# 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

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URL: https://www.frixlaw.com/law-library/documents/fr%3A97-21514

## Record

- **Collection:** Federal Register
- **Document type:** Proposed Rule
- **Published:** August 14, 1997
- **Citation:** 62 FR 43584

## Text

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
signific

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A97-21514. Public record. Not legal advice.