA also proposes

to streamline the entire Part 124, and to make several substantive

changes in part A of the 8(a) BD regulations where needed. SBA also

proposes to make changes to SBA's size regulations (part 121) to permit

size protests and appeals of Standard Industrial Classification (SIC)

code designations in connection with 8(a) competitive procurements, and

to exclude certain joint venture arrangements from SBA's affiliation

rules. These latter changes should increase the potential pool of small

businesses available to compete for particular procurements. SBA

believes that this change should encourage contracting officers to

consider small business contractors more closely before determining a

procurement strategy. Finally, this proposed rule would transfer the

procedures relating to certain statutorily authorized appeals in the

8(a) program from part 124 to part 134 of 13 CFR.

In response to the DOJ review of Federal affirmative action

procurement programs, this rule would develop standards and procedures

by which a firm can apply to be recognized as a small disadvantaged

business (SDB). Under the proposal, private sector organizations or

business concerns (called Private Certifiers when approved by SBA)

would determine whether a firm is owned and controlled by specified

individuals claiming to be disadvantaged. Use of the term ``Private

Certifier'' is not meant to exclude state agencies from applying for

and receiving Private Certifier status. Once a firm receives a

determination that it is owned and controlled by the individual(s)

claiming to be disadvantaged from a Private Certifier (or from SBA if a

Private Certifier is not reasonably available), it would be required to

submit evidence of that determination to the appropriate procuring

agency, or to SBA if the agency has an agreement with SBA, for a

disadvantaged status determination and SDB certification. Individuals

that are members of designated groups would be presumed to be socially

and economically disadvantaged. Other individuals would be required to

submit a narrative statement identifying personally how their entry

into or advancement in the business world has been impaired because of

their individual social disadvantage, and how their ability to compete

in the free enterprise system has been impaired due to diminished

capital and credit opportunities. These standards and procedures would

be completely separate from the 8(a) BD requirements and contained in

an entirely rewritten subpart B to part 124. The rule would develop

procedures for placing firms on and removing them from an SBA-

maintained on-line register of certified SDBs. It would also provide

regulatory authority for SBA, in its discretion, to limit 8(a) BD

program entry, accelerate program graduation, and limit the numbers of

8(a) contracts available as a means of responding to benchmark

achievements in particular industries.

The proposed rule is also designed to streamline the operation of

the 8(a) BD program, to ease certain restrictions perceived to be

burdensome on Participants, to amend certain eligibility procedures,

and to delete obsolete regulations. SBA considered the need for each

section of its current regulations in developing this proposal. Any

regulatory provisions that SBA deemed duplicative are proposed to be

removed, while those that appeared wordy or unclearly written have been

rewritten in this proposed rule. The proposed rule also reorganizes the

regulations into identifiable substantive areas for ease of use and

clarity. The proposed unnumbered substantive category headings within

subpart A of part 124 would be: Provisions of General Applicability;

Eligibility Requirements for Participation in the Minority Enterprise

Development Program; Applying to the 8(a) BD Program; Exiting the 8(a)

BD Program; Business Development; Contractual Assistance; Miscellaneous

Reporting Requirements; and Management and Technical Assistance

Program. The proposed rule would also change all references to SBA's

Office of Minority Small Business and Capital Ownership Development

(MSB&COD) to the Office of 8(a) Business Development to

[[Page 43585]]

emphasize that individuals participating in the program need not be

members of minority groups and the stress the importance of assisting

participating firms in their overall business development.

SBA has attempted to rewrite the regulations in plain English

wherever possible. To this end, SBA has written proposed section

headings in question format for ease of use, and has tried to eliminate

all unnecessary verbiage from the regulations.

This proposed rule would amend eligibility procedures for admission

to the 8(a) BD program and also amend contractual assistance provisions

within the 8(a) BD program. Of particular note, this rule would

liberalize the standard of review for non-group members seeking

disadvantaged status from a clear and convincing evidence test to a

preponderance of the evidence standard, eliminate the requirement that

a Participant must have specified SIC codes approved by SBA in its

business plan in order to be eligible for 8(a) contracts, establish

consistent remedial measures for firms that do not meet their

competitive business mix targets, ease certain joint venture

restrictions, and establish a mentor/protege program for developing

8(a) Participants.

This rule would clarify that 8(a) BD eligibility decisions are

based on the facts before the Associate Administrator for 8(a) Business

Development (AA/8(a)BD) at the time of his/her eligibility decision.

The rule would specify that actual control of the applicant concern

must be in the hands of one or more socially and economically

disadvantaged individuals at the time the appropriate field office of

the Division of Program Certification and Eligibility (DPCE) determines

that an application for the 8(a) BD program is complete. Potential

control or the power of disadvantaged individuals to change the

applicant concern's Board of Directors or other aspects of control so

that the applicant concern could be controlled by disadvantaged

individuals, no matter how easily exercised, would not satisfy the

requirement that the applicant be actually controlled by disadvantaged

individuals at the time the DPCE field office determines an application

to be complete. SBA believes that potential abuses would be greatly

lessened by the clarifications made in this rule.

This proposed rule would also make changes, as needed, in various

other eligibility and 8(a) contracting requirements. These changes are

identified below in the section by section analysis of this proposed

rule. Further, several typographical errors or inadvertent omissions

would be corrected by this proposed rule. Finally, several obsolete

references would be eliminated.

SBA invites comments on the proposed rule, and on any additional

ways to improve the 8(a) BD program.

Section By Section Analysis

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

SBA's regulations that would be affected by this proposed rule:

Section 121.103 would be amended so that certain joint venture

arrangements would be excluded from the normal affiliation rules. The

purpose of the proposal is to encourage contracting officers to use

small business contractors to a greater extent. With the consolidation

of procurements becoming an increasing reality, some contracting

officers may feel that requirements are too big for small business to

perform successfully. The proposed rule would permit two or more small

business concerns to joint venture for a particular procurement and be

considered a small business concern so long as each concern

individually was small. In other words, the joint venture would receive

an exclusion from the normal affiliation rules. SBA would not apply the

exclusion to all procurements, but, rather, only to higher dollar value

procurements where the likelihood that individual small business

concerns can successfully offer on and perform the requirement is

reduced. A large business could not, however, split into two smaller

business entities under the same control in order to joint venture for

a particular procurement reserved for small business.

Specifically, under the proposal, a joint venture of two or more

business concerns could submit an offer as a small business for a non-

8(a) federal procurement without regard to affiliation based on the

joint venture arrangement so long as each concern is small under the

size standard corresponding to the SIC code assigned to the contract

where the procurement exceeded a specified dollar amount. For a

procurement having a revenue-based size standard, the affiliation

exclusion would apply if the procurement exceeds half the size standard

corresponding to the SIC code assigned to the contract. For a

procurement having an employee-based size standard, the affiliation

exclusion would apply if the procurement exceeds $10 million. This same

rule would apply to competitive 8(a) procurements, with two additional

requirements. Pursuant to proposed Sec. 124.512(b), in order to receive

the exclusion from affiliation, there must be at least one 8(a) concern

to the joint venture which is smaller than one half the size standard

corresponding to the SIC code assigned to the procurement, and at least

51% of the work under the joint venture must be done by one or more of

these smaller 8(a) firms.

The proposed rule also would amend the size regulations to permit

firms approved by SBA under Sec. 124.519 to be a mentor and protege to

submit an offer as a joint venture and be considered a small business,

provided the protege qualifies as small for the size standard

corresponding to the procurement.

Sections 121.1001(a) and 121.1103(a) would be amended to permit

size protests and appeals of Standard Industrial Classification code

designations, respectively, in connection with competitive 8(a)

procurements. SBA believes that competitive 8(a) procurements should as

closely parallel normal Government contracting procedures as possible.

Size protests and SIC appeals would still not be available for sole

source 8(a) contracts.

Section 124.1 would be amended to delete unnecessary and

duplicative language.

Section 124.1(b) would be deleted as a separate subsection. The

substance of paragraph (b)(1) would be transferred to Sec. 124.501.

Present Sec. 124.2 would be deleted as unnecessary, administrative

material.

Present Sec. 124.3 would be deleted as unnecessary, administrative

material.

Present Sec. 124.4 would be deleted as obsolete since the

Commission on Minority Business Development completed its task and no

longer exists.

Section 124.5 would be deleted as unnecessary since proposed

Sec. 124.108(a) would provide for a review of an individual's

character.

Section 124.6 would be deleted and the substance of paragraph (b)

transferred to part 121 of this title for misrepresentations relating

to size status, and Sec. 124.501(i) for those relating to disadvantaged

status.

Section 124.7 would be eliminated as duplicative of Part 103 of

this title and Subpart 3.4 of the Federal Acquisition Regulation (FAR),

Title 48 of the Code of Federal Regulations.

Section 124.100 would be redesignated as Sec. 124.3. Those

definitions that SBA deemed to be unnecessary or obsolete due to other

changes in the proposed rule would be eliminated from this section.

Also, the definition of ``Unconditional ownership'' in present

Sec. 124.100 would be amended. The revised definition would explain

that a disadvantaged

[[Page 43586]]

owner may use his or her ownership interest (e.g., stock) in an

applicant or Participant concern as collateral for financing during the

normal course of business without affecting his or her

``unconditional'' ownership in such concern, provided that complete

control of the ownership interest remains with the disadvantaged owner

absent any default in fulfilling the terms of the financing. However,

events of default must be defined in commercially reasonable ways.

Events of default beyond those that are deemed commercially reasonable

could lead to a conclusion that unconditional ownership is not in the

hands of the disadvantaged owner. This clarification is not intended to

require a concern to obtain financing through a financial institution

or to preclude, for example, seller-financed transactions. It is

intended only to permit financing terms that are reasonable within the

marketplace. This change is essential to ensure that applicants and

Participant concerns have the flexibility they need to raise necessary

capital. The requirement that disadvantaged owners ``unconditionally''

own and control an applicant or Participant concern would thus be

clarified so as to not restrict a firm's ability to raise capital under

normal commercial terms and conditions to assist it in becoming viable.

Present Sec. 124.100 would be amended further to correct a

typographical error in the definition of ``Primary industry

classification.''

Section 124.101 would be amended by rewording it for clarity, by

transferring the requirement for written eligibility decisions to new

Sec. 124.204(d), and by deleting paragraph (c), which is generally

contained in redesignated Sec. 124.112(c). The provisions relating to

reconsiderations would be written more plainly. An applicant denied

8(a) BD admission based solely on reasons of social disadvantage,

economic disadvantage, ownership or control would still have the right

to appeal to SBA's Office of Hearings and Appeals (OHA), and all

applicants would continue to have the right to reapply in 12 months

from the Agency's final decision denying program admission.

The portion of Sec. 124.101(a) concerning reconsideration and that

concerning appeal rights is duplicative of language currently contained

in Secs. 124.206(c) (1) and (2), respectively. SBA believes that it is

not needed in both places. In this rule, reconsiderations would appear

only in proposed Sec. 124.205, while appeal rights would appear only in

proposed Sec. 124.206. The first sentence of current Sec. 124.101(b)

would be transferred to proposed Sec. 124.112, and the remainder of

this paragraph would be deleted as obsolete.

Sections 124.102 (a) and (b) would be amended by eliminating

obsolete references. The proposed rule would further amend Sec. 124.102

by transferring the substance of paragraph (c) to proposed Sec. 124.112

and by transferring the substance of paragraph (d) to proposed

Sec. 124.501(h).

Section 124.103 would be amended by redesignating it as

Sec. 124.105 and by adding a new paragraph (a) that would require

direct ownership of 8(a) BD applicants or Participants by disadvantaged

individuals. This statutory requirement is currently set forth in

Sec. 124.109, but SBA believes that it should be added to this section

for clarification purposes. SBA, however, recognizes the existence of

current trust and estate planning techniques, such as living trusts,

and invites comments on whether and, if so, how its ownership rules can

be liberalized to permit trust-owned concerns in the 8(a) BD program in

limited instances without violating the statutory requirement that 8(a)

BD concerns be owned by individuals, and also without permitting abuses

in the program.

Present Secs. 124.103 (a) and (b) would be redesignated to become

Secs. 124.105 (b) and (d). A new paragraph (c) would be added for

limited liability companies. Present Secs. 124.103 (c) and (d) would be

consolidated into proposed Sec. 124.105(e).

Pursuant to proposed Secs. 124.105 (g) and (h), SBA would aggregate

the ownership interests of a business concern and its principal(s) in

determining whether a non-disadvantaged individual or business concern

exceeds the 10 percent equity ownership limitations (or, in the case of

a former Participant, the 20 percent equity ownership limitations)

established by present Secs. 124.103 and 124.104.

Proposed Sec. 124.105(i) would make clear that a 8(a) BD concern

may substitute one disadvantaged individual for another without

invoking the termination for convenience/waiver provision of present

Sec. 124.317 (redesignated as Sec. 124.514 in the proposed rule) with

respect to any 8(a) contracts that it has been awarded. Provided

program eligibility is maintained and SBA approves a substitution of

one disadvantaged individual for another, performance of 8(a) contracts

already received could continue without seeking a waiver under present

Sec. 124.317. SBA believes that the statutory termination for

convenience/waiver provision did not intend to prohibit the performance

of an 8(a) contract by the Participant concern that initially received

it simply where there has been one or more approved changes of

particular individuals upon whom eligibility of the concern was based.

This change is necessary to apprise procuring agencies and Participant

concerns that termination of 8(a) contracts is not required in such

instances.

This proposed rule would also add a new Sec. 124.105(k), requiring

that SBA consider applicable state community property laws on the

respective ownership interests in an applicant concern or a

Participant. This revision would not be a change in current SBA policy.

Section 124.104 would become proposed Sec. 124.106 and its

introductory text would be amended to clarify that the applicant

concern must be actually controlled and managed by a disadvantaged

individual. The unexercised right of the disadvantaged individual to

bring about a change in the control or management of the applicant

concern is not adequate to satisfy this requirement.

Proposed Sec. 124.106(a) would be reorganized for greater clarity

and easier use. Of particular note, Sec. 124.106(a) would be amended to

specify that one or more disadvantaged individuals who are determined

to manage the applicant or Participant concern must devote full-time to

the business during normal business hours. This means that a

disadvantaged individual must be physically located at the offices of

the applicant or Participant concern during most normal business hours,

or devoting his or her full time efforts to the business away from its

offices through marketing and outreach. The term ``normal business

hours'' is intended to mean that the applicant or Participant concern

be open during the normal 40 hour work week of most business concerns.

Thus, an applicant would not meet this requirement if its disadvantaged

owner was present at the applicant's offices only at night or on the

weekends and worked outside the applicant during its normal business

hours. This rule does not imply that business activities of the

applicant or Participant concern could not be conducted by such

individual(s) outside the offices of the applicant or Participant

concern, nor does it prohibit a disadvantaged individual from

establishing a Participant concern at his/her home. Although this

proposed revision does not mean that the disadvantaged individual who

manages the applicant or Participant concern

[[Page 43587]]

cannot leave the concern's premises to conduct business, it does mean

that one or more disadvantaged owners must devote full-time to the

business of the applicant or Participant concern. Under this proposed

amendment, SBA would not permit an individual to be physically located

at a job which is separate and distinct from the applicant or

Participant concern during normal business hours and claim that he or

she is managing the applicant or Participant concern from that

location.

In addition, proposed Sec. 124.106 would eliminate the requirement

that the disadvantaged owner(s) have, in every instance, the technical

expertise in the primary business classification of the applicant or

Participant. The rule would simply require that disadvantaged managers

must demonstrate that they have managerial experience to an extent and

complexity necessary to run the applicant or Participant. SBA believes

that sufficient management experience may be enough to overcome certain

technical deficiencies in a manager.

The proposed rule would add a new paragraph (b) clarifying the

control requirements for a partnership. The rule would require that one

or more disadvantaged individuals must serve as general partners, with

control over all partnership decisions. A partnership in which no

disadvantaged individual is a general partner would be ineligible for

8(a) BD participation. The proposed rule would add a new paragraph (c)

for limited liability companies.

Redesignated Sec. 124.106(d) would be amended along the lines set

forth above for proposed Sec. 124.101. This amended paragraph would

specify that the Board of Directors must actually be controlled by

disadvantaged individuals. The ability of a disadvantaged individual to

control the Board of Directors indirectly through his or her right to

vote his or her stock (i.e., the power to remove and replace directors)

would not be sufficient to establish control of the Board of Directors

if non-disadvantaged individuals on the Board of Directors could

control, or assert negative control on, the Board as currently

structured at the time of the application for admission to the 8(a) BD

program. Further, a quorum would require the presence of disadvantaged

individual(s) upon whom eligibility is based, and could not be

established to permit non-disadvantaged Directors to control the Board

of Directors. This paragraph would also provide that non-voting,

advisory or honorary Directors as well as Executive Committees may be

appointed so long as they do not possess negative control over the

Board or have the power to independently exercise the authority of the

Board between Board meetings. Similarly, a separate board of advisors,

particularly in the context of tribally-owned applicants and

Participant concerns, could be established provided such board of

advisors could not actually run the day-to-day operations of, or

possess negative control over, the applicant or Participant business

concern.

The proposed rule would revise redesignated Sec. 124.106(e)

(present Sec. 124.104(c)) to clarify that principals of corporations or

partners in a partnership are encompassed within the term ``former

employer.'' Although a corporation or a partnership may technically be

the former employer of a disadvantaged individual, a principal or

partner (general or limited) with greater than a 20% interest would be

treated as though he or she were the actual employer given their

potential to exert considerable influence over the individual upon whom

8(a) BD eligibility is based.

The requirements pertaining to social disadvantage would be moved

from present Sec. 124.105 to proposed Sec. 124.103. Paragraph (b) would

be amended to clarify that the presumption of social disadvantage for

members of designated groups is a rebuttable presumption. In addition,

redesignated Sec. 124.103(c) (present Sec. 124.105(c)) would be amended

to require an individual who is not a member of a designated socially

disadvantaged group to establish his or her social disadvantage by a

preponderance of evidence presented in the 8(a) BD application. This is

a change from the current regulation which requires that an individual

who is not a member of a designated group establish his or her social

disadvantage on the basis of clear and convincing evidence.

SBA asks for comments on how better to define specific designated

groups other than by requiring ``origins from'' specific countries. The

rule makes clear that ancestral country of birth alone is not

sufficient to make that country an individual's country of origin for

membership in a designated group, but SBA believes a heritage or

cultural requirement may be preferable to the ``origins'' requirement.

SBA also specifically seeks comments regarding how an individual who is

a member of a designated group can overcome his or her social

disadvantage. The proposed rule states that the presumption of social

disadvantage may be overcome with significant, credible evidence to the

contrary, and SBA seeks comments on its application.

Proposed Sec. 124.103(c)(2)(ii) would require that the social

disadvantage experienced by a non-group member be ``longstanding.''

This clarification would not change the substance of SBA's practice in

this area.

Proposed Sec. 124.103(c)(2)(iii) (present Sec. 124.105(c)(1)(v))

would be amended to clarify that, in evaluating whether an individual's

social disadvantage has had a negative impact on his or her entry into

and/or advancement in the business world, SBA will entertain any

relevant evidence, but would always consider the experiences of the

individual, where applicable, in education, employment and business

history. The failure to establish such disadvantage in any one or even

two areas (i.e., education, employment, or business history) would not

prevent an individual from meeting this requirement of negative impact

as long as the totality of the circumstances experienced by the

individual demonstrate such disadvantage.

The proposed rule would move the economic disadvantage requirements

from Sec. 124.106 to proposed Sec. 124.104. Under the proposed rule, in

evaluating whether an individual is economically disadvantaged, SBA

would focus solely on the personal financial condition of the

individual. Factors in the current regulation pertaining to the

financial condition of the applicant concern and the applicant

concern's access to credit and capital would be eliminated as separate

requirements. The financial condition of the applicant concern would be

considered, but only in evaluating the individual's access to credit

and capital. The authorizing legislation for the 8(a) BD program

specifies that Participants must be owned and controlled by socially

and economically disadvantaged individuals. It requires SBA to consider

how the ability of socially disadvantaged individuals to compete in the

free enterprise system has been impaired due to diminished capital and

credit opportunities, but directs SBA to consider factors such as total

assets and net worth in assessing the degree of diminished capital and

credit opportunities. See 15 U.S.C. 637(a)(6)(A). The proposed rule

would clarify that these factors would continue to be the focus of

SBA's analysis of economic disadvantage.

The proposed rule would retain the current net worth limitations of

$250,000 for initial 8(a) BD eligibility, $750,000 for continued 8(a)

BD eligibility, and $750,000 for SDB eligibility. The proposed

regulation would further clarify that a contingent

[[Page 43588]]

liability does not reduce an individual's net worth.

The proposed rule would provide that assets transferred by an

individual claiming disadvantaged status to any immediate family member

within two years prior to the date of application to the 8(a) BD

program would be presumed to be the property of the individual claiming

disadvantaged status. Currently, property or assets transferred by an

individual claiming disadvantaged status to a spouse within two years

of the date of 8(a) BD application is presumed to be the property of

the transferor, but current regulations are silent as to property or

assets transferred to children or other close family members. Several

applicants may have circumvented eligibility requirements by such

transfers. SBA believes that it should restrict this practice, lest it

allow firms into the 8(a) BD program that should be considered

ineligible.

The proposed rule would require an individual claiming

disadvantaged status to disclose to SBA all transfers of funds or other

assets to any immediate family member and to a trust the beneficiary of

which is one or more immediate family members for purposes of continued

program eligibility. At the time of the Participant's annual review,

each individual claiming disadvantage status would have to certify that

he or she made no transfers of assets to immediate family members

within two years, or that he or she made no transfers to immediate

family members within two years except as described on an attached

sheet. Any transfers within two years would be attributed to the

transferor in determining his or her continued economic disadvantage.

SBA is considering extending this requirement beyond immediate family

members so that any transfers for less than fair market value (e.g.,

gifts to charities) would be attributable to the transferor.

Proposed Sec. 124.107 would clarify the potential for success

requirements, without changing them substantively. Discussion of an

applicant concern's access to credit and capital, currently handled

under economic disadvantage in Sec. 124.106(a)(2)(iii), would be moved

to proposed Sec. 124.107(c), and several other paragraphs would be

revised for clarity and ease of use.

Section 124.108 would be amended for clarity. Proposed

Sec. 124.108(a)(4) would make an applicant to the 8(a) BD program

ineligible for program participation if the proprietor, a partner, a

director, officer or a holder of at least 10 percent of the stock, or a

key employee, is currently incarcerated, on parole or on probation

pursuant to a pre-trial diversion or following conviction for a felony

or any crime involving business integrity. This provision parallels a

similar provision in Part 120 of SBA's regulations, dealing with

ineligibility for SBA financial assistance. It would also now include a

new paragraph (c) that states that any wholesaler that applies for 8(a)

BD participation need not demonstrate that it can supply the product of

a small business manufacturer. Although SBA's nonmanufacturer rule

generally requires a regular dealer or wholesaler to supply the product

of a small business in order to be considered small for a specific 8(a)

or small business set aside procurement), the 8(a) BD program should

not be viewed solely as a contracting program. There is other business

development assistance available to Participants which should not be

foreclosed because of the nonmanufacturer rule. Moreover, the

availability of small business manufactured products can change

significantly over a Participant's program term. Wholesaler applicants

to the 8(a) BD program should be aware, however, that they must meet

the requirements of the nonmanufacturer rule in order to be awarded

specific 8(a) contracts.

In addition, a new Sec. 124.108(d) would be added that would

authorize SBA, in its discretion, to reject an application if the

applicant's primary industry classification falls within an industry

where actual participation by disadvantaged businesses in Government

contracting in a particular industry exceeds the benchmark limitations

established under the DOJ proposal by the Department of Commerce for

that industry. SBA would consider the developmental needs of the firm,

as well as contracting opportunities outside its primary SIC code. A

firm whose application was rejected on this basis could resubmit its

application earlier than the normal 12 month waiting period whenever

the benchmark was adjusted or a determination made that the benchmark

was no longer exceeded. Similar language regarding the achievement of

benchmarks in a particular industry would also be added to new

Secs. 124.302(c) and 124.403(c) to permit SBA to accelerate graduation,

and would be added to Sec. 124.504(d) to permit SBA not to accept an

8(a) offering in an industry in which the benchmark is achieved.

The proposed rule would delete current Sec. 124.109. Some of these

provisions are duplicative of other sections of part 124, or part 121,

or the Federal Acquisition Regulation. A few have been incorporated

elsewhere in this proposed rule. The rule also proposes to delete

franchisees as businesses that are ineligible (i.e., making them

eligible) for 8(a) BD participation.

Current section 124.110 would be clarified, streamlined, and

redesignated as proposed Sec. 124.2.

Proposed Sec. 124.112(c) repeats the current provision (current

Sec. 124.111(d)) that SBA will review a Participant's eligibility upon

receipt of information that the Participant no longer meets continued

8(a) eligibility requirements. The proposed rule requires that the

information received be ``specific'' and ``credible.'' Under the

proposed rule, sufficient reasons for SBA to conclude that a

Participant is no longer economically disadvantaged include, but are

not limited to, demonstrated access to a significant new source of

capital or loans, an unusually large amount of funds or other assets

withdrawn from the concern by its owners, or substantial personal

assets, income or net worth of any disadvantaged owner. The term

``excessive withdrawals'' is defined elsewhere in the proposed

regulation at Sec. 124.303(a)(13). SBA asks for comments on how better

to clarify a ``demonstrated access to a significant new source of

capital or loans.''

Proposed Sec. 124.112 would also add needed enforcement mechanisms

to the existing regulation discouraging excessive withdrawals from

Participants by their owners or managers. Certain Participants have

suggested that, if net worth continues to increase, large withdrawals

should be allowed as not detrimental to attainment of their business

objectives. SBA disagrees, and believes this restriction is necessary

to safeguard the development of Participant concerns toward economic

viability. Participants will increase their net worth more and will

achieve greater success if they avoid excessive withdrawals by their

owners and managers.

Section 124.112, redesignated as proposed Sec. 124.109, eliminates

the present paragraph (c)(2)(iv) which previously allowed a Participant

owned by an Indian tribe to joint venture with a large concern to

perform an 8(a) contract. The statutory authority for this provision

has expired. Proposed Sec. 124.109 also would delete other obsolete and

duplicative provisions. Additionally, it would eliminate the

requirement that a tribally-owned or ANC-owned concern demonstrate that

the primary economic benefits of the concern accrue to the tribe or ANC

by

[[Page 43589]]

being located on tribally-owned or ANC-owned land or otherwise. SBA has

previously interpreted the requirement as not applying to ANC-owned

concerns, but believes that it should also not apply to tribally-owned

concerns. In other ways the proposed rule would treat tribes and ANCs

and their 8(a) entities more similar. Tribes and ANCs would be

restricted from qualifying a new 8(a) concern possessing the same

primary SIC as another 8(a) concern only if the other concern has been

operating in the 8(a) program within the previous two years. Finally,

it would more narrowly focus management restrictions on tribally-owned

concerns to enhance development opportunities.

Section 124.113, redesignated as Sec. 124.110, would add an

exclusion from affiliation for concerns owned by a Native Hawaiian

Organization, prohibit a Native Hawaiian Organization from owning more

than one current or former Participant having the same primary industry

classification, and exclude from the one-time individual eligibility

requirement any individual who merely manages a concern owned by a

Native Hawaiian Organization. These changes would achieve consistency

with restrictions on other non-individual owners.

The proposed rule would redesignate Sec. 124.114 as Sec. 124.111.

Equating CDCs with Indian tribes, the proposed rule would permit

concerns that are at least 51% owned by a wholly owned business entity

of a CDC to be eligible for 8(a) BD participation.

It would amend Sec. 124.201 by deleting the last sentence of this

section which became obsolete when waivers to the two year in business

rule were statutorily required, and amend section 124.202 to revise

obsolete language and clarify its meaning. It would transfer

Sec. 124.203 to the sections pertaining to business development,

redesignating it as proposed Sec. 124.401.

It would delete Sec. 124.204 as duplicative of language in other

sections of part 124, and redesignate Sec. 124.205 as Sec. 124.203.

Section 124.206, redesignated as proposed Sec. 124.204, would

delete duplicative language from paragraph (a), which is contained in

proposed Sec. 124.206, and add new proposed Secs. 124.204 (b) and (c).

For further clarity, this section would delete obsolete and duplicative

language in current Secs. 124.206 (b) and (c), and redesignate current

Sec. 124.206(c)(4) as a separate proposed Sec. 124.207.

Proposed Sec. 124.204(b) would further clarify that the AA/8(a)BD's

decision to approve or decline an application for 8(a) BD program

participation would be based on whether the applicant concern complied

with each of SBA's eligibility criteria at the time the concern's

application for admission to the 8(a) BD program is deemed to be

complete by the DPCE field office. A change in circumstances submitted

by an applicant concern subsequent to the date that an application is

deemed to be complete by the DPCE field office would not be considered,

unless it causes a loss of eligibility. The structure of the concern,

including all necessary corporate or other organizational formalities,

would have to be in place prior to the DPCE field office's processing

of an application. A disadvantaged individual's ability to immediately

change the applicant's structure or cause a change in its control so

that actual control of the concern is in the hands of disadvantaged

individuals and/or other eligibility criteria are met would not satisfy

the requirement that they be met at the time of the completed

application. The rule would specify, however, that SBA, in its sole

discretion, could request clarification of information contained in the

application at any stage in the application process. SBA would

obviously consider any information submitted in response to a request

by SBA.

The decision of the AA/8(a)BD to approve or decline an application

for 8(a) BD program admission would then be based on whether the

application, as clarified by any information submitted in response to a

request by SBA, demonstrates that the applicant concern complies with

each of SBA's eligibility criteria. While SBA would be able to request

and consider additional information in processing an 8(a) BD

application, SBA would not consider information volunteered by an

applicant concern after it submits its application. This clarification

is needed to streamline the application process and ensure that SBA

meets its statutorily imposed time limitation for processing

applications.

The proposed rule would redesignate Sec. 124.207 as Sec. 124.301,

amend redesignated Sec. 124.302 by revising obsolete references, and

specifically authorize a Participant to voluntarily ``graduate'' prior

to the expiration of its program term.

The examples of what constitutes ``good cause'' for terminating a

Participant from the 8(a) BD program would be amended from current

Sec. 124.209(a) in proposed Sec. 124.303. Several examples of good

cause previously listed for terminating a Participant would be dropped

in the proposed rule and a few new examples would be added. As before,

the examples of ``good cause'' are illustrative only. SBA's decision to

drop several examples of good cause should in no way be read to infer

that SBA no longer considers those situations as valid reasons for

termination. That is not SBA's intent. The proposed rule would also

define what constitutes an ``excessive'' withdrawal for purposes of

determining whether termination is warranted.

The procedures for graduation and termination currently contained

in Secs. 124.208 and 124.209 would be combined into proposed

Sec. 124.304 to eliminate unnecessary duplication and clarify confusing

language. The term graduation previously used in the regulations would

be changed to ``early graduation.'' Through the years, many people have

used the terms ``graduation,'' ``graduation date,'' and ``graduated

8(a) firm'' to describe the situation where a Participant has exited

the 8(a) BD program through nothing more than the expiration of its

program term. This proposed rule would recognize the use of the term

graduation in this context, and would refer to graduation prior to the

expiration of a firm's program term under proposed Secs. 124.302 and

124.304 as ``early graduation.''

Where an SBA district office initiates early graduation or

termination by sending a Notification of Early Graduation or

Termination to the concern, the allowable response time would be

reduced from 45 days to 30 days after service of the Notification (the

date that it is mailed, FAXed or hand delivered to the concern). SBA

would then review any information submitted by the concern. If the

Assistant Administrator of the DPCE decides that early graduation or

termination is not appropriate, he or she will notify the concern. If

it appears appropriate, the Assistant Administrator will forward that

recommendation to the AA/8(a)BD for a final decision. SBA will not take

early graduation lightly, but will initiate it in appropriate

circumstances. As part of the early graduation process, SBA will also

attempt to reduce any adverse impact on the Participant's business

development.

Current section 124.210 would be eliminated as a separate section

setting forth all appeal rights to SBA's Office of Hearings and Appeals

for the 8(a) BD program. Appeal rights for denials of 8(a) BD

eligibility would be contained in proposed Sec. 124.206, while the

appeal rights for early graduation, termination, suspension, or denial

of a request for waiver under current Sec. 124.317 would

[[Page 43590]]

be contained in the proposed sections dealing with those substantive

areas. A minor revision would be made to the first sentence of

paragraph (b), and a new second sentence added to clarify that an OHA

decision is the final Agency decision. The remainder of paragraph (b)

and paragraphs (c), (d), (e), (f), (g), (h), (i), and (j) would be

moved from part 124 to a new subpart C of part 134 of this chapter.

Current section 124.211 would be redesignated as proposed

Sec. 124.305. Redesignated Sec. 124.305 would be amended to revise

obsolete references, and reorganized to transfer procedural rights for

OHA appeals to part 134 of this title. The period to file an appeal

would be extended from 30 to 45 days to be consistent with part 134.

SBA is also considering ``suspension'' as a tool where ownership or

control changes and a Participant seeks approval of its changed

ownership or control. Where ownership or control of a Participant

changed prior to SBA's approval, and the Participant seeks SBA's

approval after the fact, SBA would suspend the Participant pending

SBA's resolution of the request to change its ownership or control.

The proposed rule would separate general business development

provisions and those dealing with contractual assistance into two

distinct substantive categories. Thus, the provisions currently

contained in Secs. 124.300-124.321 would be separated into Business

Development (proposed Secs. 124.401-124.405) and Contractual Assistance

(proposed Secs. 124.501-124.519). Most of these provisions would be

reorganized and/or clarified under the proposed rule.

Section 124.300 would be deleted from the final rule as

unnecessary.

Section 124.301 (proposed Sec. 124.402) would be divided into more

subheadings for ease of use. It would eliminate the requirement that a

Participant must have specified SIC codes in its approved business plan

(other than the entry requirement that an applicant must identify its

primary SIC code for initial size eligibility), and no longer treat a

concern as ineligible for any 8(a) contracting opportunity for which a

contracting officer has assigned a SIC code not in its approved

business plan. SBA believes that a Participant should not be denied the

opportunity to receive and perform an 8(a) contract where a procuring

agency determines the firm to be capable to perform the requirement,

simply because the firm does not have a particular SIC code in its

approved 8(a) business plan. This also eliminates the need for a

Participant to go through a sometimes lengthy and burdensome process

seeking to add additional SIC codes to its business plan after being

admitted to the 8(a) BD program. While an applicant would still be

required to give a detailed description of the products it produces and

services it performs, SBA would not prohibit the award of an 8(a)

contract solely because a product or service is not so identified. In

such a case, the Participant would still have to demonstrate its

capability and other aspects of responsibility to perform the contract

in question. As long as that burden is met, the Participant could be

awarded the subcontract. Identifying SIC codes, however, may be

beneficial to a concern because it will help SBA in providing business

development assistance.

An applicant must still identify its primary industry

classification. This identification is needed in order to permit SBA to

determine initial size eligibility. The requirement to submit an annual

capability statement would be moved from the miscellaneous reporting

requirements provision of current Sec. 124.501 to be included within

the requirement defining how a business plan is updated (proposed

Sec. 124.403). That part of current Sec. 124.501(a) addressing what SBA

does with capability statements would be moved to proposed

Sec. 124.501(e) of this proposed rule.

Section 124.303 (proposed section 124.404) would be revised by

eliminating obsolete references to the dates certain Participants were

admitted to the program or received their first 8(a) contract. Those

provisions were relevant to the length of 8(a) BD participation at the

time Public Law 100-656 was enacted, but are not relevant today. The

section would also be rewritten for clarity.

The reserved sections 124.304 and 124.305 would be eliminated in

this proposed rule.

Section 124.306, financial assistance for skills training, would be

eliminated from the regulations in the proposed rule because SBA has

not received funding from Congress for this program.

The proposed rule would add a new section 124.405, detailing how a

Participant may obtain Federal Government surplus property. The

authority for Participants to receive Federal surplus property was

created in Public Law 100-656. Section 301(b) of the Business

Opportunity Development Act of 1988, Pub. L. 100-656, 102 Stat. 3853,

amended the Small Business Act by adding a new section 7(j)(13)(F), 15

U.S.C. 636(j)(13)(F), which authorizes the transfer of surplus property

owned by the Federal Government to Participants under certain

conditions. This proposed rule would implement that authority in

regulation form for the first time.

The proposed rule would detail the procedures for, and conditions

upon which, the transfer of Federal Government surplus property could

be made to Participants. Such transfers would be made from the U.S.

General Services Administration (GSA) through State Agencies for

Surplus Property (SASPs) to eligible Participants. Transfers to SASPs

from GSA would be made in accordance with the procedures set forth in

41 CFR Part 101-44. Although the statutory language of section

7(j)(13)(F) of the Small Business Act, 15 U.S.C. 636(j)(13)(F),

authorizes that ``such property * * * be transferred to program

participants on a priority basis,'' the proposed rule would permit

Participants to participate in the surplus property distribution

program administered by the SASPs to the same extent as, but with no

special priority over, other authorized donees. See 41 CFR Subpart 101-

44.2. The Participant would have to certify in writing that it is

eligible to receive the property and that it will use the property only

for normal business activities. The Participant would have to agree to

a fair market value assigned to the acquired property, and if the firm

were to sell the property before one year after exiting the program, it

would have to repay to the Federal Government the agreed upon fair

market value of the property, or the sales price, whichever was

greater.

The proposed rule would detail the eligibility requirements a

Participant must meet to obtain Federal surplus property. Generally, a

Participant would be able to receive surplus property if it is in good

standing with the 8(a) BD Program as of the date it is to receive the

property. The firm would have to be in compliance with all reporting

requirements imposed by program management, and must not have been

debarred or suspended from receiving contracts. The firm also could not

be the subject of any termination or early graduation proceedings.

Finally, the firm would have to qualify as a small business for at

least one product or service identified in its business plan that it

produces or performs.

Proposed Secs. 124.501-124.517 would contain most of the substance

currently in Secs. 124.307-124.321, but in a revised organizational

structure for easier use. Proposed Secs. 124.518 and 124.519 would be

new provisions.

Section 124.307 (proposed section 124.501) would be redrafted for

clarity and revised by adding a provision

[[Page 43591]]

encouraging Participants to self-market their capabilities to increase

their chances of receiving 8(a) sole source contracts. SBA believes

that it is vital that Participants realize the importance of self-

marketing to their development in the 8(a) BD program. This revised

section would also recognize that SBA may delegate its 8(a) contract

execution function to procuring agency contracting officers where

appropriate. It is SBA's intent to enter into a Memorandum of

Understanding (MOU) with each procuring agency or activity that wishes

to receive a delegation of SBA's 8(a) contract execution and review

functions. SBA has a model MOU that would be modified according to the

particular circumstances of each agency or activity. It would only be

the rare case where SBA would not approve an MOU signed by an agency or

activity. SBA would, however, have the authority to rescind the

delegation where it saw fit. This would include cases where an agency

or activity failed to report all 8(a) contract awards, modifications,

and options to SBA in a timely manner.

The proposed rule would clarify the requirements relating to offers

and acceptances of procurements for the 8(a) BD program. Currently,

both the offer and acceptance processes are contained in Sec. 124.308.

The proposed rule would separate the offering provisions from the

procedures relating to SBA's acceptance of a procurement into proposed

Secs. 124.502 and 124.503, respectively.

Section 124.308(c) (proposed Sec. 124.502(b)) would specify the SBA

locations to which contracting officers must offer requirements to the

8(a) BD program. This clarification is needed in light of other recent

changes made by SBA in eliminating local and national buy requirements.

Under the proposed rule, all requirements that are offered to the 8(a)

BD program as competitive procurements and those sole source

requirements that are offered to the program without nominating a

specific Participant (i.e., open requirements) would be offered to the

SBA district office serving the geographical area in which the offering

procuring agency is located. The only exception to this provision would

be in the case of a construction requirement where the work to be

performed is in a different location than that of the procuring agency.

In such a case, an offering must be made to the SBA district office

serving the geographical area in which the work is to be performed.

Sole source requirements that are offered to the 8(a) BD program on

behalf of a specific Participant would be offered to the SBA district

office serving the geographical area in which the principal place of

business of the Participant is located.

SBA's verification of the SIC code assigned to a particular 8(a)

contract would be moved from Sec. 124.308(b)(1)-(2) (where it was part

of the ``requirement identification'' process) to proposed

Sec. 124.503(b) (where it is clearly identified as a step in SBA's

acceptance of a procurement for the 8(a) BD program).

The proposed rule would amend the provision dealing with formal

technical evaluations (proposed Sec. 124.503(e)). Specifically, SBA

would exclude Brooks Act procedures applying to architect-engineer

services (as set forth in FAR subpart 36.6) from the general

requirement that SBA will not authorize formal technical evaluations

for sole source 8(a) requirements. In practice SBA has recognized the

Brooks Act procedures, but believes that a specific provision in the

regulations would clarify its policy in this regard.

The proposed rule would add a new provision pertaining to Basic

Ordering Agreements (BOAs) as a method of contracting under the 8(a)

program (proposed Sec. 124.503(g)). Under SBA's current regulations,

SBA believes that BOAs could be used to circumvent the statutory

requirement that 8(a) procurements with an anticipated award value in

excess of $3 million or $5 million be competed among eligible

Participants. Each order issued under a BOA, and not the BOA itself, is

a contracting action. A procuring agency could issue a series of $2-3

million task orders under a BOA without ever competing the basic

procurement requirement. SBA believes that this is contrary to

Congressional intent. As such, under the proposed rule, SBA would not

accept any task order for award as an 8(a) contract if that task order

added to the total task orders issued to date would exceed the

applicable competitive threshold amount, unless the BOA itself was

awarded on the basis of competition among eligible Participants. SBA

would also determine eligibility for an order under a BOA at the time

of the issuance of the order. This would require a concern to remain a

small business at the time the order is to be issued and would prohibit

orders from being issued to concerns whose program terms have expired

or who have otherwise exited the 8(a) BD program.

Proposed Sec. 124.504 would clarify the circumstances limiting

SBA's ability to accept a procurement for award as an 8(a) contract.

Existing Secs. 124.309 (a) and (b) would be combined into one paragraph

(proposed Sec. 124.504(a)). The proposed rule would add a new provision

(proposed Sec. 124.504(b)) that would prohibit a procuring agency from

initiating the competitive process for an 8(a) requirement prior to

obtaining SBA's acceptance of the requirement for the 8(a) BD program.

Any competition so held would not be considered an 8(a) competition. If

a procuring agency still wanted to fulfill its requirement through the

8(a) BD program, the requirement would have to be offered to and

accepted by SBA for the 8(a) BD program, and the procuring agency would

have to use applicable 8(a) competitive procedures after the

acceptance. A new solicitation would have to be issued, and new offers

submitted and evaluated.

The proposed rule would broaden the concept of adverse impact

(current Sec. 124.309(c); proposed Sec. 124.504(c)), finding that

``adverse impact'' could be found to exist where several requirements

currently being performed by different small business concerns are

consolidated into one larger requirement which could be considered

``new'' under SBA's regulations due to the magnitude of the

consolidated requirement. This rule would permit SBA to find adverse

impact whenever at least one of the small business concerns losing work

that is to be consolidated meets the presumption of adverse impact. The

proposed rule would also add objective criteria for determining whether

a requirement is new. Under the proposal, the expansion or modification

of an existing requirement would be considered a ``new'' requirement

where the price (adjusted for inflation) increases by more than 25% or

where significant additional capabilities are added to the requirement.

Proposed Sec. 124.504(e) would clarify the limited instances where

SBA may reject the offer of a repetitive 8(a) acquisition to give a

Participant that is leaving or has left the 8(a) BD program the

opportunity to compete for the requirement outside the 8(a) BD program.

The proposal would require the applicable (former) Participant to

qualify as a small business concern for the requirement now offered to

the 8(a) BD program before SBA considers releasing the requirement from

the 8(a) BD program.

The proposed rule would eliminate section 124.310 as unnecessary or

duplicative. Debarment and suspension is adequately covered in the FAR.

Current Sec. 124.314 (proposed Sec. 124.509), deals with the required

percentages of work that a Participant must perform on any 8(a)

contract and need not be duplicated in this section.

[[Page 43592]]

Current section 124.311 would be separated into two sections:

proposed Sec. 124.506, regarding the dollar thresholds above which

procurements accepted for 8(a) award must be competed among eligible

Participants, and proposed Sec. 124.507, describing the procedures that

apply to competitive 8(a) procurements. Proposed Sec. 124.506 would

eliminate unnecessary language, but leave most of the substance of

current Secs. 124.311 (a)-(e) unchanged. It would clarify that there is

no order of precedence between accepting requirements for competition

and accepting requirements for sole source award above the applicable

threshold amounts for a tribally-owned or ANC-owned concern. Current

Sec. 124.311(d) permits SBA to accept a contract opportunity above the

applicable competitive threshold amount for a sole source 8(a) award

where SBA determines that only one eligible Participant in the 8(a) BD

portfolio is capable of performing the requirement at a fair price. The

proposed rule would eliminate this authority. SBA believes that such a

requirement should either be awarded under the sole source authority of

the FAR, if applicable, or competed as a small business set aside

requirement or as an SDB set-aside contract, where appropriate.

Proposed Sec. 124.507 would set forth the procedures applicable to

competitive 8(a) procurements. This proposed section would clarify how

SBA determines whether an apparent successful offeror in an 8(a)

competition is eligible to receive the award. SBA believes that the

eligibility process will be much easier to follow and understand under

this proposal. The proposal would also clarify which Participants

engaged in construction may submit offers in response to competitive

8(a) construction requirements. The proposed rule would limit

eligibility to those Participants located within the geographical

boundaries of one or more SBA district offices (looking first to the

district office serving the area in which the work is to be performed).

Any concern with a bona fide place of business in the applicable

geographic area would be eligible for the procurement. In order to be

considered a bona fide place of business, the Participant would have to

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

individual within that geographical boundary. Construction trailers or

other temporary construction sites would not qualify as bona fide

places of business under the regulation, nor would merely occupying a

government-furnished office to oversee the performance of a specific

contract qualify as having a bona fide place of business within that

geographic location. The term is meant to extend beyond one or more

individual contracts. SBA specifically requests comments on how best to

define ``bona fide place of business,'' and how eligibility for 8(a)

construction procurements should be limited.

Proposed Sec. 124.507(b)(5) would add the Certificate of Competency

(COC) procedures to competitive 8(a) procurements. Where a procuring

agency contracting officer finds the apparent successful offeror for a

competitive 8(a) procurement not to be responsible to perform the

contract, he or she would be required to refer the Participant to SBA

for a possible COC under the procedures set forth in Sec. 125.5 of this

chapter. SBA seeks to make competitive 8(a) procurements as similar as

possible to non-8(a) Government contracting procedures. COC procedures

would not, however, be available for sole source 8(a) procurements. In

most cases, the procuring agency would have selected the Participant

for the sole source contract by assessing the firm's capabilities prior

to offering the procurement to SBA. It is unlikely that the procuring

agency would select a Participant, go through negotiations with the

firm, and then find the firm not to be responsible. If that does

happen, or if the procuring agency determines that a firm nominated by

SBA for an open requirement cannot perform the contract, SBA would

review the situation to determine whether it agrees with the procuring

agency. If SBA agrees, it can nominate another Participant to perform

the contract, if one exists that is found to be eligible and

responsible for the requirement, or it can permit the agency to

withdraw the requirement from the 8(a) program if an eligible and

responsible Participant is not found. If SBA does not agree, it can

appeal the procuring agency's decision to the head of the procuring

agency pursuant to Sec. 124.505.

Proposed Sec. 124.507(d) (current Sec. 124.311(i)) would clarify

SBA's implementation of Sec. 8(a)(1)(C) of the Small Business Act, 15

U.S.C. Sec. 637(a)(1)(C), which authorizes competitive 8(a) awards in

limited circumstances to firms which have completed their terms of

participation in the 8(a) BD program. Of particular note, eligibility

would be determined as of the initial date specified for the receipt of

offers set forth in the solicitation without regard to extensions of

time through amendments to the solicitation. The only legislative

history to the statutory provision authorizing competitive 8(a) awards

to firms which have completed their terms of participation in the 8(a)

BD program indicates that Congress did not want Participants to go

through the expense of submitting offers for competitive 8(a)

procurement requirements only to be told that they were ineligible for

such requirements months later at the time of award. See 136 Cong. Rec.

S17645, S17648 (daily ed. October 27, 1990) (statement of Sen.

Bumpers). In addition, Congress was concerned that competition among

firms in the later stages of program participation would be discouraged

if firms felt that they could be deemed ineligible after going through

the expense of preparing an offer for a competitive 8(a) procurement

requirement. Id.

The proposed amendment would be consistent with these Congressional

purposes. The date for determining eligibility is firmly established

and cannot change during the procurement process. With such a date

certain, firms know up front if their program term will expire prior to

that specified date. Offers cannot be prepared amid uncertainty that

the date for determining eligibility could be changed. As such, firms

are not dissuaded from participating in 8(a) competitive procurements

during the later stages of their participation terms.

Proposed Sec. 124.508 would contain the requirements relating to

competitive business mix targets. The proposed rule would eliminate

obsolete language contained in current Sec. 124.312 regarding modified

business activity targets. It would also tighten the language

throughout the section, eliminating unnecessary wording where

appropriate.

Proposed Sec. 124.508(d) would revise SBA's policy on imposing

remedial measures on Participants that fail to meet their applicable

competitive business mix targets. Recent audits and reports have

revealed that SBA needs to do a better job of encouraging firms to

develop in ways that will ensure their success in the competitive

marketplace after program completion. Too many firms are not meeting

competitive business mix targets during the transitional stage of

program participation.

If a Participant fails to meet its competitive business mix target

during any year in the transitional stage, it would be ineligible for

sole source 8(a) contracts during the succeeding program year unless

the Participant corrects the situation. A Participant that fails to

meet its applicable competitive business mix target during the

transitional stage of program

[[Page 43593]]

participation may attempt to meet the competitive business mix target

as part of the normal annual review process, or it may elect to submit

quarterly information regarding its non-8(a) revenue and contract

awards in an attempt to comply with the competitive business mix

requirements prior to its annual review. Where the Participant elects

to submit information to SBA, SBA would monitor the Participant's

revenues quarterly to determine whether the Participant has come into

compliance. At its 3-month or 6-month review, a Participant would be

required to demonstrate that it has received non-8(a) revenue and/or

new non-8(a) contract awards that are equal to or greater than the

dollar amount by which it failed to meet its competitive business mix

target for the just completed program year in order to again be

eligible to receive 8(a) sole source contracts for the remainder of the

program year. Compliance with the competitive business mix target for

that program year would again be determined at the end of the program

year. If the firm did not meet that target, it would again be

ineligible for 8(a) sole source contracts in the succeeding program

year unless and until it came into compliance during the succeeding

program year. In order for a Participant to come into compliance with

the competitive business mix target during the last six months of the

current program year (i.e., at either the nine-month or one year

review), it would be required to demonstrate that it has achieved its

competitive business mix target as of that point in the current program

year. At the 9-month or one-year review, SBA would look at all revenues

received during that program year (including options and modifications)

to determine whether the firm has achieved the competitive business mix

target for that year. If it has, it would again be eligible for 8(a)

sole source contracts; if it has not, it would remain ineligible for

8(a) sole source contracts. Additional remedial measures would continue

to be authorized where appropriate, including program termination where

the Participant makes no good faith efforts to obtain non-8(a)

revenues.

Current section 124.313 would be eliminated as unnecessary.

Proposed Sec. 124.509 would incorporate the substantive provisions

currently contained in Sec. 124.314, but would cross reference the

performance of work requirements contained in Sec. 125.6 of this

chapter. Proposed Sec. 124.510 would do the same for those requirements

currently contained in Sec. 124.315. Again, clarification would be made

wherever appropriate.

Proposed Sec. 124.511 would authorize SBA to delegate all

responsibilities for administering an 8(a) contract to the appropriate

procuring agency contracting officer except for the approval of

novation agreements. It would eliminate the reference to advance

payments contained in current Sec. 124.316. It clarifies that a

procuring agency may execute an in-scope 8(a) modification without

SBA's signature.

Proposed Sec. 124.512 would set forth the requirements for entering

into a joint venture agreement to perform an 8(a) contract. SBA

proposes several changes to this section from the provisions currently

contained in Sec. 124.321. Proposed Sec. 124.512(a)(2) would require

that a Participant seeking to joint venture with another firm bring

something of value to the joint venture arrangement other than its

status as an 8(a) concern. While the regulation would continue to state

that a joint venture agreement is permissible only where an 8(a)

concern lacks the necessary capacity to perform the contract on its

own, it would specify for the first time that where SBA concludes that

the 8(a) concern brings very little to the joint venture relationship

except its 8(a) status, SBA will not approve the joint venture

relationship. An 8(a) concern may lack the necessary management,

technical and financial capacity to perform a contract the size of the

joint venture contract on its own, but it cannot be totally reliant on

its proposed joint venture partner. The purpose of permitting joint

ventures is to enable an 8(a) firm to gain experience and know-how so

that it can become self-reliant in the future. If the 8(a) concern will

not be developing its own capabilities in any meaningful way, the joint

venture will not be approved. It is also SBA's intent to delegate the

approval of joint venture relationships from the AA/8(a) to the local

SBA district offices.

As described above for amendments to the size regulations, the

proposed rule would permit joint ventures for competitive 8(a)

procurements between two or more small businesses (at least one of

which is an 8(a) Participant whose size is smaller than one half the

size standard corresponding to the SIC code assigned to the

procurement--an eligible 8(a) Participant) so long as each small

business is individually small. One of the eligible 8(a) Participants

must be the lead entity in the joint venture, and the eligible 8(a)

Participants combined must perform the applicable percentage of work

required by proposed Sec. 124.509.

Joint ventures for sole source 8(a) procurements and competitive

8(a) procurements that do not exceed one half the size standard

corresponding to the SIC code assigned to the procurement would

continue to be authorized under current requirements, unless a mentor/

protege relationship exists, as discussed below. The joint venture

partners would be considered affiliates, and their revenues or

employees aggregated in determining whether the joint venture qualifies

as small.

The rule would also move certain requirements contained in ``Other

requirements'' of current Sec. 124.321(d) to provisions that must be

contained in the joint venture agreement itself.

The proposed rule would transfer current Sec. 124.321(i) concerning

joint ventures for Small Disadvantaged Business (SDB) set-asides and

evaluation preferences to proposed Sec. 124.1002(f) of subpart B of

these regulations. SBA believes that moving SDB joint ventures into the

subpart dealing with SDB protests and appeals makes more sense

organizationally.

Proposed Sec. 124.513 would contain the provisions currently

contained in Sec. 124.318, but eliminate duplicative language.

The provisions of Sec. 124.317 requiring an 8(a) contract to be

performed by the Participant that was initially awarded it, and

requiring the contract to be terminated for convenience if there is a

change in the ownership or control of the concern, would be

incorporated into proposed Sec. 124.514, with minor clarifications. The

proposed rule would specify that only physical or mental incapacity

(and not factors like criminal incarceration or bankruptcy) could

justify a waiver of the termination for convenience requirement imposed

by this section. In addition, this section would make clear that the

concern requesting a waiver must demonstrate that it has met the

grounds upon which the waiver is being sought. The Agency need not

consider and dismiss every possible basis for waiver. Finally, with

respect to determining whether a Participant seeking to acquire

ownership or control in another Participant is ``otherwise eligible''

to receive the award directly, the proposed rule would require SBA to

consider whether prior to the transaction the acquiring Participant is

eligible for and responsible with respect to each contract to be

transferred. For example, were a concern with ten employees seeking to

acquire a concern with 150 employees, responsibility would be

considered prior to the transaction (i.e., could the ten-employee

concern

[[Page 43594]]

perform the transferring contracts without the resources of the 150-

employee concern).

The proposed rule would add a new paragraph 124.517(c), clarifying

that SBA may substitute one Participant for another (with the consent

of the procuring agency) where the first concern cannot complete

performance of an 8(a) contract, without seeking the approval of the

Administrator under Sec. 124.317. The original 8(a) concern would be

liable for any reprocurement costs, as is now the case.

The proposed rule would separate current Sec. 124.320 into two

sections: One dealing with SBA appeals of the terms and conditions of a

particular 8(a) contract or of a procuring agency decision not to

reserve a requirement for the 8(a) BD program (proposed Sec. 124.505);

and one concerning contract disputes arising between a Participant and

a procuring agency after the award of an 8(a) contract (proposed

Sec. 124.515). Both are clarified for easier use.

Proposed Sec. 124.505 would specify that SBA may appeal to the head

of the procuring agency a contracting officer's decision to reject a

specific Participant for award of an 8(a) contract after SBA's

acceptance of the requirement for the 8(a) BD program. This basis for

appeal has been used many times in practice. SBA believes that it

should be added to the regulation to apprise all contracting officers

of its existence.

Proposed Sec. 124.515 would improve the language of current

Sec. 124.320(a), eliminating unnecessary references to advance

payments, business development expense, and surety bond waivers (all

three of which the proposed rule would also eliminate).

The proposed rule would add a third appeal-related section,

pertaining to the ability of another party to question the eligibility

of a Participant for award of an 8(a) contract (proposed Sec. 124.516).

No party may challenge the eligibility of a Participant for a specific

sole source or competitive 8(a) requirement at SBA or any other

administrative forum. The authority to determine eligibility for an

8(a) contract is exclusively SBA's. Much of this provision is currently

contained in Sec. 124.311(g) for competitive 8(a) requirements, but no

such specific language was set forth for sole source 8(a) requirements.

Prior to the enactment of Public Law 100-656, there were no 8(a)

competitive requirements, and it was clear that a determination

concerning a Participant's eligibility for specific 8(a) contract

awards was exclusively within the jurisdiction of SBA's Office of

8(a)BD. After the enactment of Public Law 100-656, SBA's regulations

were amended to specify that eligibility protests would not be

authorized for competitive 8(a) procurements. This notified interested

parties that SBA intended to make eligibility for competitive 8(a)

procurements consistent with SBA's longstanding practice with regard to

sole source 8(a) procurements (that is, that the Office of 8(a)BD

(Minority Small Business and Capital Ownership Development (MSB&COD) at

that time) would retain exclusive authority for determining eligibility

for any 8(a) contract). The current regulations contain specific

language regarding protest restrictions for competitive 8(a)

procurements, but not for sole source procurements. This proposed rule

would clarify that these restrictions were always meant to apply to

both sole source and competitive 8(a) procurements. The regulatory

language appearing in Sec. 124.311(g) would be moved into this new

provision and would be expanded to apply to sole source 8(a)

procurements as well. Paragraph 124.311(g) would be deleted as

unnecessary.

SBA has historically included a Participant's size as part of a

concern's eligibility that cannot be protested. This proposed rule

would amend that policy with respect to competitive 8(a) contracts.

Another offeror for a competitive 8(a) contract would be able to

protest the size status of the apparent successful offeror in accord

with part 121 of this chapter. In addition, the proposed rule would

authorize appeals of SIC code designations in connection with 8(a)

competitive requirements. The policy for size protests and SIC appeals

would, however, remain unchanged for sole source 8(a) contracts (i.e.,

size protests would not be authorized for sole source 8(a) contracts;

SIC appeals would not be permitted for sole source contracts, except by

the AA/8(a)BD). In connection with a sole source 8(a) contract, any

party may submit evidence to SBA to explain why it believes another SIC

code should be assigned to the procurement. SBA will consider such

information and will seek a SIC code change if it believes that the SIC

code assigned by the procuring agency is unreasonable.

SBA is currently examining ways to further address the perceived

problem of concentration of 8(a) contracts. Concerns about contract

concentration have been cited by several SBA oversight entities,

including the General Accounting Office, SBA's Office of Inspector

General, and the U.S. Senate and House of Representatives Committees on

Small Business. SBA believes that it has addressed this issue, in part,

by removing the indefinite delivery, indefinite quantity exception to

competition (see 60 FR 29969, 29971-72 and 29976), and by limiting sole

source 8(a) awards as described below in proposed Sec. 124.518.

Although not part of this rulemaking, SBA wishes to solicit comments on

how best to achieve a broader distribution of 8(a) contracts beyond

these proposals.

Proposed section 124.518 would authorize most Participants (other

than firms owned by an Indian tribe or an ANC) to receive any

combination of 8(a) sole source and 8(a) competitive contracts up to a

specified dollar amount. Once that dollar amount of 8(a) contracts is

reached, the firm would not be eligible to receive any more 8(a) sole

source contracts, but could remain eligible for competitive 8(a)

awards. For a firm having a revenue-based primary SIC code at time of

program entry, the limit above which it could no longer receive sole

source 8(a) contracts would be set at five times the size standard

corresponding to that SIC code or $100,000,000, whichever is less. For

a firm having an employee-based primary SIC code at time of program

entry, the limit above which it could no longer receive sole source

8(a) contracts would be set at $100,000,000. Under the proposed rule,

SBA would not consider 8(a) contracts awarded under $100,000 in

determining whether a Participant has reached its limit.

This change is designed to promote the equitable distribution of

8(a) contracts to an increased number of 8(a) Participants and to

foster 8(a) business development on a wider scale. Smaller developing

8(a) Participants should have an increased opportunity of receiving

sole source 8(a) contracts. SBA does not view this change as a penalty

for those firms reaching the dollar limit. They will still be eligible

for competitive 8(a) awards. SBA's mission is to advance the

development of Participants so that they can be viable businesses after

graduation from the 8(a) BD program. After a certain amount of contract

support within the 8(a) sheltered market, sole source 8(a) awards may

be counterproductive to a firm's development because they do not

prepare a firm for the competitive marketplace after graduation. A firm

that has received five times its applicable size standard or

$100,000,000 in 8(a) contracts, whichever is applicable, should not

need the business development tool of additional sole source contracts,

and should spend more resources refining its competitive skills. SBA

asks for comments on whether the restriction should apply to

competitive as well as sole source 8(a) contracts once the

[[Page 43595]]

specified level of 8(a) contract dollars has been reached.

Proposed section 124.519 would establish a mentor/protege program.

As proposed, firms that have graduated from the 8(a) BD program and

those that are in the transitional stage of program participation may

be approved as mentors for particular developing 8(a) Participants.

This could include businesses that have grown to be other than small.

The idea is to link firms that have gone through the 8(a) program with

developing 8(a) firms so that the more mature firms can impart their

knowledge and practical experience from their own program participation

to the developing firms. Although the proposed rule limits mentors to

current or former 8(a) Participants, SBA seeks comments on whether

other firms should be mentors. If mentors are limited to current and

former 8(a) Participants, SBA desires comments as to whether former

Participants should be permitted where their ownership or control has

changed since they were in the 8(a) program. SBA also seeks comments

regarding whether a mentor should be able to be a large business, or

whether mentors should be limited to firms that are small in their

primary industry category (whether or not they would qualify as small

under the protege's primary SIC code, or under a particular contract

for which the mentor and protege seek to perform as a joint venture).

Finally, SBA requests comments on appropriate safeguards SBA should

impose on mentors to ensure that mentors do not unjustly benefit from

the 8(a) BD program. SBA recognizes that some commenters may oppose any

mentor/protege program as a method of extending 8(a) participation for

firms that have graduated from the program, or of providing program

benefits to non-disadvantaged firms (if SBA were to allow mentors to be

other than current and former 8(a) Participants). SBA believes,

however, that such a program will provide substantial benefits for

developing 8(a) Participants, and that the assistance received through

the program will enhance their ability to be viable businesses after

they leave the 8(a) BD program.

The advantages to a protege firm in terms of management and

technical assistance, knowledge of the procurement process, and

personal relationships can be substantial. In order to encourage

mentors to participate, the proposed rule would permit a mentor and

protege to joint venture as a small business for various government

procurement opportunities, including procurements less than half the

size standard corresponding to the assigned SIC code and 8(a) sole

source contracts, provided the protege qualifies as small for the

procurement (and has not reached the limit described above in proposed

Sec. 124.518). The mentor/protege relationship would extend beyond the

8(a) BD program, and would encourage mentors and proteges to submit

offers as joint ventures for non-8(a) competitive contracts as well.

Because SBA would waive the affiliation requirements for a mentor/

protege joint venture, more contracts may become available for small

businesses that are 8(a) Participants. The regulation would also permit

a mentor firm to own up to 33% in the protege firm to assist the

protege firm raise needed capital. A protege firm could also qualify

for other assistance as a small business, including SBA financial

assistance, notwithstanding the mentor/protege relationship.

A mentor would have to possess good character and be operating

profitably. A mentor could have no more than one protege at a time. SBA

does not believe that proteges would be adequately served were one firm

able to mentor more than one Participant at a time. In addition, were a

mentor able to have more than one protege at a time, the perception

could exist that the mentor is ``chasing'' many different 8(a)

contracts through its various proteges. For a mentor that has left the

8(a) program or has grown large, there would be a concern that such a

mentor was unjustly benefitting from the 8(a) program. In order to be

recognized as mentors/proteges, the AA/8(a)BD would have to approve a

written agreement between the mentor and protege firms under which the

mentor commits to provide management and/or technical assistance to the

protege firm for at least one year.

The proposed rule would eliminate current Sec. 124.401 dealing with

advance payments. Funding for advance payments does not exist.

The proposed rule would also eliminate current Sec. 124.402,

concerning business development expense (BDE). References to it are

obsolete.

Proposed Secs. 124.601-124.603 would set forth reporting

requirements not contained elsewhere in the regulations. These

requirements are largely unchanged from the current regulations.

However, in keeping with President Clinton's request that Federal

agencies reduce reporting requirements wherever feasible, proposed

Sec. 124.601 would reduce from twice a year to once a year the number

of times a Participant must submit a report to SBA regarding its agents

and other representatives.

Sections 124.701-124.704 of the proposed rule would reduce and

clarify the provisions for its 7(j) management and technical assistance

program (currently contained in Secs. 124.403 and 124.404).

Subpart B, Eligibility, Certification, and Protests relating to

Federal Small Disadvantaged Business Programs, is an entirely new

subpart and is proposed in response to the DOJ's review on Federal

affirmative action procurement programs. Current subpart B, dealing

with SDB protests would be incorporated into the revised subpart. The

subpart would be expanded to include procedures by which Private

Certifiers will determine whether a firm is owned and controlled by one

or more individuals claiming disadvantaged status, procedures by which

a procuring agency or SBA (if the procuring agency has an agreement

with SBA) will certify businesses as SDBs for purposes of all Federal

procurement programs, and provisions defining how firms will be added

to and deleted from an SBA-maintained on line register of SDBs.

The proposed rule would add a clarifying provision that potential

for success would not be considered in determining the disadvantaged

status of a concern for purposes other than the 8(a) BD program.

Potential for success goes to the developmental purposes of the 8(a) BD

program, and should not be a criterion in determining disadvantaged

status for other programs. The proposed rule would add a provision to

the section regarding who can protest the disadvantaged status in an

SDB set-aside or evaluation procurement. It would not permit a firm

that had previously been found not to be disadvantaged for a specific

SDB set-aside to then protest the disadvantaged status of an apparent

successful offeror.

Proposed Sec. 124.1008(c)(2) would provide that the burden is on

the firm seeking an SDB certification to demonstrate that those

individuals claiming disadvantaged status own and control the concern.

Similarly, proposed Sec. 124.1020(c) would provide that the burden is

on the protested concern to demonstrate its disadvantaged status. The

protested concern must submit all information it deems relevant to such

a determination. A protested concern cannot challenge a disadvantaged

status determination by claiming that it did not submit a specific

piece of information because SBA did not request it.

Proposed new subpart D of part 134 would contain the rules of

procedure applying to appeals of denials of 8(a) BD program admission

based solely on a negative finding(s) of social

[[Page 43596]]

disadvantage, economic disadvantage, ownership or control pursuant to

Sec. 124.206; early graduation pursuant to Secs. 124.302 and 124.304;

termination pursuant to Secs. 124.303 and 124.304; and denials of

requests to issue a waiver of the performance of work/termination for

convenience requirements pursuant to Sec. 124.514. The substance of

these provisions was previously contained in Sec. 124.210. This

proposed rule transfers them to part 134 so that all procedures

relating to appeals before OHA are contained in one part of SBA's

regulations. Proposed Sec. 134.406(d) clarifies that where SBA files

its answer to the appeal petition after the date specified in

Sec. 134.206, the Administrative Law Judge may ignore the answer and

base his or her decision solely on a review of the administrative

record. All the Administrative Law Judge has the authority to do is to

determine whether the Agency's decision is arbitrary or capricious. In

order to do so, he or she must review the administrative record.

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 proposed rule would not be considered a

significant rule within the meaning of Executive Order 12866, but may

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.

Regulatory Flexibility Analysis

We do not know the extent to which this proposed rule would have a

significant economic impact on a substantial number of small businesses

but are interested in receiving comments from the public on what they

believe the impact of this regulation will be.

Summary of the Proposed Rule

The SBA's proposed rule would improve and strengthen the 8(a)

program. The rule changes would also respond to the challenges posed by

the findings in the Adarand v. Pena court case and improve the success

rates for firms after participation in the 8(a) program. We believe

this to be the appropriate regulatory alternative to meet the judicial

requirements applicable to the agency.

The proposed 8(a) rule changes fall under four major categories.

They are: (1) Equitable distribution of 8(a) contracts; (2) small

business affiliation rule revisions; (3) a new 8(a) mentor-protege

program; and (4) SBA's responsibilities for implementing the Small

Disadvantaged Business (SDB) contracting program authorized by the

Federal Acquisition Streamlining Act and developed during the U.S.

Department of Justice's post-Adarand affirmative action review and

recommendations.

The proposed 8(a) regulations would make changes to the existing

regulations designed to distribute 8(a) contracts more equitably and

encourage participating 8(a) firms to compete more effectively for

contracts. The regulation would enhance the ability of 8(a) firms and

other small businesses to obtain larger prime contracts that would be

normally out of the reach of individual small businesses. Also, by

establishing an 8(a) mentor-protege program, SBA would allow

participants in the 8(a) program to tap into the expertise and capital

of 8(a) graduates or more advanced participating firms. Lastly, the

proposed 8(a) regulations would provide the guidelines needed to

conform SBA's rules and procedures to the Department of Justice's post-

Adarand guidelines, including SBA's responsibility to certify

participating SDB firms and maintain and provide oversight for a

national network of private sector SDB certifiers.

This proposal applies to all current and eligible participants in

the SBA 8(a) program and all eligible small disadvantaged businesses

(SDBs) that seek to do business with the federal government as

contractors.

Current Program Participants

At present, there are approximately 5,800 SBA certified 8(a) firms.

Based on information from the SBA PASS system, there are approximately

34,000 minority or SDB firms seeking contracts with the federal

government. All 8(a) firms meet the eligibility requirements of an SDB

firm and are included in the 34,000 number. Pursuant to PASS, there are

an additional 37,000 non-minority women-owned firms and 3,000 non-

minority disabled veteran-owned firms seeking contracts with the

federal government. Any or all of these additional 40,000 firms could

also seek SDB certification through SBA under SBA's new subpart B of

part 124.

In FY '96, 8(a) firms received $6.3 billion in federal contracts

and SDBs about $10.3 billion. The $10.3 billion in contracts to SDBs

represents about 5 percent of all federal contract dollars spent in FY

'96. In addition, the federal contract dollars that went to SDBs is

about 25 percent of all federal receipts that went to small businesses

for the same period.

It is believed that this rule will benefit eligible 8(a) and SDB

firms because it simplifies and clearly defines eligibility

requirements, especially for SDBs; streamlines the operation of the

8(a) program; increases partnering opportunities by easing affiliation

rules; and, improves business assistance provided by the SBA. It is

estimated that, under this proposal, the number of certified 8(a)

programs will increase by 10 percent and the number of SDBs seeking

federal contracts will increase by 20 to 30 percent.

Universe of Potential Program Applicants

The last official U.S. Census Statistics on women and minority-

owned firms are for 1992; these data were released in 1996. In 1992,

there were 2.0 million total minority-owned firms. Of these, 312

thousand (15.6 percent) had employees. If the growth in minority firms

between 1992 and 1997 is the same as it was between 1987 and 1992 --a

conservative assumption--then an estimate of total minority firms would

be 3.3 million in 1997 and perhaps half a million with employees. For

the most part, only firms with employees would be affected by this

proposal. The latter, of course, are only educated assumptions based

upon extrapolations.

An estimate of the racial composition of minority owned firms with

employees would be: Black (32 percent), Hispanic (38 percent), and the

cluster of Asian-American/Pacific Islanders/Native Americans, and

Alaska Natives (30 percent).

By gender, 63 percent of minority owned firms in 1992 were likely

to be owned by men; 37 percent were owned by women. For minority firms

with employees, about 71 percent of the minority owned firms were

likely to be owned by men; 29 percent were likely to be owned by women.

Including regular C corporations, women owned 6,407 million firms

in 1992. Of these 1,25 million firms (19.4 percent) had employees.

Based on estimates by the National Association of Women Business

Owners, there are nearly 8.0 million women-owned firms in 1996, we can

extrapolate that there were about 1.55 million women-owned firms with

employees in 1996.

With this large pool of businesses which may at some point apply to

the SBA's programs, we can anticipate that the number of 8(a)

participants and SDBs will increase, but cannot estimate the magnitude

of the increase or its effect on firms that have or may obtain

contracts in the future. We believe that the impact of these regulatory

changes will be beneficial to small business and,

[[Page 43597]]

again, would be interested in receiving any information that would shed

additional light on the specific impact of these proposed regulations.

The rule is not, however, 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 of 1995 (Pub. L. 104-

13), SBA certifies that this proposed rule, if adopted in final form,

would contain no new reporting or recordkeeping requirements. Although

the proposed rule would require small disadvantaged business concerns

to submit evidence that they are owned and controlled by one or more

disadvantaged individuals to private certifiers, and representations of

group membership or evidence of disadvantaged status to SBA, in order

to become certified as an SDB, the information sought is the same as

that currently required for participation in SBA's 8(a) program. In

addition, once certified, this rule would not require SDB concerns to

report any other information to SBA or to maintain additional records.

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

would not have any federalism implications warranting the preparation

of a Federalism Assessment.

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

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

set forth in Section 2 of that Order.

List of Subjects in 13 CFR

Part 121

Government procurement, Government property, Grant programs-

business, Individuals with disabilities, Loan programs-business, Small

businesses.

Part 124

Government procurement; Minority businesses; Tribally-owned

concerns; Hawaiian natives; Reporting and record keeping requirements;

Technical Assistance.

Part 134

Administrative practice and procedure, Organization and functions

(Government agencies).

Accordingly, for the reasons set forth above, SBA hereby proposes

to amend Title 13, Code of Federal Regulations (CFR), as follows:

PART 121--[AMENDED]

1. The authority citation for 13 CFR part 121 would continue 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 121.103 is amended by redesignating paragraphs (f)(3)

and (f)(4) as paragraphs (f)(4) and (f)(5), respectively, by revising

paragraph (f)(2) and by adding a new paragraph (f)(3) to read as

follows:

Sec. 121.103 What is affiliation?

* * * * *

(f) Affiliation based on joint venture arrangements. * * *

(2) Except as provided in paragraph (f)(3) of this section,

concerns submitting offers on a particular procurement or property sale

as joint venturers are affiliated with each other with regard to the

performance of that contract.

(3) Joint venture exclusion from affiliation. (i) A joint venture

of two or more business concerns may submit an offer as a small

business for a non-8(a) federal procurement without regard to

affiliation based on the joint venture arrangement so long as each

concern is small under the size standard corresponding to the SIC code

assigned to the contract, provided:

(A) For a procurement having a revenue-based size standard, the

procurement exceeds half the size standard corresponding to the SIC

code assigned to the contract; or

(B) For a procurement having an employee-based size standard, the

procurement exceeds $10 million.

(ii) A joint venture of at least one 8(a) Participant and one or

more other business concerns may submit an offer for a competitive 8(a)

procurement without regard to affiliation based on the joint venture

arrangement so long as the requirements of Sec. 124.512(b)(1) of this

chapter are met.

(iii) Two firms approved by SBA to be a mentor and protege under

Sec. 124.519 of this chapter may joint venture as a small business for

any government procurement, provided the protege qualifies as small for

the size standard corresponding to the SIC code assigned to the

procurement and, for purposes of 8(a) sole source requirements, has not

reached the dollar limit set forth in Sec. 124.518 of this chapter.

* * * * *

2a. Section 121.1001 is amended by redesignating paragraphs (a)(2)

through (a)(5) as paragraphs (a)(3) through (a)(6), by adding the

following new paragraph (a)(2), and by revising paragraph (b)(2) to

read as follows:

Sec. 121.1001 Who may initiate a size protest or request a formal size

determination?

(a) Size Status Protests. * * *

(2) For competitive 8(a) contracts, the following entities may

protest:

(i) Any offeror;

(ii) The contracting officer; or

(iii) The SBA District Director, or designee, in either the

district office serving the geographical area in which the procuring

agency is located or the district office that services the apparent

successful offeror, or the Associate Administrator for Minority

Enterprise Development.

* * * * *

(b) Request for Size Determinations. * * *

(2) For SBA's 8(a) BD program:

(i) Concerning initial or continued 8(a) BD eligibility, the

following entities may request a formal size determination:

(A) The 8(a) BD applicant concern or Participant; or

(B) The Assistant Administrator of the Division of Program

Certification and Eligibility or the Associate Administrator for

8(a)BD.

(ii) Concerning individual sole source 8(a) contract awards, the

following entities may request a formal size determination:

(A) The Participant nominated for award of the particular sole

source contract;

(B) The SBA program official with authority to execute the 8(a)

contract; or

(C) The SBA District Director in the district office that services

the Participant, or the Associate Administrator for 8(a)BD.

* * * * *

3. Section 121.1103 is amended by revising paragraph (a) to read as

follows:

Sec. 121.1103 What are the procedures for appealing a SIC code

designation?

(a) Generally, any interested party who has been adversely affected

by a SIC code designation may appeal the designation to OHA. However,

with respect to a particular sole source 8(a) contract, only the

Associate Administrator for 8(a)BD may appeal.

* * * * *

PART 124--[AMENDED]

4. Part 124 is revised to read as follows:

[[Page 43598]]

PART 124--8(A) BUSINESS DEVELOPMENT/SMALL DISADVANTAGED BUSINESS

STATUS DETERMINATIONS

Subpart A--8(a) Business Development

Provisions of General Applicability

Sec.

124.1 What is the purpose of the 8(a) Business Development program?

124.2 What length of time may a business participate in the 8(a) BD

program?

124.3 What definitions are important in the 8(a) BD program?

Eligibility Requirements for Participation in the 8(a) Business

Development Program

124.101 What are the basic requirements a concern must meet for the

8(a) BD program?

124.102 What size business is eligible to participate in the 8(a) BD

program?

124.103 Who is socially disadvantaged?

124.104 Who is economically disadvantaged?

124.105 What does it mean to be unconditionally owned by one or

more disadvantaged individuals?

124.106 When do disadvantaged individuals control an applicant or

Participant?

124.107 What is potential for success?

124.108 What other eligibility requirements apply for individuals

or businesses?

124.109 Do Indian tribes and Alaska Native Corporations have any

special rules for applying to the 8(a) BD program?

124.110 Do Native Hawaiian Organizations have any special rules for

applying to the 8(a) BD program?

124.111 Do Community Development Corporations (CDCs) have any

special rules for applying to the 8(a) program?

124.112 What criteria must a business meet to remain eligible to

participate in the 8(a) BD program?

Applying to the 8(a) BD Program

124.201 May any business submit an application?

124.202 Where must an application be filed?

124.203 What must a concern submit to apply to the 8(a) BD

program?

124.204 How does SBA process applications for 8(a) BD program

admission?

124.205 Can an applicant ask SBA to reconsider SBA's initial

decision to decline its application?

124.206 What appeal rights are available to an applicant that has

been denied admission?

124.207 Can an applicant reapply for admission to the 8(a) BD

program?

Exiting the 8(a) BD Program

124.301 What are the ways a business may leave the 8(a) BD program?

124.302 What is early graduation?

124.303 What is termination?

124.304 What are the procedures for early graduation and

termination?

124.305 What is suspension and how is a Participant suspended from

the 8(a) BD program?

Business Development

124.401 Which SBA field office services a Participant?

124.402 How does a Participant develop a business plan?

124.403 How is a business plan updated and modified?

124.404 What business development assistance is available to

Participants during the two stages of participation in the 8(a) BD

program?

124.405 How does a Participant obtain Federal Government surplus

property?

Contractual Assistance

124.501 What general provisions apply to the award of 8(a)

contracts?

124.502 How does an agency offer a procurement to SBA for award

through the 8(a) BD program?

124.503 How does SBA accept a procurement for award through the

8(a) BD program?

124.504 What circumstances limit SBA's ability to accept a

procurement for award as an 8(a) contract?

124.505 When will SBA appeal the terms and conditions of a

particular 8(a) contract or a procuring agency decision not to

reserve a procurement for the 8(a) BD program?

124.506 At what dollar threshold must an 8(a) procurement be

competed among eligible Participants?

124.507 What procedures apply to competitive 8(a) procurements?

124.508 What are competitive business mix targets?

124.509 What percentage of work must a Participant perform on an

8(a) contract?

124.510 How is fair market price determined for an 8(a) contract?

124.511 Delegation of contract administration to procuring

agencies.

124.512 Under what circumstances can a joint venture be awarded an

8(a) contract?

124.513 Exercise of 8(a) options and modifications.

124.514 Can a Participant change its ownership or control and

continue to perform an 8(a) contract, and can it transfer

performance to another firm?

124.515 Who decides contract disputes arising between a Participant

and a procuring agency after the award of an 8(a) contract?

124.516 Can the eligibility or size of a Participant for award of

an 8(a) contract be questioned?

124.517 How can an 8(a) contract be terminated before performance

is completed?

124.518 Are there any dollar limits on the amount of 8(a) contracts

that a Participant may receive?

124.519 Mentor/Protege program.

Miscellaneous Reporting Requirements

124.601 What reports does SBA require on parties assisting

Participants in obtaining federal contracts?

124.602 What kind of annual financial statement must a Participant

submit to SBA?

124.603 What reports regarding the continued business operations of

former Participants does SBA require?

Management and Technical Assistance Program

124.701 What is the purpose of the 7(j) management and technical

assistance program?

124.702 What types of assistance are available through the 7(j)

program?

124.703 Who is eligible to receive 7(j) assistance?

124.704 What additional management and technical assistance is

reserved exclusively for concerns eligible to receive 8(a)

contracts?

Subpart B--Eligibility, Certification, and Protests Relating to Federal

Small Disadvantaged Business Programs

124.1001 General applicability.

124.1002 What is a Small Disadvantaged Business (SDB)?

124.1003 What is a Private Certifier?

124.1004 How does an organization or business concern become a

Private Certifier?

124.1005 Can a Private Certifier charge a fee?

124.1006 Is there a list of Private Certifiers?

124.1007 How long may an organization or business concern be

Private Certifier?

124.1008 How does a firm become certified as a SDB?

124.1009 How does a firm appeal a decision of a Private Certifier?

124.1010 Can a firm represent itself to be an SDB if it is not on

the list of qualified SDBs?

124.1011 What is a misrepresentation of disadvantaged status?

124.1012 Can a firm reapply for SDB certification?

124.1013 Is there a list of certified SDBs?

124.1014 What is the effect of receiving an SDB certification?

124.1015 Who may protest the disadvantaged status of a concern?

124.1016 When will SBA not decide an SDB protest?

124.1017 Who decides disadvantaged status protests?

124.1018 What submission procedures apply to disadvantaged status

protests?

124.1019 What format or degree of specificity does SBA require to

consider an SDB protest?

124.1020 What will SBA do when it receives an SDB protest?

124.1021 How does SBA make disadvantaged status determinations?

124.1022 Appeals of disadvantaged status determinations.

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

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

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

[[Page 43599]]

Subpart A--8(a) Business Development

Provisions of General Applicability

Sec. 124.1 What is the purpose of the 8(a) Business Development

program?

Sections 8(a) and 7(j) of the Small Business Act authorize a

Minority Small Business and Capital Ownership Development program

(designated the 8(a) Business Development or ``8(a) BD'' program for

purposes of the regulations in this part). The purpose of the 8(a) BD

program is to assist eligible small disadvantaged business concerns

compete in the American economy through business development.

Sec. 124.2 What length of time may a business participate in the 8(a)

BD program?

A Participant receives a program term of nine years from the date

of SBA's approval letter certifying the concern's admission to the

program. A firm that completes its nine year term of participation in

the 8(a) BD program is deemed to graduate from the program. The nine

year program term may be shortened only by termination, early

graduation or voluntary withdrawal as provided for in this part.

Sec. 124.3 What definitions are important in the 8(a) BD Program?

Alaska Native means a citizen of the United States who is a person

of one-fourth degree or more Alaskan Indian (including Tsimshian

Indians not enrolled in the Metlaktla Indian Community), Eskimo, or

Aleut blood, or a combination of those bloodlines. The term includes,

in the absence of proof of a minimum blood quantum, any citizen who a

Native village or Native group regards as an Alaska Native if their

father or mother is regarded as an Alaska Native.

Alaska Native Corporation or ANC means any Regional Corporation,

Village Corporation, Urban Corporation, or Group Corporation organized

under the laws of the State of Alaska in accordance with the Alaska

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

Bona fide place of business, for purposes of 8(a) construction

procurements, means that a Participant regularly maintains an office

which employs at least one full-time individual within the appropriate

geographical boundary. The term does not include construction trailers

or other temporary construction sites.

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.

Concern is defined in part 121 of this title.

Days means calendar days unless otherwise specified.

Immediate family member means father, mother, husband, wife, son,

daughter, brother, sister, father-in-law, mother-in-law, son-in-law,

daughter-in-law, brother-in-law, sister-in-law, step-father, step-

mother, step-son, step-daughter, step-brother, step-sister, half-

brother, and half-sister.

Indian tribe means any Indian tribe, band, nation, or other

organized group or community of Indians, including any ANC, which is

recognized as eligible for the special programs and services provided

by the United States to Indians because of their status as Indians, or

is recognized as such by the State in which the tribe, band, nation,

group, or community resides. See definition of ``tribally-owned

concern.''

Native Hawaiian means any individual whose ancestors were natives

prior to 1778, of the area which now comprises the State of Hawaii.

Native Hawaiian Organization means any community service

organization serving Native Hawaiians in the State of Hawaii which is a

not-for-profit organization chartered by the State of Hawaii, is

controlled by Native Hawaiians, and whose business activities will

principally benefit such Native Hawaiians.

Negative control is defined in part 121 of this title.

Nondisadvantaged individual means any individual who does not claim

disadvantaged status, does not qualify as disadvantaged, or upon whose

disadvantaged status an applicant or Participant does not rely in

qualifying for 8(a) BD program participation.

Participant means a small business concern admitted to participate

in the 8(a) BD program.

Primary industry classification means the four digit Standard

Industrial Classification (SIC) code designation which best describes

the primary business activity of the 8(a) BD applicant or Participant.

The SIC code designations are described in the Standard Industrial

Classification Manual published by the U.S. Office of Management and

Budget.

Principal place of business means the business location at which

the individuals who manage the concern's day-to-day operations spend

most working hours and where top management's business records are

kept. If different, SBA may determine the principal place of business

for program purposes.

Program year means a 12-month period of an 8(a) BD Participant's

program participation. The first program year begins on the date that

the concern is certified to participate in the 8(a) BD program and ends

one year later. Each subsequent program year begins on the

Participant's anniversary of program certification and runs for one 12-

month period.

Same or similar line of business means business activities within

the same two-digit ``Major Group'' of the SIC Manual as the primary

industry classification of the applicant or Participant. The phrase

``same business area'' is synonymous with this definition.

Self-marketing of a requirement occurs when a Participant

identifies a requirement that has not been committed to the 8(a) BD

program and, through its marketing efforts, causes the procuring agency

to offer that specific requirement to the 8(a) BD program on the

Participant's behalf. A firm which identifies and markets a requirement

which is subsequently offered to the 8(a) BD program as an open

requirement or on behalf of another Participant has not ``self-

marketed'' the requirement within the meaning of this part.

Tribally-owned concern means any concern at least 51 percent owned

by an Indian tribe as defined in this section.

Unconditional ownership means ownership that is not subject to

conditions precedent, conditions subsequent, executory agreements,

voting trusts, restrictions on or assignments of voting rights, or

other arrangements causing or potentially causing ownership benefits to

go to another (other than after death or incapacity). The encumbrance

of stock or other ownership interest as collateral, including seller-

financed transactions, does not affect the unconditional nature of

ownership if the terms follow normal commercial practices and the owner

retains control absent violations of the terms.

Eligibility Requirements for Participation in the 8(a) Business

Development Program

Sec. 124.101 What are the basic requirements a concern must meet for

the 8(a) BD program?

Generally, a concern meets the basic requirements for admission to

the 8(a) BD program if it is a small business which is unconditionally

owned and controlled by one or more socially and economically

disadvantaged individuals who are of good character and citizens of the

United States, and which demonstrates potential for success.

[[Page 43600]]

Sec. 124.102 What size business is eligible to participate in the 8(a)

BD program?

(a) An applicant concern must qualify as a small business concern

as defined in part 121 of this title. The applicable size standard is

the one for its primary industry classification. The rules for

calculating the size of a tribally-owned concern, a concern owned by an

Alaska Native Corporation, a concern owned by a Native Hawaiian

Organization, or a concern owned by a Community Development Corporation

are additionally affected by Secs. 124.109, 124.110, and 124.111,

respectively.

(b) If 8(a) BD program officials determine that a concern may not

qualify as small, they may deny an application for 8(a) BD program

admission or may request a formal size determination under part 121 of

this title.

(c) A concern whose application is denied due to size by 8(a) BD

program officials may request a formal size determination under part

121 of this title. A favorable determination will enable the firm to

submit a new 8(a) BD application without waiting one year.

Sec. 124.103 Who is socially disadvantaged?

(a) General. Socially disadvantaged individuals are those who have

been subjected to racial or ethnic prejudice or cultural bias within

American society because of their identities as members of groups and

without regard to their individual qualities. The social disadvantage

must stem from circumstances beyond their control.

(b) Members of designated groups. (1) There is a rebuttable

presumption that the following individuals are socially disadvantaged:

Black Americans; Hispanic Americans; Native Americans (American

Indians, Eskimos, Aleuts, or Native Hawaiians); Asian Pacific Americans

(persons with origins from Burma, Thailand, Malaysia, Indonesia,

Singapore, Brunei, Japan, China (including Hong Kong), Taiwan, Laos,

Cambodia (Kampuchea), Vietnam, Korea, The Philippines, U.S. Trust

Territory of the Pacific Islands (Republic of Palau), Republic of the

Marshall Islands, Federated States of Micronesia, the Commonwealth of

the Northern Mariana Islands, Guam, Samoa, Macao, Fiji, Tonga,

Kiribati, Tuvalu, or Nauru); Subcontinent Asian Americans (persons with

origins from India, Pakistan, Bangladesh, Sri Lanka, Bhutan, the

Maldives Islands or Nepal); and members of other groups designated from

time to time by SBA according to procedures set forth at paragraph (d)

of this section. Being born in a country does not, by itself, suffice

to make the birth country an individual's country of origin for

purposes of being included within a designated group.

(2) An individual must demonstrate identification by others as a

member of a designated group if SBA requires it.

(3) The presumption of social disadvantage may be overcome with

significant, credible evidence to the contrary. Individuals possessing

or knowing of such evidence should submit the information in writing to

the Associate Administrator for 8(a) BD (AA/8(a)BD) for consideration.

(c) Individuals not members of designated groups. (1) An individual

who is not a member of one of the groups presumed to be socially

disadvantaged in paragraph (b)(1) of this section must establish

individual social disadvantage by a preponderance of the evidence.

(2) Evidence of individual social disadvantage must include the

following elements:

(i) At least one objective distinguishing feature that has

contributed to social disadvantage, such as race, ethnic origin,

gender, physical handicap, long-term residence in an environment

isolated from the mainstream of American society, or other similar

causes not common to individuals who are not socially disadvantaged;

(ii) Personal experiences of social disadvantage, not merely

membership in a non-designated group which might be socially

disadvantaged, but has not been so designated by SBA. The experiences

must have been in American society, not in other countries, and must

have been substantial, chronic, and longstanding; and

(iii) Negative impact on entry into or advancement in the business

world because of the disadvantage. SBA will consider any relevant

evidence in assessing this element. In every case, however, SBA will

consider education, employment and business history to see if the

totality of circumstances shows disadvantage in entering into or

advancing in the business world.

(A) Education. SBA considers such factors as denial of equal access

to institutions of higher education, exclusion from social and

professional association with students or teachers, denial of

educational honors rightfully earned, and social patterns or pressures

which discouraged the individual from pursuing a professional or

business education.

(B) Employment. SBA considers such factors as unequal treatment in

hiring, promotions and other aspects of professional advancement, pay

and fringe benefits, and other terms and conditions of employment;

retaliatory or discriminatory behavior by an employer; and social

patterns or pressures which have channelled the individual into

nonprofessional or non-business fields.

(C) Business history. SBA considers such factors as unequal access

to credit or capital, acquisition of credit or capital under

commercially unfavorable circumstances, unequal treatment in

opportunities for government contracts or other work, unequal treatment

by potential customers and business associates, and exclusion from

business or professional organizations.

(d) Socially disadvantaged group inclusion. (1) General.

Representatives of an identifiable group whose members believe that the

group has suffered chronic racial or ethnic prejudice or cultural bias

may petition SBA to be included as a presumptively socially

disadvantaged group under paragraph (b)(1) of this section. Upon an

adequate preliminary showing that the group has suffered such prejudice

or bias, SBA will publish a notice in the Federal Register that it has

received and is considering such a request, and that it will consider

public comments.

(2) Standards to be applied. In determining whether a group has

made an adequate preliminary showing that it has suffered chronic

racial or ethnic prejudice or cultural bias for the purposes of this

regulation, SBA must determine:

(i) Whether the group has suffered prejudice, bias, or

discriminatory practices;

(ii) Whether those conditions have resulted in economic deprivation

for the group of the type which Congress has found exists for the

groups named in the Small Business Act; and

(iii) Whether those conditions have produced impediments in the

business world for members of the group over which they have no control

and which are not common to small business owners generally.

(3) Procedure. The notice published under paragraph (d)(1) of this

section will authorize a specified period for the receipt of public

comments supporting or opposing the petition for socially disadvantaged

group status. If appropriate, SBA may hold hearings. SBA may also

conduct its own research relative to the group's petition.

(4) Decision. SBA will advise the petitioners of its final decision

in writing, and publish its conclusion as a notice in the Federal

Register. If appropriate, SBA will amend paragraph (b)(1) of this

section to include a new group.

[[Page 43601]]

Sec. 124.104 Who is economically disadvantaged?

(a) General. Economically disadvantaged individuals are socially

disadvantaged individuals whose ability to compete in the free

enterprise system has been impaired due to diminished capital and

credit opportunities as compared to others in the same or similar line

of business who are not socially disadvantaged.

(b) Submission of narrative and financial information. (1) Each

individual claiming economic disadvantage must describe it in a

narrative statement, and must submit personal financial information.

(2) When married, an individual claiming economic disadvantage also

must submit separate financial information for his or her spouse,

unless the individual and the spouse are legally separated.

(c) Factors to be considered. In considering diminished capital and

credit opportunities, SBA will examine factors relating to the personal

financial condition of any individual claiming disadvantaged status,

including personal income for the past two years (including bonuses and

the value of company stock given in lieu of cash), personal net worth,

and the fair market value of all assets, whether encumbered or not. SBA

will also consider the financial condition of the applicant compared to

the financial profiles of small businesses in the same primary industry

classification, or, if not available, in similar lines of business,

which are not owned and controlled by socially and economically

disadvantaged individuals in evaluating the individual's access to

credit and capital. The financial profiles that SBA compares include

total assets, net sales, pre tax profit, sales/working capital ratio,

and net worth.

(1) Assets. Assets which an individual claiming disadvantaged

status has transferred within two years of the application to an

immediate family member, or to a trust the beneficiary of which is an

immediate family member, for less than fair market value will be

attributed to the individual claiming disadvantaged status.

(2) Net worth. For initial 8(a) BD eligibility, the net worth of an

individual claiming disadvantage must be less than $250,000. For

continued 8(a) BD eligibility after admission to the program, net worth

must be less than $750,000. In determining such net worth, SBA will

exclude the ownership interest in the applicant or Participant and the

equity in the primary personal residence (except any portion of such

equity which is attributable to excessive withdrawals from the

applicant or Participant). Exclusions for net worth purposes are not

exclusions for asset valuation or access to capital and credit

purposes.

(i) A contingent liability does not reduce an individual's net

worth.

(ii) The personal net worth of an individual claiming to be an

Alaska Native will include assets and income from sources other than an

Alaska Native Corporation and exclude any of the following which the

individual receives from any Alaska Native Corporation: cash (including

cash dividends on stock received from a Native Corporation) to the

extent that it does not, in the aggregate, exceed $2,000 per individual

per annum; stock (including stock issued or distributed by a Native

Corporation as a dividend or distribution on stock); a partnership

interest; land or an interest in land (including land or an interest in

land received from a Native Corporation as a dividend or distribution

on stock); and an interest in a settlement trust.

Sec. 124.105 What does it mean to be unconditionally owned by one or

more disadvantaged individuals?

An applicant or Participant must be at least 51 percent

unconditionally and directly owned by one or more socially and

economically disadvantaged individuals who are citizens of the United

States, except for concerns owned by Indian tribes, Alaska Native

Corporations, Native Hawaiian Organizations, or Community Development

Corporations (CDCs). See Sec. 124.3 for definition of unconditional

ownership; and Secs. 124.109, 124.110, and 124.111, respectively, for

special ownership requirements for concerns owned by Indian tribes,

ANCs, Native Hawaiian Organizations, and CDCs.

(a) Ownership must be direct. Ownership by one or more

disadvantaged individuals must be direct ownership. An applicant or

Participant owned principally by another business entity or by a trust

(including employee stock ownership trusts) that is in turn owned and

controlled by one or more disadvantaged individuals does not meet this

requirement.

(b) Ownership of a partnership. In the case of a concern which is a

partnership, at least 51 percent of every class of partnership interest

must be unconditionally owned by one or more individuals determined by

SBA to be socially and economically disadvantaged. The ownership must

be reflected in the concern's partnership agreement.

(c) Ownership of a limited liability company. In the case of a

concern which is a limited liability company, at least 51 percent of

each class of member interest must be unconditionally owned by one or

more individuals determined by SBA to be socially and economically

disadvantaged.

(d) Ownership of a corporation. In the case of a concern which is a

corporation, at least 51 percent of each class of voting stock

outstanding and 51 percent of the aggregate of all stock outstanding

must be unconditionally owned by one or more individuals determined by

SBA to be socially and economically disadvantaged.

(e) Stock options' effect on ownership. In determining

unconditional ownership, SBA will disregard any unexercised stock

options or similar agreements held by disadvantaged individuals.

However, any unexercised stock options or similar agreements (including

rights to convert non-voting stock or debentures into voting stock)

held by non-disadvantaged individuals will be treated as exercised,

except for any ownership interests which are held by investment

companies licensed under the Small Business Investment Act of 1958.

(f) Dividends and distributions. One or more disadvantaged

individuals must be entitled to receive:

(1) At least 51 percent of the annual distribution of dividends

paid on the stock of a corporate applicant concern;

(2) 100 percent of the unencumbered value of each share of stock

owned in the event that the stock is sold; and

(3) At least 51 percent of the retained earnings of the concern and

100 percent of the unencumbered value of each share of stock owned in

the event of dissolution of the corporation.

(g) Ownership of another Participant. The individuals determined to

be disadvantaged for purposes of one Participant, their immediate

family members, and the Participant itself, may not hold, in the

aggregate, more than a 10 percent equity ownership interest in any

other single Participant.

(h) Ownership restrictions for non-disadvantaged individuals and

concerns. (1) A non-disadvantaged individual (in the aggregate with all

immediate family members) or a non-Participant concern that is a

general partner or stockholder of at least 10 percent in one

Participant may not own more than 10 percent in another Participant.

This restriction does not apply to financial institutions licensed or

chartered by Federal, state or local government, including investment

companies which are licensed under the Small Business Investment Act of

1958.

[[Page 43602]]

(2) A non-Participant concern in the same or similar line of

business may not own more than 10 percent in a Participant, except that

a former Participant or a principal of a former Participant (except

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

pursuant to Secs. 124.303 and 124.304) may have an equity ownership

interest of up to 20 percent in a current Participant in the same or

similar line of business.

(i) Change of ownership. A Participant may change its ownership so

long as one or more disadvantaged individuals would own and control it

after the change and it obtains the prior written approval of SBA.

(1) The 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 Sec. 124.514, as long as it receives SBA's

approval prior to the change.

(2) Where the previous owner held less than a 10 percent interest

in the concern, or the transfer results from the death or incapacity

due to a serious, long-term illness or injury of a disadvantaged

principal, prior approval is not required, but the concern must notify

SBA within 60 days.

(3) Continued participation of the Participant with new ownership

and the award of any new 8(a) contracts requires SBA's determination

that all eligibility requirements are met by the concern and the new

owners.

(4) The Participant's program term is in no way extended by the

change in ownership.

(j) Public offering. A Participant's request for SBA's approval for

the issuance of a public offering will be treated as a request for a

change of ownership. Such request will cause SBA to examine the

concern's continued need for access to the business development

resources of the 8(a) BD program.

(k) Community property laws given effect. In determining ownership

interests when an owner resides in any of the community property states

or territories of the United States (Arizona, California, Idaho,

Louisiana, Nevada, New Mexico, Puerto Rico, Texas, Washington and

Wisconsin), SBA considers applicable state community property laws. If

only one spouse claims disadvantaged status, that spouse's ownership

interest will be considered unconditionally held only to the extent it

is vested by the community property laws. A transfer or relinquishment

of interest by the non-disadvantaged spouse may be necessary in some

cases to establish eligibility.

Sec. 124.106 When do disadvantaged individuals control an applicant or

Participant?

SBA regards control as including both the strategic policy setting

exercised by boards of directors and the day-to-day management and

administration of business operations. An applicant or Participant's

management and daily business operations must be conducted by one or

more disadvantaged individuals, except for concerns owned by Indian

tribes, ANCs, Native Hawaiian Organizations, or Community Development

Corporations (CDCs). (See Secs. 124.109, 124.110, and 124.111,

respectively, for the requirements for concerns owned by Indian tribes

or ANCs, for concerns owned by Native Hawaiian Organizations, and for

CDC-owned concerns). Disadvantaged individuals managing the concern

must have managerial experience of the extent and complexity needed to

run the concern. Control is not the same as ownership, although both

may reside in the same person. A disadvantaged owner's unexercised

right to cause a change in the control or management of the applicant

concern does not constitute disadvantaged control and management,

regardless of how quickly or easily the right could be exercised.

(a)(1) An applicant or Participant must be managed on a full-time

basis by one or more disadvantaged individuals who possess requisite

management capabilities.

(2) A disadvantaged full-time manager must hold the highest officer

position (usually President or Chief Executive Officer) in the

applicant or Participant.

(3) One or more disadvantaged individuals who manage the applicant

or Participant must devote full-time to the business during normal

working hours.

(4) Any disadvantaged manager who wishes to engage in outside

employment must notify SBA of the nature and anticipated duration of

the outside employment and obtain the prior written approval of SBA.

SBA will deny a request for outside employment which could conflict

with the management of the firm or could hinder it in achieving the

objectives of its business development plan.

(b) In the case of a partnership, one or more disadvantaged

individuals must serve as general partners, with control over all

partnership decisions. A partnership in which no disadvantaged

individual is a general partner will be ineligible for participation.

(c) In the case of a limited liability company, one or more

disadvantaged individuals must serve as management members, with

control over all decisions of the limited liability company.

(d) Disadvantaged individuals must control the Board of Directors

of a corporate applicant or Participant, either through a majority of

voting directors or through weighted voting.

(1) The powers to appoint, remove and replace directors (e.g.,

through ownership of voting stock) is not sufficient to satisfy the

requirement that one or more disadvantaged individuals actually control

the Board of Directors.

(2) Non-voting, advisory, or honorary Directors may be appointed.

(3) Any Executive Committee of Directors must be controlled by

disadvantaged directors unless the Executive Committee can only make

recommendations to and cannot independently exercise the authority of

the Board of Directors.

(4) Arrangements regarding the structure and voting rights of the

Board of Directors must comply with applicable state law.

(5) Provisions for the establishment of a quorum cannot permit non-

disadvantaged Directors to control the Board of Directors.

(e) Non-disadvantaged individuals may be involved in the management

of an applicant or Participant, and may be stockholders, partners,

limited liability members, officers, and/or directors of the applicant

or Participant. No such non-disadvantaged individual or immediate

family member may:

(1) Exercise actual control or have the power to control the

applicant or Participant;

(2) Be a former employer or a principal of a former employer of any

disadvantaged owner of the applicant or Participant, unless it is

determined by the AA/8(a)BD that the relationship between the former

employer or principal and the disadvantaged individual or applicant

concern does not give the former employer actual control or the

potential to control the applicant or Participant and such relationship

is in the best interests of the 8(a) BD firm; or

(3) Receive compensation from the applicant or Participant in any

form as directors, officers or employees, including dividends, that

exceeds the compensation to be received by the highest officer (usually

CEO or President). The highest ranking officer may elect to take a

lower salary than a non-disadvantaged individual only upon

demonstrating that it helps the concern and upon obtaining the prior

[[Page 43603]]

written consent of the AA/8(a)BD or designee).

(f) Non-disadvantaged individuals or entities may be found to

control or have the power to control in any of the following

circumstances, which are illustrative only and not all inclusive:

(1) Non-disadvantaged individuals control the Board of Directors of

the applicant or Participant, either directly through majority voting

membership, or indirectly, where the by-laws allow non-disadvantaged

individuals to effectively block actions proposed by the disadvantaged

individuals.

(2) A non-disadvantaged individual or entity provides critical

financial or bonding support to the applicant or Participant which

directly or indirectly allows the non-disadvantaged individual to

significantly influence business decisions of the Participant.

(3) A non-disadvantaged individual or entity controls the applicant

or Participant or an individual disadvantaged owner through loan

arrangements. Providing a loan guaranty on commercially reasonable

terms does not, by itself, give a nondisadvantaged individual or entity

the power to control a firm.

(4) Business relationships exist with non-disadvantaged individuals

or entities which cause such dependence that the applicant or

Participant cannot exercise independent business judgment without great

economic risk.

Sec. 124.107 What is potential for success?

The applicant concern must possess reasonable prospects for success

in competing in the private sector. To do so, it must be in business in

its primary industry classification for at least two full years

immediately prior to the date of its 8(a) BD application, unless a

waiver for this requirement is granted pursuant to paragraph (b) of

this section.

(a) Income tax returns for each of the two previous tax years must

show operating revenues in the primary industry in which the applicant

is seeking 8(a) BD certification.

(b)(1) SBA may waive the two years in business requirement if each

of the following five conditions are met:

(i) The individual or individuals upon whom eligibility is based

have substantial business management experience;

(ii) The applicant has demonstrated technical experience to carry

out its business plan with a substantial likelihood for success.

(iii) The applicant has adequate capital to sustain its operations

and carry out its business plan;

(iv) The applicant has a record of successful performance on

contracts from governmental or nongovernmental sources in its primary

industry category; and

(v) The applicant has, or can demonstrate its ability to timely

obtain, the personnel, facilities, equipment, and any other

requirements needed to perform contracts.

(2) The concern seeking a waiver under this paragraph (b) must

provide information on governmental and nongovernmental contracts in

progress and completed (including letters of reference) in order to

establish successful contract performance, and must demonstrate how it

otherwise meets the five conditions for waiver. SBA considers an

applicant's performance on both government and private sector contracts

in determining whether the firm has an overall successful performance

record. If, however, the applicant has performed only government

contracts or only private sector contracts, SBA will review its

performance on those contracts alone to determine whether the applicant

possesses a record of successful performance.

(c) In assessing potential for success for all concerns, SBA

considers the concern's access to credit and capital, including, but

not limited to, access to long-term financing, access to working

capital financing, equipment trade credit, access to raw materials and

supplier trade credit, and bonding capability.

(d) In assessing potential for success, SBA will also consider the

technical and managerial experience of the applicant concern's

managers, the operating history of the concern, the concern's record of

performance on previous Federal and private sector contracts in the

primary industry in which the concern is seeking 8(a) BD certification,

and its financial capacity. The applicant concern as a whole must

demonstrate both technical knowledge in its primary industry category

and management experience sufficient to run its day-to-day operations.

(e) The Participant or individuals employed by the Participant must

hold all requisite licenses if the concern is engaged in an industry

requiring professional licensing (e.g., public accountancy, law,

professional engineering).

(f) An applicant will not be denied admission into the 8(a) BD

program due solely to a determination that potential 8(a) contract

opportunities are unavailable to assist in the development of the

concern unless:

(1) The Government has not previously procured and is unlikely to

procure the types of products or services offered by the concern; or

(2) The purchase of such products or services by the Federal

Government will not be in quantities sufficient to support the

developmental needs of the applicant and other Participants providing

the same or similar items or services.

Sec. 124.108 What other eligibility requirements apply for individuals

or businesses?

(a) Good character. The applicant or Participant and all its

principals must have good character.

(1) If, during the processing of an application, adverse

information is obtained from the applicant or a credible source

regarding possible criminal conduct by the applicant or any of its

principals, no further action will be taken on the application until

SBA's Inspector General has collected relevant information and has

advised the AA/8(a)BD of his or her findings. The AA/8(a)BD will

consider those findings when evaluating the application.

(2) Violations of any of SBA's regulations may result in denial of

participation in the 8(a) BD program. The AA/8(a)BD will consider the

nature and severity of the violation in making an eligibility

determination.

(3) Debarred or suspended concerns or concerns owned by debarred or

suspended persons are ineligible for admission to the 8(a) BD program.

(4) An applicant is ineligible for admission to the 8(a) BD program

if a proprietor, partner, limited liability member, director, officer,

or holder of at least 10 percent of the stock, or another person

(including a key manager) with significant authority over the concern

is currently incarcerated, or on parole or probation pursuant to a pre-

trial diversion or following conviction for a felony or any crime

involving business integrity.

(5) If, during the processing of an application, SBA determines

that an applicant has submitted false information, regardless of

whether correct information would cause SBA to deny the application,

and regardless of whether correct information was given to SBA in

accompanying documents, SBA will deny the application. If SBA

determines that such false information has been submitted after a firm

is admitted to the 8(a) BD program, SBA will initiate termination

proceedings and suspend the firm under Secs. 124.304 and 124.305.

Whenever SBA determines that the applicant submitted false information,

the matter will be referred

[[Page 43604]]

to SBA's Office of Inspector General for review.

(b) One-time eligibility. Once a concern or disadvantaged

individual upon whom eligibility was based has participated in the 8(a)

BD program, neither the concern nor that individual will be eligible

again.

(1) An individual who claims disadvantage and completes the

appropriate SBA forms to qualify an applicant has participated in the

8(a) BD program if SBA approves the application.

(2) Use of eligibility will take effect on the date of the

concern's approval into the program.

(3) An individual who uses his/her one-time eligibility to qualify

a concern for the 8(a) BD program will be considered a non-

disadvantaged individual for ownership or control purposes of another

applicant or Participant. The criteria restricting participation by

non-disadvantaged individuals will apply to such an individual. See

Secs. 124.105 and 124.106.

(4) When at least 50% of the assets or liabilities of a concern are

the same as those of one or more former Participants, it will not be

eligible for participation.

(5) Participants which change their form of business organization

and transfer their assets and liabilities to the new organization may

do so without affecting the eligibility of the new organization

provided the previous business is dissolved and all other eligibility

criteria are met. In such a case, the new organization may complete the

remaining program term of the previous organization. A request for a

change in business form will be treated as a change of ownership under

Sec. 124.105(i).

(c) Wholesalers. An applicant concern seeking admission to the 8(a)

BD program as a wholesaler need not demonstrate that it is capable of

meeting the requirements of the nonmanufacturer rule for its primary

industry classification.

(d) Achievement of benchmarks. Where actual participation by

disadvantaged businesses in a particular industry exceeds the benchmark

limitations established by the Department of Commerce, in consultation

with the General Services Administration and the SBA, for that

industry, SBA, in its discretion, may decide not to accept an

application for 8(a) BD participation from a concern whose primary

industry classification falls within that industry.

(e) Multiple concerns for immediate family members. Immediate

family members may not each use their individual disadvantaged status

to qualify more than one business concern for 8(a) BD program

participation if the concerns are in the same or similar line of

business. When the concerns are in separate lines of business, each

concern must establish that it is separately owned, managed and

controlled.

(f) Brokers. Brokers are ineligible to participate in the 8(a) BD

program. A broker is a concern that adds no value to an item being

supplied to a procuring activity.

Sec. 124.109 Do Indian tribes and Alaska Native Corporations have any

special rules for applying to the 8(a) BD program?

(a) Special rules for ANCs. Small business concerns owned and

controlled by ANCs are eligible for participation in the 8(a) program,

subject to the same conditions that apply to tribally-owned concerns,

as described in paragraphs (b) and (c) of this section, except that the

following provisions and exceptions apply only to ANC-owned concerns:

(1) Alaska Natives and descendants of Natives must own a majority

of both the total equity of the ANC and the total voting powers to

elect directors of the ANC through their holdings of settlement common

stock. Settlement common stock means stock of an ANC issued pursuant to

43 U.S.C. 1606(g)(1), which is subject to the rights and restrictions

listed in 43 U.S.C. 1606(h)(1).

(2) An ANC that meets the requirements set forth in paragraph

(a)(1) of this section is deemed economically disadvantaged under 43

U.S.C. 1626(e), and need not establish economic disadvantage as

required by paragraph (b)(2) of this section.

(3) Even though an ANC can be either for profit or non-profit, a

small business concern owned and controlled by an ANC must be for

profit to be eligible for the 8(a) program. The concern will be deemed

owned and controlled by the ANC where both the majority of stock or

other ownership interest and total voting power are held by the ANC and

holders of its settlement common stock.

(4) The Alaska Native Claims Settlement Act provides that a concern

which is majority owned by an ANC shall be deemed to be both owned and

controlled by Alaska Natives and an economically disadvantaged

business. Therefore, an individual responsible for control and

management of an ANC-owned applicant or Participant need not establish

personal social and economic disadvantage.

(5) Paragraphs (b)(3) (i), (ii) and (iv) of this section are not

generally applicable to an ANC, provided its status as an ANC is

clearly shown in its articles of incorporation.

(6) Paragraph (c)(1) of this section is not applicable to an ANC-

owned concern to the extent it requires an express waiver of sovereign

immunity or a ``sue and be sued'' clause.

(b) Tribal eligibility. In order to qualify a concern which it owns

and controls for participation in the 8(a) BD program, an Indian tribe

must establish its own economic disadvantaged status under paragraph

(b)(2) of this section. Thereafter, it need not reestablish such status

in order to have other businesses that it owns certified for 8(a) BD

program participation, unless specifically required to do so by the AA/

8(a)BD or designee. Each tribally-owned concern seeking to be certified

for 8(a) BD participation must comply with the provisions of paragraph

(c) of this section.

(1) Social disadvantage. An Indian tribe as defined in Sec. 124.3

is considered to be socially disadvantaged.

(2) Economic disadvantage. In order to be eligible to participate

in the 8(a) BD program, the Indian tribe must demonstrate to SBA that

the tribe itself is economically disadvantaged. This must involve the

consideration of available data showing the tribe's economic condition,

including but not limited to, the following information:

(i) The number of tribal members.

(ii) The present tribal unemployment rate.

(iii) The per capita income of tribal members, excluding judgment

awards.

(iv) The percentage of the local Indian population below the

poverty level.

(v) The tribe's access to capital.

(vi) The tribal assets as disclosed in a current tribal financial

statement. The statement must list all assets including those which are

encumbered or held in trust, but the status of those encumbered or in

trust must be clearly delineated.

(vii) A list of all wholly or partially owned tribal enterprises or

affiliates and the primary industry classification of each. The list

must also specify the members of the tribe who manage or control such

enterprises by serving as officers or directors.

(3) Forms and documents required to be submitted. Except as

otherwise provided in this section, the Indian tribe generally must

submit the forms and documents required of 8(a) BD applicants as well

as the following material:

(i) A copy of all governing documents such as the tribe's

constitution or business charter.

(ii) Evidence of its recognition as a tribe eligible for the

special programs

[[Page 43605]]

and services provided by the United States or by its state of

residence.

(iii) Copies of its articles of incorporation and bylaws as filed

with the organizing or chartering authority, or similar documents

needed to establish and govern a non-corporate legal entity.

(iv) Documents or materials needed to show the tribe's economically

disadvantaged status as described in paragraph (b)(2) of this section.

(c) Business eligibility. In order to be eligible to participate in

the 8(a) BD program, a concern which is owned by an eligible Indian

tribe (or wholly owned business entities of such tribe) must meet the

conditions set forth in paragraphs (c)(1) through (c)(7) of this

section.

(1) Legal business entity organized for profit and susceptible to

suit. The applicant or participating concern must be a separate and

distinct legal entity organized or chartered by the tribe, or Federal

or state authorities. The concern's articles of incorporation,

partnership agreement or limited liability company articles of

organization 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 including, but not limited to, 8(a) BD

program participation, loans, and contract performance. Also, the

concern must be organized for profit, and the tribe must possess

economic development powers in the tribe's governing documents.

(2) Size. (i) A tribally-owned applicant concern 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.

(ii) A tribally-owned Participant must certify to SBA that it is a

small business pursuant to the provisions of part 121 of this title for

the purpose of performing each individual contract which it is awarded.

(iii) 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) BD program entry

or contract award, the 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.

(3) Ownership. For corporate entities, a tribe must own at least 51

percent of the voting stock and at least 51 percent of the aggregate of

all classes of stock. For non-corporate entities, a tribe must own at

least a 51 percent interest. A tribe cannot own 51% or more of another

firm which, either at the time of application or within the previous

two years, has been operating in the 8(a) program under the same

primary Standard Industry Classification code as the applicant. The

restrictions of Sec. 124.105(h) do not apply to tribes; they do,

however, apply to non-disadvantaged individuals or other business

concerns that are partial owners of a tribally-owned concern.

(4) Control and management. (i) The management and daily business

operations of a tribally-owned concern must be controlled by the tribe,

through one or more disadvantaged individual members who possess

sufficient management experience of an extent and complexity needed to

run the concern, or through management as follows:

(A) Management may be provided by committees, teams, or Boards of

Directors which are controlled by one or more members of an

economically disadvantaged tribe, or

(B) Management may be provided by non-tribal members if SBA

determines that such management is required to assist the concern's

development, that the tribe will retain control of all management

decisions common to boards of directors, including strategic planning,

budget approval, and the employment and compensation of officers, and

that a written management development plan exists which shows how

disadvantaged tribal members will develop managerial skills sufficient

to manage the concern or similar tribally-owned concerns in the future.

(ii) Members of the management team, business committee members,

officers, and directors are precluded from engaging in any outside

employment or other business interests which conflict with the

management of the concern or prevent the concern from achieving the

objectives set forth in its business development plan. This is not

intended to preclude participation in tribal or other activities which

do not interfere with such individual's responsibilities in the

operation of the applicant concern.

(5) Individual eligibility limitation. SBA does not deem an

individual involved in the management or daily business operations of a

tribally-owned concern to have used his or her individual eligibility

within the meaning of Sec. 124.108(b).

(6) Potential for success. (i) A tribally-owned applicant concern

must be 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

This text is long and has been trimmed here. Open the source document for the complete record.