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

SMALL BUSINESS ADMINISTRATION

13 CFR Parts 121, 124, and 134

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

Disadvantaged Business Status Determinations; Rules of Procedure

Governing Cases Before the Office of Hearings and Appeals

AGENCY: Small Business Administration.

ACTION: Final rule.

-----------------------------------------------------------------------

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

reform initiative, the Small Business Administration (SBA) amends both

the eligibility requirements for, and contractual assistance provisions

within, the SBA's 8(a) Business Development (8(a) BD) program. This

final rule changes 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

streamlines the operation of the 8(a) BD program, eases certain

restrictions perceived to be burdensome on Program Participants,

clarifies certain eligibility requirements, and deletes obsolete

regulations.

DATES: Effective Date: This rule is effective on July 30, 1998.

Compliance Dates: Subpart A applies to all applications for the

8(a) Business Development program pending as of July 30, 1998 and all

8(a) procurement requirements accepted by SBA on or after July 30,

1998. These rules do not apply to any appeals pending before SBA's

Office of Hearings and Appeals. The revisions to 13 CFR part 121 apply

with respect to all solicitations issued on or after June 30, 1998.

Except for 13 CFR 134.408(c), the procedural revisions to 13 CFR part

134 apply to all appeals served or filed on or after June

[[Page 35727]]

30, 1998. 13 CFR 134.408(c) applies as of the publication to all

pending appeals before SBA's Office of Hearings and Appeals.

FOR FURTHER INFORMATION CONTACT: William A. Fisher, Acting Associate

Administrator for Minority Enterprise Development, at (202) 205-6412.

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 by the Department of Justice (DOJ) of all

Federal procurement affirmative action programs. 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, on August 14, 1997, SBA published in the Federal

Register, 62 FR 43584, a proposed rule to amend 13 CFR part 124.

Subpart A of the proposed part 124 dealt with changes pertaining to 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). Subpart B of proposed part 124 dealt with SBA's

role in the certification and protest of small disadvantaged

businesses, as contemplated by the DOJ and FAR proposals. During the

proposed rule's 60-day comment period, SBA received 95 timely comments,

the majority of which favored the proposed changes. This rule finalizes

subpart A of 13 CFR part 124 (its regulations relating to the SBA's

8(a) Business Development Program. SBA continues to consider issues

relating to subpart B of 13 CFR part 124, and will finalize those

regulations at a later time. This rule does not address any comments

made regarding subpart B of part 124 or SBA's response thereto.

A substantial number of commenters applauded SBA's effort to remove

duplicative provisions, and rewrite those that appeared wordy or

unclearly written. For the most part, the comments also supported the

substantive changes proposed by SBA. SBA received comments on many

aspects of the proposed rule. With the exception of comments which did

not set forth any rationale or make suggestions, SBA discusses and

responds fully to all the comments below.

In addition to the changes to 13 CFR part 124, the final rule also

makes 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 changes should increase the potential pool of small

businesses available to compete for particular procurements and should

encourage contracting officers to consider small business contractors

more closely before determining a procurement strategy. The final rule

also transfers the procedures relating to certain statutorily

authorized appeals in the 8(a) program from part 124 to part 134 of 13

CFR.

This final rule streamlines the operation of the 8(a) BD program,

eases certain restrictions perceived to be burdensome on Participants,

amends certain eligibility procedures, and deletes obsolete

regulations. It reorganizes the regulations into identifiable

substantive areas for ease of use and clarity. It also changes all

references to SBA's Office of Minority Small Business and Capital

Ownership Development to the Office of 8(a) Business Development to

emphasize that individuals participating in the program need not be

members of minority groups and to 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 section headings in

question format for ease of use, and has eliminated unnecessary

verbiage from the regulations.

This rule amends eligibility procedures for admission to the 8(a)

BD program and also amends contractual assistance provisions within the

8(a) BD program. It eliminates 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, establishes consistent remedial

measures for firms that do not meet their non-8(a) business activity

targets, eases certain joint venture restrictions, and establishes a

mentor/protege program for developing 8(a) Participants. This rule also

liberalizes 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.

Summary of Comments and SBA's Response

Part 121: SBA received a substantial number of comments agreeing

with SBA's proposal to exclude certain joint venture arrangements from

the normal affiliation rules. This provision will 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 a small

business to perform successfully. The proposed rule would have

permitted 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. Several commenters

recommended that this provision be broadened to exclude affiliation

rules where there are ``teaming'' agreements as well. SBA concurs with

this recommendation, and has changed the rule accordingly.

Part 124, subpart A: Most of the comments received by SBA focused

on subpart A of part 124. The following analysis discusses each of the

significant comments received.

The proposed rule contained no provision for reporting changes that

would adversely affect a firm's eligibility, either during the

application stage or during a Participant's tenure in the program. As a

result of a number of comments, several new provisions have been

included in the regulation. Section 124.2 requires, in part, that a

Participant must maintain its program eligibility throughout its tenure

in the program and is obligated to inform SBA of any changes that would

adversely affect its program eligibility. To continue a firm's

participation in the program, Sec. 124.112 specifically reasserts this

obligation and Sec. 124.112(b)(2) requires program Participants as part

of their annual review to represent that no adverse change occurred or,

in the alternative, to describe any adverse changes that have occurred.

During the application stage, the 8(a) applicant is obligated to inform

SBA of any adverse changes that may have occurred since the actual

application.

Section 124.103(c) of the proposed rule stated that individuals who

are not members of designated socially disadvantaged groups must

establish individual social disadvantage by a ``preponderance of the

evidence.''

[[Page 35728]]

Previously, individuals not members of a designated group needed to

prove individual social disadvantage by ``clear and convincing''

evidence. SBA received many comments regarding the proposed change in

the evidentiary standard. The majority of commenters did not favor

changing the standard. SBA believes that all individuals who can show

that they have personally suffered social disadvantage, including women

and handicapped individuals, should be admitted to the 8(a) BD program,

and that the change in the evidentiary standard is necessary for

constitutional reasons. In response to the Supreme Court's decision in

Adarand Constructors, Inc. v. Pena, 115 Sup. Ct. 2097 (1995), which

requires programs to provide a race-based remedy to be ``narrowly

tailored,'' the Department of Justice recommended the ``preponderance

of the evidence'' standard for government-wide disadvantaged business

programs. SBA based the ``preponderance of the evidence'' standard on

the Department of Justice proposal, and continues to believe that the

use of this standard strengthens the defense of the 8(a) BD program.

Therefore, SBA retains the ``preponderance of the evidence'' standard

in the final rule. While the criteria for a case of individual social

disadvantage remains basically the same, the final rule changes the

evidentiary standard that must be shown to demonstrate an individual

case of social disadvantage. In assessing a claim of individual social

disadvantage, SBA will consider all relevant information submitted by

an applicant. Evidence which tends to show generalized patterns of

discrimination against a non-designated group or statistical data

showing that businesses owned by a specific non-designated group are

disproportionately underrepresented in a particular industry may be

used to augment an individual's case. Statistics and generalized

patterns are not sufficient by themselves to establish a case of

individual social disadvantage. However, an individual's statement of

personal experiences in combination with the generalized evidence may

be sufficient to demonstrate social disadvantage.

Proposed Sec. 124.103(d) stated that representatives of an

identifiable group whose members believe that the group has suffered

chronic racial or ethnic prejudice or cultural bias may petition SBA to

be included as a group presumed to be socially disadvantaged. One

commenter asked what the evidentiary standard should be for approval of

a designated group. As a result of this comment, Sec. 124.103(d)(1) of

the final rule provides that a preliminary showing must be made that

substantial evidence exists that a group meets the criteria to be

determined presumptively socially disadvantaged. Once this showing is

made, SBA will publish a notice for comment and, where deemed

appropriate, hold hearings and/or conduct its own research. After

completion of the process, SBA will determine whether a preponderance

of the evidence shows that the group meets the necessary criteria to be

considered presumptively disadvantaged.

Proposed Sec. 124.104, which set forth the factors to be reviewed

to determine the economic status of socially disadvantaged individuals,

clarified that a contingent liability does not reduce an individual's

net worth. A commenter remarked that contingent liabilities reduce

capital and credit opportunities and should be considered as reducing

net worth. SBA understands this possibility, but does not adopt the

comment. There are wide varieties of contingencies and their impacts on

credit opportunities. Moreover, individuals should not be permitted to

satisfy the net worth criterion by offering guarantees and indemnities

with remote possibilities of becoming actual liabilities.

Another commenter felt that Sec. 124.104 needed to set forth in

greater detail the criteria SBA uses to determine whether an individual

is economically disadvantaged. SBA will study this issue for possible

later revision.

Another commenter suggested that under Sec. 124.104, review of the

financial status of individuals claiming economic disadvantage should

be performed going back two years prior to application. This is already

addressed in two subsections of this section and no further provisions

are needed. Proposed Sec. 124.104(c) provides that SBA will take into

account the individual's personal income for the previous two years.

Proposed Sec. 124.104(c)(1) provides that SBA will attribute to an

individual claiming disadvantaged status any assets which that

individual has transferred to an immediate family member, or to a trust

a or beneficiary of which is an immediate family member, for less than

fair market value, within two years prior to a concern's application

for participation in the 8(a) BD program or within two years of a

Participant's annual program review, unless the individual claiming

disadvantaged status can demonstrate that the transfer is to or on

behalf of an immediate family member for that individual's education,

medical expenses, or some other form of essential support.

One commenter expressed concern that transfers of assets to family

members within two years prior to application should be objectionable

even if the transfer was ``for fair market value.'' The commenter felt

that sham transfers would be made to enable individuals to qualify as

economically disadvantaged under the thresholds. SBA has not adopted

this comment since, if a transferee received fair market value for an

asset, the transfer would be a sale, not a sham. As such, the transfer

would not distort a calculation of the transferor's net worth.

SBA had specifically requested comments on proposed Sec. 124.105,

seeking input on whether and under what circumstances trust

arrangements might be considered permissible without violating the

statutory requirement that an applicant or Participant must be at least

51 percent unconditionally owned by one or more socially and

economically disadvantaged individuals. SBA received several comments

on this issue. Upon further reflection, SBA has determined that

ownership of an 8(a) applicant or Participant by trusts that are the

functional equivalent of individuals, like living trusts, are

tantamount to individual ownership and should be permitted in the

program. One commenter noted that the IRS treats living trusts as

individuals for the purposes of income tax calculation, and urged SBA

to do the same. The SBA recognizes that an increasing number of

entrepreneurs are using such vehicles for tax and estate planning

purposes. Therefore, a provision making certain trusts eligible for

8(a) participation has been included in Sec. 124.105(a). The new

provision states that an 8(a) BD concern owned by a trust is considered

to be directly owned by a disadvantaged individual if the trust is

revocable and the disadvantaged individual is also the grantor, a

trustee and the sole current beneficiary of the trust.

Section 124.105(h) of the proposed rule set forth certain ownership

restrictions for non-disadvantaged individuals and concerns. Proposed

Sec. 124.105(h)(1) stated that a non-disadvantaged individual or a non-

Participant concern that owns a 10 percent or greater interest in a

Participant as a general partner or stockholder may not own more than a

10 percent interest in another Participant. Proposed Sec. 124.105(h)(2)

stated that a non-Participant concern in the same or similar line of

business may not own more than 10 percent in a current Participant, and

a former

[[Page 35729]]

Participant in the same or similar line of business may not own more

than 20 percent in a current Participant. Five commenters disagreed

with these restrictions. They felt they were unnecessary and would

place extra burdens on 8(a) firms that non-8(a) firms do not have. Most

felt that if SBA determines that the firm is 51 percent owned, managed

and controlled by a disadvantaged individual, no other ownership

restrictions should apply. Two commenters pointed out that the

regulation as proposed would hinder the firm's access to capital. The

commenters pointed out that access to money is necessary to make the

transition into the competitive market place. In response to these

comments, the SBA has revised its regulations to raise the percentages

that non-disadvantaged individuals, non-disadvantaged firms and former

8(a) firms may own in an 8(a) Participant in the transitional stage of

program participation. With respect to a firm in the transitional stage

of 8(a) program participation, the final rule states that (1) a non-

disadvantaged individual or a non-Participant concern with at least a

10 percent ownership interest in another Participant may own up to a 20

percent interest; (2) a non-disadvantaged individual or concern in the

same or similar line of business may own up to a 20 percent interest;

and (3) a former 8(a) Participant may own up to a 30 percent interest.

Percentages of ownership for firms in the developmental stage of

program participation are not changed in this rule. SBA's decision to

ease the current restrictions on ownership of an 8(a) BD concern should

improve access to sources of capital. SBA decided not to raise the

percentages higher than 20 and 30 percent at this time due to its

continued concern over program abuse through the possible establishment

of fronts. SBA will continue to monitor this section of the rule and

may adjust the percentages further in the future if it deems it

appropriate to do so.

Section 124.105(i) contains standards for obtaining SBA approval of

a change in a Participant's ownership. Several commenters expressed

concern that a time limit should be imposed on SBA to approve or

decline change of ownership requests. The final rule provides that the

AA/8(a)BD will issue a decision within 60 days of receipt by the Agency

of a request containing all necessary documentation, and that the

decision of the AA/8(a)BD will be the final Agency decision. The final

rule further provides that the denial of a request for a change of

ownership may be grounds for program termination if the change is

nonetheless completed.

The preamble to the proposed rule solicited comments on a proposal

to use suspension as a tool to allow time for an SBA inquiry into a

Participant's change of ownership or control. No negative comments were

received relating to this issue. Commenters who did address the matter

approved of such use, providing that SBA would restore the length of

the suspension to the firm's program term if the change is ultimately

approved. As a result of the comments, SBA has revised Sec. 124.105(i).

As revised, Sec. 124.105(i) provides that, where a Participant requests

a change of ownership or business sture, and the che change has already

occurred, SBA will suspend the Participant pending a decision on the

request. If the change is approved, the SBA will restore the length of

the suspension to the Participant's program term where the change in

ownership results from the death or incapacity of a disadvantaged

individual, or where the firm requested prior approval and waited 60

days for SBA approval before making the change. SBA will not restore

the length of a suspension for any firm that did not request a change

in ownership prior to making the change (except, as noted, for a change

due to death or incapacity). This provision has also been added to

Sec. 124.305 governing suspensions.

The proposed regulation regarding suspension (Sec. 124.305) has

been modified to clarify the jurisdiction of the Office of Hearings and

Appeals and the standard of evidence necessary for SBA to sustain its

suspension action. The proposed rule stated that SBA has the burden of

showing that ``substantial'' evidence exists in support of at least one

of the grounds for termination cited in the Letter of Intent to

Terminate. SBA has decided not to adopt this new standard in the final

rule. The final rule provides that SBA is required to show only that

``adequate'' evidence exists in support of a least one of the grounds

for termination. The final rule defines the term ``adequate evidence''

as information sufficient to support the reasonable belief that a

particular act or omission has occurred. This definition is adopted

from Sec. 9.403 of Title 48 of the Code of Federal Regulations.

Section 124.305 has also been amended to provide that, unless the

Administrative Law Judge consolidates the suspension and termination

proceedings, the review must be limited to determining whether the

government's interest needs protection. SBA's Office of Hearings and

Appeals (OHA) may not review the grounds for termination under a

suspension action.

A commenter questioned whether proposed Sec. 124.105(i) conflicts

with the requirement in Sec. 124.515 that a change in ownership of an

8(a) BD concern requires a waiver from SBA for the Participant to

continue performing on an 8(a) contract. Section 124.105(i) allows

continued performance of a contract without a waiver if a disadvantaged

individual is substituted for another, with SBA approval before the

change is implemented. SBA requires waivers under Sec. 124.515 only

where ownership of an 8(a) Participant would be changed to an extent

that the 8(a) BD concern would be no longer at least 51 percent owned

by one or more disadvantaged individuals. If SBA does not approve a

change in ownership because it determines that the acquiring individual

is not disadvantaged or that the firm as structured after the change is

no longer owned and controlled by disadvantaged individuals, then the

firm must seek a waiver under Sec. 124.515 in order to continue to

perform any of its 8(a) contracts.

Proposed Sec. 124.106 explained the concept of control and the

factors which SBA looks at to determine who controls an 8(a) BD

concern. Several commenters raised issues of control where a non-

disadvantaged individual held a critical license. SBA does not believe

that the mere fact that a non-disadvantaged employee who is not also an

equity owner of the firm holds a critical license would cause the

disadvantaged principal(s) to lose control. In such a case, the

disadvantaged principal(s) must demonstrate their management expertise

and the right to replace the non-disadvantaged employee at any time

with another technical employee. However, SBA agrees that the situation

is much more complicated where the non-disadvantaged individual who

holds a critical license is also an equity owner of the firm. The final

rule permits SBA to find negative control where a non-disadvantaged

owner holds a critical license. The burden is on the applicant or

Participant to demonstrate that control is in the hands of one or more

disadvantaged individuals. The final rule provides that an individual

need not have the technical expertise or possess a required license to

be found to control an applicant or Participant if he or she can

demonstrate that he or she has ultimate managerial and supervisory

control over those who possess the required licenses or technical

expertise. SBA recognizes that failure to possess technical expertise

or a required license are factors that may be considered in evaluating

the disadvantaged

[[Page 35730]]

individual's control of the concern, but that such circumstances are

not dispositive.

One commenter suggested that 8(a) concerns be allowed to own

subsidiary concerns without being in violation of the requirement under

proposed Sec. 124.106(a)(3) that an owner of an 8(a) concern devote

full time to management of the concern. SBA's policy is to allow such

ownership since working with the subsidiary indirectly advances the

interests of the 8(a) concern. Therefore, a provision expressly

allowing such ownership has been added to Sec. 124.106(a)(3). However,

this exception does not change the general requirement that an owner of

an 8(a) concern devote full time to manage the concern.

A few commenters requested that some flexibility be given to the

requirement under Sec. 124.106(a)(3) that a disadvantaged individual

who manages the Participant concern must devote full-time to the

business during normal working hours. As stated in the preamble to the

proposed regulations, this requirement is not intended to prevent such

individual from spending normal business hours away from the premises

in such areas as marketing and outreach that benefit the concern. The

rule does not imply that business activities could not be conducted by

such individual outside the office. It does, however, prohibit such

individual from being physically located at a site on a continuing

basis which is separate and distinct from the Participant concern

during normal business hours, despite any claim that he or she is

managing the concern from that location. SBA believes it is important

for the growth and development of the 8(a) BD concern that the

disadvantaged individual who manages the concern devote full time to

such management. Therefore, SBA makes no change to the final rule.

The proposed regulations continued SBA's current approach and

required that disadvantaged individuals have majority control of the

board of directors. Some commenters felt that this requirement did not

reflect business practice in the corporate world. One commenter felt

that, particularly in smaller corporations, the sole shareholder or the

majority shareholder virtually always controls the board of directors.

This control stems from his or her ability to replace directors at

will. The commenter recognized, however, that in rare situations the

sole or majority owner might not control the board, such as where

directors have fixed terms and cannot be removed before the end of such

terms. In addition, SBA notes that cumulative voting practices and

super majority requirements (i.e., any provisions requiring more than a

simple majority vote) may make it difficult for a shareholder owning

only 51% of a corporate concern to control the board of directors of

that concern. Likewise, where more than one disadvantaged owner is

involved, voting rights and control of the board of directors is harder

to pinpoint. As such, SBA accepts this comment to a point. The final

rule gives several alternatives for finding control by disadvantaged

individuals of the board of directors. Where a single disadvantaged

individual owns 100% of an applicant or Participant, SBA deems that

individual to control the board of directors, and no further analysis

is needed. Where a single disadvantaged individual owning less than

100% seeks to qualify a concern, SBA deems that individual to control

the board of directors where he or she owns at least 51% of the concern

or, where the concern has super majority voting requirements, that

percentage of ownership needed to overcome any such super majority

ownership requirements, and he or she is on the board of directors. The

applicant will be required to inform SBA of any super majority voting

requirements provided for in its articles of incorporation, its by-

laws, or by state law. Thus, the disadvantaged owner is able to convene

a shareholder's meeting, change corporate by-laws and articles of

incorporation, and change directors on the board at will. In such a

case, SBA will not look at the makeup of the board of directors for

determining control of the firm (although SBA will continue to examine

the character of directors). Where more than one disadvantaged owner

seeks to qualify an applicant or Participant (i.e., no one individual

owns 51%) and each such individual is on the board of directors, SBA

deems those individuals to control the board of directors where

together they own at least 51% of the concern or, where the concern has

super majority voting requirements, that percentage of ownership needed

to overcome any such super majority ownership requirements, and they

can demonstrate that they have made arrangements to overcome any

potential stalemates and that they have the comparable ability of a

single majority owner to act quickly. For example, where a concern has

three disadvantaged individuals each owning 17%, SBA will deem the

individuals to control the board of directors without looking at the

board's make-up if two of the three individuals have given their voting

rights to the third individual. Where an applicant or Participant

cannot demonstrate the ability for a disadvantaged individual to act

quickly to replace members of the board of directors, SBA will look at

the composition of the board of directors and will apply the current

board of directors control requirements to the concern. The concern

must meet the current requirement that one or more disadvantaged

individuals must control the board of directors through numbers of

individuals on the board or, where permitted by state law, through

weighted voting.

Numerous commenters expressed concern that, with the lowering of

the evidentiary standard for eligibility in cases of individual social

disadvantage, there would be a greater need to police fraud in the

program application process. Many warned of potential front situations

involving the transfer of ownership and/or control of the applicant

firm from one family member to another. This final rule addresses these

issues at several points. Section 124.106(f) provides that if a non-

disadvantaged individual transfers majority ownership or control of the

applicant firm to a family member within two years of the date of

application while remaining an owner, officer, director or key employee

of the company, the non-disadvantaged individual will be presumed to

control the company. As noted above, the final rule also requires

program applicants (Sec. 124.204(d)) and Participants (Sec. 124.112(b))

to inform SBA of any changes that would adversely affect their

eligibility. Failure to inform SBA of these adverse changes, or falsely

certifying that no adverse changes exist, are grounds for denial of

entry into the program or, if concern is a already a program

Participant, grounds for termination from the program.

Proposed Sec. 124.107 set forth the requirement that an 8(a) BD

applicant must possess potential for success in competing in the

private sector. One commenter questioned whether an 8(a) applicant that

can meet the requirements under Sec. 124.107(b)(iii) and (iv), needs

8(a) BD assistance. These subsections provide that if an applicant to

the 8(a) BD program does not meet the requirement that it has been in

business in its primary industry classification for at least two full

years prior to applying, this requirement may be waived if certain

conditions are met. In 1990, Congress passed legislation that would

allow concerns to waive the two year rule after satisfying five

conditions. See The Small Business Administration Reauthorization and

Amendments Act

[[Page 35731]]

of 1990, Pub. L. No. 101-574 Sec. 203(b)(1), 104 Stat. 2814, 2818-2819

(1990). SBA adopted the same five conditions for waiver in the 8(a)

regulations, but has clarified that applicants will be assessed in the

context of their proposed participation in the program.

As indicated above, several commenters expressed a need for greater

oversight by SBA during the application process to prevent fraud. SBA

notes that provisions included in the proposed regulations at

Sec. 124.108(a)(5) provide that SBA may decline an application due to

the submission of false information. SBA may also terminate a firm from

the program under Sec. 124.303(a)(1)(15) if it discovers later that the

Participant falsified information in its application. SBA retains these

provisions in the final rule.

Proposed Sec. 124.108(a) provided that SBA could exclude firms from

program participation for lack of good character in circumstances where

there was credible evidence of criminal activity. Upon further internal

deliberation, the final rule significantly expands and clarifies

Sec. 124.108(a). SBA will also find a firm ineligible for the 8(a) BD

program if it or one of its principals (1) lacks integrity as

demonstrated by information related to an indictment, guilty plea,

conviction, civil judgment or settlement; (2) is currently

incarcerated, or on parole or probation pursuant to a pre-trial

diversion or following conviction for a felony or any crime involving

business integrity; or (3) has knowingly submitted false information as

part of the application for program admission. This clarification and

expansion of the definition of good character reinforces the concept of

business character as a requirement for program eligibility. It also

promotes greater consistency between the eligibility requirements in

this section and the grounds for termination in Sec. 124.303(a).

Several commenters believed that payment of obligations to the

Federal government should be included as an element of good business

character under Sec. 124.108(a). Failure to pay significant obligations

owed to the Federal Government is already a basis for program

termination under Sec. 124.303(a)(11). Additionally, the existence of

defaults resulting in a loss on a federal loan or federally assisted

financing has long been a reason for denying financial assistance in

other SBA programs. See 13 CFR Sec. 120.110. For these reasons, SBA has

added a new paragraph (e) to Sec. 124.108, providing that any firm or

principal that fails to pay significant financial obligations owed to

the Federal Government is not eligible for admission to the 8(a) BD

program.

Section 124.108(f) of the proposed rule defined a ``broker'' as a

concern that adds no value to an item being supplied to a procuring

activity. One commenter suggested that the definition of broker be

expanded to provide that a company would not be considered a broker if

it purchased and shipped an item, despite the fact that purchasing and

shipping do not technically ``add value'' to an item. SBA concurs that

the proposed language did not adequately capture the meaning of the

term ``broker.'' SBA has, therefore, added language to Sec. 124.108 to

refine the definition of a broker. The final rule (Sec. 124.108(d))

provides that a broker is a concern that adds no material value to an

item being supplied to a procuring activity or which does not take

ownership or possession of or handle the item being procured with its

own equipment or facilities. This definition of ``broker'' is specific

to this rule. Some firms which refer to themselves as brokers in their

line of business may not be ineligible for 8(a) participation as

``brokers'' under this rule.

The final rule also clarifies the provision restricting a tribe's

(or an ANC's) ability to own more than one firm in the 8(a) program

doing the same work. Section 124.109(c)(3)(ii) specifies that a tribe

may own a Participant or an applicant that conducts or will conduct

secondary business in the 8(a) BD program under the same SIC code that

a current Participant owned by the tribe operates in the 8(a) BD

program as its primary SIC code. In other words, SBA will not deny an

application from a tribally-owned concern where the application plans

to do some work (but not its primary work) in the same SIC as another

8(a) firm owned by the tribe. The final rule makes this same

clarification for CDCs and Native Hawaiian Organizations as well. See

Secs. 124.110(c) and 124.111(d), respectively.

Proposed Sec. 124.112 listed the criteria Participants must meet in

order to remain eligible for the 8(a) BD program. One commenter

suggested that if SBA determines that a Participant is no longer

eligible for the 8(a) BD program under Sec. 124.112, that the

Participant be allowed to respond to the factors supporting

ineligibility even before SBA initiates early graduation or termination

proceedings under Sec. 124.302 and Sec. 124.303, respectively. If SBA

initiates such proceedings, the Participant now has 30 days to respond

to SBA under Sec. 124.304(b). SBA believes these procedures give the

Participant an adequate opportunity to respond on the issue of

continued eligibility.

Another commenter recommended that a Participant which obtains an

SBA loan should not thereby be considered to have ``access to credit''

under Sec. 124.112 such that the socially disadvantaged individuals are

no longer considered economically disadvantaged. Since this is already

SBA's policy, no change to the regulation is necessary.

One commenter felt that requiring certification of the transfer of

assets to family members under Sec. 124.112(b)(4) would penalize

individuals for making gifts to their families and would serve no

legitimate purpose. SBA does not intend that each disadvantaged owner

report every gift made to his or her family members. SBA is merely

trying to determine if an individual has transferred significant assets

to his or her family members in order to remain eligible for the

program (i.e., in order to remain ``economically disadvantaged'').

Where the individual retains some use or enjoyment of the asset

transferred (e.g., real estate is ``transferred'' to a spouse and the

individual continues to have access to it; a piece of art is

``transferred'' to a family member, but continues to be displayed in

the individual's residence), SBA will attribute the asset back to the

disadvantaged individual for purposes of determining his or her

continued economic disadvantage status. Where the individual

demonstrates that the transfer is an irrevocable transfer as to which

the disadvantaged individual retains no use or enjoyment (e.g., the

one-time transfer of funds to an adult child to assist the child's

purchase of a residence), the asset will not be attributed back to the

disadvantaged individual. In addition, Sec. 124.104(c)(1)(ii) of the

final rule specifies that SBA will not attribute to an individual

claiming disadvantaged status any assets transferred by that individual

to an immediate family member that are consistent with the customary

recognition of special occasions, such as birthdays, graduations,

anniversaries, and retirements. This does not mean that an individual

claiming disadvantaged status may transfer unreasonably large funds or

other assets to an immediate family member and claim that it should not

be attributed back to him or her because the transfer was, for example,

a birthday present. The funds or assets transferred must be reasonable

and within customary limits for the occasion.

Another commenter suggested that SBA also attribute back to the

disadvantaged transferor all transfers to

[[Page 35732]]

non-family members for less than fair market value. SBA does not adopt

this suggestion. Such a rule could discourage, for example, an

irrevocable charitable transfer of assets. SBA notes that if an asset

is transferred subject to a retained interest or a remainder, then the

present value of the retained interest will continue to be counted as

an asset in determining the donor's net worth. As such, there is no

need to impose further restrictions or requirements on these transfers.

A few commenters noted that language in proposed Sec. 124.112,

concerning the continuing eligibility of businesses in the 8(a) BD

program, inadvertently requires concerns owned by Alaska Native

Corporations (ANCs) to comply with Secs. 124.101 through 124.108. SBA

has revised Sec. 124.112 to correct this error. In addition, this

section has been revised to address the continuing eligibility of

concerns owned by Indian tribes, Native Hawaiian Organizations and

Community Development Corporations (CDCs).

With respect to the new mentor/protege program, one commenter

suggested that SBA should measure the performance of the mentor and

benefits of the program. SBA has adopted this suggestion by revising

Sec. 124.112(b) to require from protege firms a narrative report on the

program as part of their annual report. SBA has also revised

Sec. 124.520 to provide specific standards for SBA reviews of mentor/

protege relationships.

Proposed Sec. 124.112(c) set forth examples under which SBA may

determine that a socially disadvantaged individual is no longer

economically disadvantaged. One commenter noted that the proposed rule

referred to the economic status of the 8(a) BD Participant, rather than

the disadvantaged individual. This error has been corrected in the

final regulations, and language has been added to clarify that the

economic status of the Participant may be considered in analyzing the

status of the individual.

Proposed Sec. 124.204 set forth the process of applying to the 8(a)

BD program. Proposed Sec. 124.204(b) stated that eligibility for the

program is based on the circumstances existing on the date of

application, but that SBA may request clarification of information in

the application. Several commenters felt that this was too harsh and

that concerns which might easily be eligible for the program would not

be allowed the chance to make simple changes in order to be eligible.

While SBA understands the desire an applicant would have to be able to

change its application at any point in time in order to come into

compliance with SBA's requirements during the application process, SBA

believes that it is more important for reviewers not to have an

application that is an ever-changing moving target. In addition, SBA

notes that the applicant still has its right to request reconsideration

of an initial decline letter and it is free to make any changes in its

application at that time.

Proposed Sec. 124.302 of the regulations set forth the criteria for

early graduation. A Participant could be graduated early if it either

successfully completes the program prior to the end of its program term

or if one or more of the disadvantaged owners are no longer

economically disadvantaged. Some commenters felt that successful firms

would be penalized for their success if they were graduated before the

expiration of their 9 year term. Although SBA is authorized to graduate

firms that meet their business objectives early, this process is at the

discretion of the Administrator. Early graduation is not an automatic

process. Only Participants that show sufficient competitive strength

and viability to compete successfully outside the program will be

subject to early graduation. Once they show such strength and

viability, their need for continued participation in the program has

ended. Accordingly, SBA has retained these provisions in the final

rule.

One commenter suggested that SBA should graduate Participants early

when the Participants have demonstrated the ability to compete in the

marketplace without assistance under the 8(a) BD program, whether or

not they have achieved the targets, goals and objectives set forth in

their business plans. SBA believes that this recommendation is contrary

to the Small Business Act. The Small Business Act authorizes SBA to

graduate Participants early only under limited circumstances, among

them where a Participant has successfully completed the program by

substantially achieving its targets, goals and objectives. SBA

understands the concerns of the commenter, and will take efforts to

ensure that the targets, goals and objectives in the business plans are

realistic and appropriate.

Section 124.303(a) of the proposed rule provides for early

termination from the 8(a) program prior to the expiration of a

concern's Program Term for good cause. Section 124.303(a)(13) lists, as

an example of good cause, excessive transfers of funds or other

business assets hindering development of the concern, and excessive

withdrawals from the concern for the personal benefit of any of its

owners or any entity affiliated with the owners. Several commenters

were concerned with SBA labeling withdrawals ``excessive'' without

reviewing the totality of the circumstances. Section 124.112(d)(3)

defines as excessive those withdrawals during any one fiscal year of a

Participant that exceed $150,000 for firms with sales up to $1,000,000;

$200,000 for firms with sales between $1,000,000 and $2,000,000; and

$300,000 for firms with sales over $2,000,000. The regulation permits

SBA to terminate the concern for good cause for such withdrawals.

However, it does not state that SBA will automatically terminate the

concern. SBA realizes that some withdrawals above the ``excessive''

guidelines are not excessive in light of the totality of the

circumstances. SBA decides terminations on a case-by-case basis and

always considers the totality of the circumstances beforehand.

Nonetheless, the final rule clarifies that SBA will presume to be

excessive all withdrawals exceeding the specified amounts.

The final rule changes Sec. 124.303 to add clarity and to eliminate

redundancy. Proposed Sec. 124.303(a)(18) stated that a suspension or

revocation of any license required to run the business is good cause

for termination. SBA has deleted this paragraph and transferred its

substance to Sec. 124.303(a)(12). Section 124.303(a)(12) of the final

rule now lists as a ground for termination the failure to keep

licenses, charters and permits current.

SBA received several comments concerning the application of

benchmarks to the 8(a) BD program. This application is based on the DOJ

review of Federal procurement affirmative action programs and the

Government-wide SDB program. Because this rule is not finalizing SBA's

implementation of the SDB program at this time, it eliminates all

references to benchmarks from the 8(a) regulations (i.e, subpart A).

SBA has changed many of the 8(a) contracting sections as a result

of the comments. It has amended the general provisions in proposed

Sec. 124.501 in several respects. The final rule eliminates proposed

paragraph (d) of Sec. 124.501 as unnecessary, and renumbers proposed

paragraphs (e) and (f) as paragraphs (d) and (e) respectively. That

paragraph had clarified that a concern's success in meeting its support

level would not preclude future 8(a) BD contract awards. Although SBA

thought this clarification necessary at the time the regulations were

originally amended to permit 8(a) concerns to exceed their support

levels, SBA believes that that need no longer exists.

[[Page 35733]]

One commenter requested clarification concerning the purpose of

delegating contract execution authority. The primary purpose behind

such delegation is improved efficiency. Procuring activities can award

contracts much more quickly and efficiently with such authority and

may, therefore, see more opportunities for making use of the 8(a) BD

program.

A sentence was added to proposed Sec. 124.501 to provide that,

where practicable, simplified acquisition procedures should be used for

8(a) contracts at or below the simplified acquisition threshold. This

change conforms SBA's regulations to the Federal Acquisition Regulation

(FAR) governing simplified acquisition procedures (48 CFR Part 13) and

promotes efficiency and economy. SBA has also amended its rule,

including Sec. 124.501(e), to change the term ``procuring agency'' to

``procuring activity,'' thus identifying correctly the Government

contracting entity referenced. Since Federal contracting is frequently

performed at the sub-Agency level, using the term ``procuring agency''

did not cover every entity that may enter into an 8(a) contract.

As a result of the comments, SBA added a new paragraph (f) to

provide that an 8(a) Participant that identifies a requirement should

request SBA to contact the procuring activity to request that the

requirement be offered to the 8(a) program.

Proposed Sec. 124.502 addressed offers of procurements to the 8(a)

BD Program. SBA has amended its proposed Sec. 124.502(a) to provide

that a procuring activity may transmit an offering letter to SBA by

electronic mail, if available, or by facsimile transmission, mail or

commercial delivery service. This conforms the rule to the simplified

acquisition procedures contained in the FAR and helps ensure that

procuring activities can award small contracts expeditiously. SBA has

amended its proposed Sec. 124.502(b) to provide that, in cases where

performance of a construction contract is to take place overseas, the

contract should be offered to the Office of 8(a) BD located in SBA

Headquarters.

One commenter asked why SBA verified the size of an 8(a) concern

prior to accepting a sole source contract on its behalf since self-

certification is accepted in every other case. SBA performs this

function for sole source awards since there is no mechanism in place

for protesting a concern's size in reference to a sole source award.

Thus, there is no other check to ensure that concerns in line for award

of sole source contracts are in fact small for such contracts.

Moreover, since sole source awards are significant benefits, enabling

firms to receive contracts without having to compete with other firms,

it is particularly important that eligibility, including size, is

verified.

Proposed Sec. 124.503 set forth the procedures for accepting a

requirement for the 8(a) BD Program. This rule amends Sec. 124.503(a)

to provide that, where a contract is valued at or below the simplified

acquisition threshold, SBA will accept or reject the requirement within

two days of receipt of the offer. In cases where the offer is made on

behalf of a particular Program Participant, if SBA does not accept or

reject the requirement or request an extension within two days, the

procuring activity may assume that the offer has been approved and go

forward with the award. SBA intends this change to conform to the

simplified acquisition procedures contained in Part 13 of the FAR and

to promote efficiency. This final rule also makes a significant change

to promote efficiency where SBA has delegated its 8(a) contract

execution functions to an agency and a procuring activity within that

agency has a procurement requirement whose value is less than the

Simplified Acquisition Procedures (SAP) threshold amount. In such case,

this rule authorizes SBA, in its discretion, to permit the procuring

activity to award an 8(a) contract under the SAP threshold amount

without sending an offering letter to SBA and without receiving SBA's

official acceptance of the requirement for the 8(a) program.

A number of comments requested clarification of the treatment of

multiple award and federal supply schedule contracts. SBA has added a

paragraph to Sec. 124.503 setting forth the standards to be applied to

these types of contracts. Since, unlike Basic Ordering Agreements

(BOA's), multiple award schedule contracts and federal supply schedule

contracts are contracts, a new task order under such a contract will

not require a new offer and acceptance. Likewise, if a concern

qualifies for award of a multiple award schedule or federal supply

schedule contract in terms of eligibility and size, it will not be

denied future task orders on that contract if it subsequently grows

large. Finally, if a multiple award schedule or federal supply schedule

contract was competed when awarded, subsequent task orders under such

contract will not require further competition under Sec. 124.506.

As a result of the comments, SBA has added a new paragraph (i) to

clarify that where SBA has delegated its 8(a) contract execution

authority to a procuring activity, the procuring activity must still

offer and SBA must accept all requirements intended to be awarded as

8(a) contracts. The only exception to the normal offer and acceptance

process is that identified above where a procurement requirement is

less than the SAP threshold amount and SBA has specifically authorized

(through the Memorandum of Understanding delegating its contract

execution functions or otherwise) a procuring activity to dispense with

offer and acceptance.

Proposed Sec. 124.504 set forth the circumstances limiting SBA's

ability to accept a procurement for award as an 8(a) contract. In

response to comments identified below, this final rule specifically

authorizes the use of SAP in connection with 8(a) contract awards, and

requires SBA to review offering letters for requirements under SAP in

an expedited two-day time frame. In order to meet this quick acceptance

turn around, SBA has decided not to consider adverse impact in

connection with a requirement offered under SAP. It is not feasible for

SBA to obtain current financial statements from affected small

businesses and to make adverse impact determinations within two days.

However, because the SAP threshold is $100,000, SBA believes that

adverse impact should not be a real factor with these smaller

contracts, and that this change should not have a harmful effect.

Proposed Sec. 124.504(e) (Sec. 124.504(d) in the final rule)

concerned the release of a procurement for non-8(a) competition. One

commenter pointed out that the language in proposed Sec. 124.504(e)(3)

was misleading. That language provided that if SBA declines to accept

an offer and releases the requirement, it will recommend to the

procuring agency that the requirement be procured as a small business

or SDB set-aside. The commenter correctly pointed out that SDB set-

asides are not authorized at this time. SBA has, therefore, amended

this paragraph to provide that if SBA declines to accept an offer for

the 8(a) program, it will recommend that the requirement be procured as

a small business or, if authorized, SDB set-aside.

One commenter suggested that industries for which SBA has elected

not to accept requirements should be listed on SBA's website. SBA is

considering adopting this idea; however, it need not revise its

regulations to adopt this policy. Another commenter recommended that

firms that have graduated be permitted to compete for follow-on

contracts where the firm had been awarded the original

[[Page 35734]]

contract. Applicable law precludes SBA from making this change.

A number of commenters requested additional procedures to protect

the rights of small firms which could be adversely impacted by a

decision to accept an award for the 8(a) BD program. SBA carefully

considered these comments and weighed them against the need of

procuring activities for prompt award of contracts. SBA determined that

the current procedures were sufficient to ensure that small businesses

performing contracts are not unduly harmed by the acceptance of an

award for the 8(a) program.

Proposed Sec. 124.506 provided that 8(a) procurements above certain

dollar thresholds must be competed among eligible Participants. A

number of commenters requested that the competitive thresholds be

lowered. These thresholds were set by statute and, therefore, may not

be lowered by SBA.

One commenter requested clarification concerning how the thresholds

are applied to indefinite delivery/indefinite quantity (ID/IQ)

contracts. The commenter asked whether the total value of such

contracts would be the value of what the procuring activity actually

expects to order or the maximum ordering amount it may order. SBA

considers the maximum ordering amount to be the total value of the

contract for purposes of determining whether a particular ID/IQ

contract must be competed. As a result of this comment,

Sec. 124.506(a)(2) has been amended to provide that for indefinite

delivery or indefinite quantity type contracts, the thresholds are

applied to the maximum order amount authorized.

Language was mistakenly included in proposed Sec. 124.507(c) which

referred to limiting competitions to the transitional stage of program

participation. SBA has eliminated this language in the final rule,

since it does not restrict competitions to the transitional stage.

One commenter objected to the language in proposed

Sec. 124.506(c)(3) requiring SBA to deny a request to compete a

requirement under the competitive thresholds where the request is made

following the inability of the procuring activity and the potential

sole source awardee to reach an agreement on price or some other

material term or condition. The commenter pointed out that this

provision unnecessarily restricts the flexibility of the Federal

Government. SBA agrees with this comment and has amended this paragraph

to provide only that SBA may deny a request under such circumstances.

A number of commenters objected to SBA's proposal to eliminate its

authority to award an 8(a) contract above the competitive threshold on

a sole-source basis where there is only one eligible firm capable of

performing the requirement. As a result of the comments, SBA has added

this provision back to the regulations at Sec. 124.506(d).

Proposed Sec. 124.507 set forth the procedures applicable to

competitive 8(a) contracts. One commenter objected to the elimination

of the requirement that a firm must obtain SBA approval to do business

under a particular SIC code. SBA has considered this comment, but has

rejected it. After several years of experience, SBA believes that the

burden on an 8(a) Participant to obtain SBA approval for every SIC code

under which the Participant might want to perform contracts hinders

more than helps the Participant's business development. Moreover, the

procuring activity's determination that a particular 8(a) Participant

is responsible to perform a given contract should suffice to prevent

firms from brokering contracts or from competing for contracts for

which they are not qualified.

One commenter correctly pointed out that Certificate of Competency

(COC) procedures should not be inapplicable in cases where SBA has

delegated contract execution authority to the procuring activity as

provided in proposed Sec. 124.507(b)(7). SBA agrees. SBA did not intend

to make the COC procedures inapplicable where contract execution

authority has been delegated. In addition, the final rule transfers the

substance of proposed Sec. 124.507(b)(6) (dealing with the execution of

competitive 8(a) contracts) to a new Sec. 124.508. The correction

regarding the availability of COCs where SBA has delegated its 8(a)

contract execution functions to a procuring activity and the transfer

of proposed Sec. 124.507(b)(6) to a new section make proposed

Sec. 124.507(b)(7) unnecessary. Thus, SBA has eliminated that provision

in this final rule.

A number of commenters objected to the special geographic

requirements for construction contracts in proposed Sec. 124.507(c)(2).

These requirements are mandated by the Small Business Act and,

therefore, may not be eliminated. One commenter correctly pointed out

that the reference to principal places of business in proposed

Sec. 124.507(c)(2) is incorrect and should be bona fide places of

business. SBA agrees with this comment and has made this correction.

This final rule adds a new Sec. 124.508 governing execution of 8(a)

contracts. This new section clarifies that SBA, the procuring activity

and the 8(a) firm may sign a tripartite agreement or, where SBA has

delegated contract execution authority, the procuring activity and the

Participant alone may sign an 8(a) contract. This section also provides

that, where SBA receives a contract for signature valued at or below

the simplified acquisition threshold, it will sign the contract and

return it to the procuring activity within three (3) days of receipt.

This addition was made to conform to the simplified acquisition

procedures in the FAR and to promote expeditious award of smaller

contracts.

Pursuant to proposed Sec. 124.508 (Sec. 124.509 in the final rule),

a Participant could not receive sole source 8(a) contracts where it was

not in compliance with its non-8(a) business activity targets. A

commenter recommended that SBA allow more flexibility to permit sole

source awards where the firm can demonstrate good faith efforts to

obtain non-8(a) revenue. SBA agrees that a waiver to the requirement

prohibiting further sole source contracts when a Participant does not

meet its non-8(a) business activity target may be appropriate in

limited, extraordinary circumstances. The final rule permits the AA/

8(a)BD, or his or her designee, to allow one or more sole source

contracts to a Participant that is not in compliance with its non-8(a)

business activity target where a denial of a sole source contract would

cause severe economic hardship to the Participant so that the

Participant's survival may be jeopardized, or where extenuating

circumstances beyond the Participant's control caused the Participant

not to meet its non-8(a) business activity target. For example, a

Participant might demonstrate that it was the apparent successful

offeror for a non-8(a) contract that was cancelled by the procuring

activity, and that a loss of that projected revenue caused the

Participant not to meet its non-8(a) business activity target. However,

loss of additional profit or other normal business consequences will

not be grounds for granting a waiver. SBA believes that a more

extensive waiver is not needed because the rule permits sufficient

flexibility by allowing a firm to come into compliance during

authorized quarterly reviews. The rule authorizes no appeal right for

decisions not to grant a waiver, and such a waiver is totally at SBA's

discretion. The final rule also adds a provision authorizing the SBA

Administrator to waive the requirement that a Participant cannot

receive an 8(a) sole source award when it is not in

[[Page 35735]]

compliance with its non-8(a) business activity targets where the head

of the procuring activity requests that award be made for the best

interests of the Government.

Proposed Sec. 124.509 (Sec. 124.510 in the final rule) set forth

the requirement that certain percentages of work be performed by the

8(a) BD concern on an 8(a) BD contract. One commenter pointed out that

compliance with the percentage of work requirements is an element of

responsibility and, therefore, should be determined as of the date of

award. SBA agrees with this comment and has amended this section to

provide that SBA will determine whether the firm will be capable of

complying with the percentage of work requirements by the time of award

of the contract for both sealed bid and negotiated procurements.

Another commenter correctly pointed out that the example in the

regulation conflicts with the requirements set forth in 13 CFR

Sec. 125.6, which refer to the work required as a percentage of total

labor rather than as a percentage of the total value of the contract.

SBA agrees with this comment and has changed example 1 as well as some

of the language in Sec. 124.510(c) of the final rule to conform to the

language in Sec. 125.6. (The legislation on which the performance of

work requirements are based states the percentage of work required as a

percentage of total labor and not total value.) Example 2 was not

changed because the example does not conflict with either Sec. 125.6 or

the legislation. Example 2 merely clarifies application of the rule in

the early stages of performance of an ID/IQ contract.

One commenter pointed out that application of the subcontracting

limitations at all times during performance of an ID/IQ contract would

keep many contractors from proposing on task orders. SBA agrees that

the regulation is not flexible enough in this regard and has amended

the language in paragraph (c) to provide that SBA may approve in

writing an 8(a) BD firm's request to subcontract out more than the

required percentage where it receives assurances from both the

contractor and the procuring activity that the percentages will be met

by the time performance is completed. SBA believes that this addition

will provide firms with the necessary flexibility without undermining

the purposes of the rule. Where a firm has received permission to

subcontract out more than the required percentage and does not comply

with the percentage requirements by the end of the contract, SBA will

not grant future waivers.

There were a number of comments on proposed Sec. 124.512 governing

joint ventures. Several commenters objected to the requirement in

proposed Sec. 124.512(e) that a contract be awarded in the name of the

8(a) BD participant or participants, even though the contract is to be

performed by the joint venture. The commenters argued that the contract

should be in the name of the joint venture to assure that all parties

to the joint venture are obligated to perform. SBA agrees with this

view and has amended this section to provide that the procuring

activity will execute an 8(a) contract in the name of the joint venture

entity. With respect to the statutory requirement that all 8(a)

contracts be performed by participant concerns, SBA interprets the AA/

8(a)BD's acceptance of Participants into the program to extend to

approved joint ventures in which the Participant is the lead joint

venture partner. In other words, for purposes of contracting, admission

into the program includes both a concern in its own capacity and any

approved joint venture in which the concern is the lead entity. For

contracting purposes, SBA will consider the joint venture to be the

Participant where the joint venture meets all applicable requirements

and is approved by SBA.

Paragraph (f) requiring all parties to the joint venture to sign

such documents as are necessary to obligate themselves to ensure

performance of the contract was deleted as unnecessary where the

contract is entered into in the joint venture's name. However, a

provision was added requiring the joint venture agreement to obligate

each party to the venture to complete performance of the contract even

if one of the members withdraws. (See Sec. 124.513(c)(7))

A number of commenters felt that the provision requiring the 8(a)

members of the joint venture to perform the applicable percentages of

work under the performance of work requirements (Sec. 124.510) would

undermine the benefits derived from the joint venture arrangement. SBA

considered this comment and agrees that many of the advantages of

performing a particular contract as a joint venture would be lost if

the 8(a) BD concern is required to perform as much of the contract as

it would have had to perform had it been awarded the contract directly.

Therefore SBA has amended paragraph (b)(1)(iv) of this section to

provide that the joint venture must perform the applicable percentage

of work. Paragraph (g) was also eliminated in light of this change.

SBA made a number of other technical changes to the joint venture

provisions (Sec. 124.513 in the final rule) as a result of the

comments. The term ``lead entity'' was changed to ``managing venturer''

to comport with current terminology. One commenter requested

clarification of the term ``very little'' in proposed Sec. 124.512(a)

which states that SBA will not approve a joint venture arrangement

where the 8(a) concern brings ``very little'' to the relationship. That

provision has been clarified to provide that SBA will not approve the

joint venture if the 8(a) concern brings very little in terms of

resources and expertise to the relationship. A more precise definition

would not leave SBA sufficient discretion to judge each case on its own

merits.

Proposed Sec. 124.514 (Sec. 124.515 in the final rule) set forth

the provisions 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. SBA received several comments regarding the

authority for a waiver where one Participant transfers ownership and

control to another eligible Participant. The commenters believed that a

bulk transfer of all or substantially all of one 8(a) concern's assets

to another 8(a) concern should satisfy the requirement this

requirement. SBA carefully considered the legal requirements of the

Small Business Act as it pertains to this provision. Upon further

deliberation, SBA agrees that a transfer of all a Participant's

operating assets to another Participant should be treated the same as a

transfer of stock or another ownership interest, provided the

Participant that transfers its assets to another eligible Participant

withdraws from the 8(a) BD program, and it ceases its business

operations, or presents a plan to SBA for its orderly dissolution. The

requirement that all ``operating assets'' be transferred excludes

accounts receivable and cash. SBA will require dissolution or a plan to

dissolve as a condition for the waiver because SBA does not believe

that it is appropriate for the transferor to remain a separate legal

entity that could restart operations and seek to obtain 8(a) contracts

after the transfer of all of its operating assets.

SBA received three comments on proposed Sec. 124.516 (Sec. 124.517

in the final rule) concerning protests of 8(a) contract awards. All

three commenters recommended extending this provision to permit

protests of the size of a concern in line for a sole source award. SBA

rejected this comment since it is difficult for other firms to find out

about sole source awards and only a few, if

[[Page 35736]]

any, firms would have standing to protest the award of a sole-source

contract under SBA's size regulations. SBA has historically verified

the size of each potential awardee of a sole-source contract since the

benefits of receiving a contract without having to compete are so

significant. Moreover, if any concern or individual believes a firm in

line for a sole-source award does not meet the size standard for the

SIC code for the contract, such firm may contact SBA and explain why it

believes that the firm is not small. SBA will consider such information

in verifying the size of that concern for the award provided the

information is specific and credible. While SBA makes no changes to

allow size protests and SIC code appeals in connection with sole source

8(a) contracts at this time, SBA will continue to examine this issue

and may make additional changes at a later date.

Proposed Sec. 124.518 (Sec. 124.519 in the final rule), authorized

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 (excluding contracts of

$100,000 or less). Once that dollar amount of 8(a) contracts is

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

source contracts, but will remain eligible for competitive 8(a) awards.

The proposed rule set the dollar limit above which a firm could not

receive sole source 8(a) awards at five times the size standard for the

firm's primary SIC code or $100,000,000, whichever was less. SBA

received comments on both sides of this issue. Several thought the cap

was set at too high a level, while others thought that it should be set

even higher. No commenters presented persuasive reasons for setting the

cap at a level other than that set forth in the proposed rule. As such,

the final rule continues the five times the size standard or

$100,000,000 language. If the size standard for a particular SIC code

increases over time, the corresponding cap amount will also increase.

One comment suggested that after a firm reaches the specified dollar

threshold amount, SBA should require it to use other 8(a) concerns that

have not received contracts as subcontractors in order to receive

additional sole source awards. SBA considered this comment, but decided

not to adopt it. It is important to remember that SBA will not restrict

all 8(a) contract support after a Participant receives total 8(a)

contract support equaling at least five times the size standard for its

primary SIC code or $100,000,000. A firm will be unable to receive only

sole source 8(a) contracts after reaching the cap amount. The

alternative suggested by the commenter seeks to have a Participant that

has exceeded the cap subcontract 8(a) sole source contracts to other

Participants that have not received an 8(a) contract. SBA believes that

enforcing the cap should enable more of those same firms (i.e., the

Participants that have not received an 8(a) contract) to receive 8(a)

contracts directly. While both would aid in distributing the

performance of 8(a) contracts to more Participants, from the

perspective of a Participant that has not received an 8(a) contract,

receiving a sole source contract directly is preferable to getting a

piece of an 8(a) contract as another Participant's subcontractor. In

addition, SBA believes that the alternative cap amounts are

sufficiently high so that a Participant that reaches the cap amount

should be able to compete effectively for 8(a) competitive contracts.

That, in turn, should assist such firms in reaching viability after

leaving the 8(a) program.

Upon further reflection, SBA also amended the date at which a

Participant's eligibility for a sole source contract is measured. The

proposed rule stated that such eligibility would be measured as of the

date of contract award, without taking into account whether the value

of that award would cause the limit to be exceeded. SBA believes that

such a requirement could cause an undue hardship for both 8(a)

Participants and procuring activities. As proposed, SBA could accept a

sole source requirement on behalf of a particular Participant (because

the Participant had not yet received contracts in excess of the cap

amount), the Participant and the procuring activity could enter into

protracted negotiations, and SBA could be required later to deny the

award of the contract because eligibility would be determined as of the

date of award and the Participant may have received one or more

competitive 8(a) contracts between the acceptance and award dates.

Thus, this final rule changes the date that a firm's eligibility for a

sole source award, in terms of whether the firm has exceeded the dollar

limit for 8(a) contracts, from the date of award to the date that the

requirement is accepted by SBA. This does not in any way imply that all

eligibility for an 8(a) sole source contract will now be measured at

the acceptance date. In other words, this final rule will continue to

require that a firm be a current Participant in the 8(a) program on the

date of contract award in order to receive an 8(a) sole source award.

See Sec. 124.508(c).

Finally, similar to the provision identified above when a

Participant fails to achieve its non-8(a) business activity targets,

the final rule adds a provision authorizing the SBA Administrator to

waive the requirement that a Participant cannot receive an 8(a) sole

source award in excess of the cap amount where the head of the

procuring activity requests that award be made for the best interests

of the Government.

Proposed Sec. 124.519 (Sec. 124.520 in the final rule) set forth

the standards for the mentor/protege program. Most of the commenters

were in favor of this new program, although several warned that the

potential existed for abuse. Numerous commenters requested greater

detail in this section. Some of the commenters felt that a section

explaining the purpose of the program would be helpful. In response to

those comments, SBA has amended paragraph (a) of this section to

clarify that the program is designed to encourage approved mentors to

provide various forms of assistance to eligible Participants, with

examples of the assistance contemplated.

SBA received varying views regarding the type of business that

should be able to act as a mentor. The comments ranged from

recommendations that any business, large or small, disadvantaged-owned

or not, should be able to be a mentor, to only small businesses, to

support for the proposed rule which limited mentors to former 8(a)

Participants and current 8(a) Participants in the transitional stage of

the program. Upon further deliberation, SBA believes that the focus

should not be on who the mentor is, but what the concern acting as a

mentor will provide to the protege. For that reason, the final rule

permits any business, large or small, to be a mentor if it can

demonstrate the commitment and ability to assist small, developing 8(a)

Participants. Under the final rule, a mentor generally will have no

more than one protege at a time. The AA/8(a)BD may, however, authorize

a concern to mentor more than one protege at a time where the concern

can demonstrate that the additional mentor/protege relationship will

not adversely affect the development of either protege firm. SBA does

not believe that it would be appropriate to authorize a concern to be a

mentor in a second mentor/protege relationship if that relationship

would harm or compete with the protege of the first mentor/protege

relationship approved by SBA.

Some of the commenters felt that the amount of a contract the

protege could perform should be limited. After considering this

comment, SBA has

[[Page 35737]]

decided not to adopt it at this time. SBA does not want to impose

additional requirements on mentor/protege joint ventures that do not

apply to joint ventures between 8(a) BD concerns and other entities.

Many of the commenters requested guidelines so that the mentor does

not take control of the contracts or the company. SBA will monitor the

mentor/protege arrangement on a regular basis to help ensure that this

does not occur.

Some commenters requested that the program be expanded to enable

companies which have never been in the 8(a) BD program to become

proteges. SBA has not adopted this recommendation. It must be

remembered that SBA's mentor/protege program is designed to be an

additional developmental tool for Participants in the 8(a) BD program.

Only firms that SBA has certified to participate in the 8(a) BD program

are statutorily eligible to receive any of the benefits of the program.

One commenter suggested that a provision be added clarifying that a

mentor and protege will not be determined to be affiliated based on the

mentor/protege agreement or assistance provided pursuant to the

agreement. SBA agrees with this comment and has amended paragraph (d)

of this section to add a new subparagraph (4) to this effect.

Several commenters suggested standards for SBA monitoring of the

relationship and the adoption of objective standards by which to

measure the success of a mentor/protege relationship. In response to

these comments, SBA has added a new paragraph (f) to impose specific

reporting requirements on the protege and to provide standards under

which SBA will review the mentor/protege relationship. The final rule

also amends paragraph (e) of this section (Sec. 124.519(d) in the

proposed rule) to provide that SBA will review the mentor/protege

relationship annually to determine whether to approve its continuation

for another year. As set forth in the rule, the mentor/protege program

is designed to assist the development of Participants in the

developmental stage of the program, Participants that have not received

an 8(a) contract, and Participants having a size that is less than half

the size standard corresponding to its primary SIC code. Where a

Participant leaves the developmental stage of the program, receives

several significant 8(a) contracts, or has a size that exceeds half the

size standard corresponding to its primary SIC code, the firm may no

longer need the assistance provided by the mentor/protege relationship,

and the AA/8(a)BD may decide not to authorize its continuation.

SBA received no comments to proposed Secs. 124.601 through 124.603

and Secs. 124.701 through 124.704. As such, this rule makes no changes

to those sections from the proposed rule.

Part 124, subpart B: Subpart B of the proposed rule defined a Small

Disadvantaged Business (SDB) and set forth the procedures by which a

firm can be recognized as an SDB. As noted above, SBA will discuss the

comments to subpart B and finalize its provisions in a later rulemaking

action.

Part 134: The proposed new Subpart D of Part 134 contained the

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

admission based solely on the negative finding(s) of social

disadvantage, economic disadvantage, ownership or control pursuant to

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

termination pursuant to Sec. 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. 124.513.

The proposed rules transferred the rules of procedure governing the

8(a) program from Sec. 124.210 to Part 134 so that all procedures

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

regulations.

SBA received one comment regarding the proposed revisions to Part

134. The majority of these comments dealt with streamlining the

regulations governing the appeals of denials of 8(a) BD program

admission and protecting appellant rights.

The proposed rule did not change Sec. 134.202 and Sec. 134.203 of

the former regulations. The commenter requested that SBA amend

Sec. 134.202 to require that the appeal petition include the SBA

determination. SBA agrees that the appeal petition should include the

SBA determination and modified Sec. 134.203, which specifies the

requirements of a petition, to include the submission of the SBA

determination. This provision will allow the Administrative Law Judge

to determine, without further delay, whether the appeal was timely

filed.

This rule does not finalize the proposed amendment to

Sec. 134.206(a) that would have changed the date on which the SBA's 45-

day period to file an answer would run. The proposed rule would have

changed that date from the date that an appeal is served on SBA to the

date that an appeal is filed at OHA. Upon further consideration, SBA

does not believe that this change is appropriate. The proposed rule was

concerned about SBA not having the allotted time to answer an appeal

where the appeal was incorrectly served on SBA's Office of General

Counsel. SBA has addressed this concern by clarifying the service

requirements for 8(a)-related appeals set forth in Sec. 134.403.

Proposed Sec. 134.401, which outlined the scope of the rules in

Subpart D, had no provision for appeals to OHA from suspensions

pursuant to Sec. 124.305. A commenter stated that the inclusion of

appeals related to suspension was necessary pursuant to Sec. 124.305(b)

which provides that notice of suspension includes a statement that a

request for hearing on the suspension will be considered by an

Administrative Law Judge at OHA and granted or denied as a matter of

discretion. SBA agreed with the comment and added Sec. 134.401(e) in

response to it.

A commenter noted that proposed Sec. 134.405, which deals with

jurisdiction, failed to include a provision for the jurisdiction of

suspension cases pursuant to Sec. 124.305. SBA added subsection (c) to

proposed Sec. 134.405 in response to this comment. Subsection (c)

provides that the jurisdiction of OHA in suspension cases is limited to

determining whether the protection of the Government's interest

requires suspension pending resolution of the termination action,

unless the Administrative Law Judge has consolidated the suspension

appeal with the corresponding termination appeal.

Proposed Sec. 134.406 dealt with review of the administrative

record and replaced Sec. 124.210. A commenter requested that an

appellant be permitted to object to the absence of a document in the

administrative record. Since Sec. 134.406(c) provides that the

administrative record need not contain all documents pertaining to the

appellant, SBA decided that Sec. 134.406(c) should be amended in

response to this request. Revised Sec. 134.406(c) allows an appellant

to object to the absence of a document he or she believes was

erroneously omitted from the administrative record, thereby helping to

ensure that the Administrative Law Judge has all of the information

needed to decide the case.

Proposed Sec. 134.406(e) limited remand to situations where ``due

to the absence in the written administrative record of the reasons upon

which the determination was based, the administrative record is

insufficiently complete to decide'' the case. A commenter requested

that remand be extended to include cases in which SBA made an erroneous

analysis of facts. SBA determined that SBA error is properly handled on

appeal under

[[Page 35738]]

proposed Sec. 134.408 and, therefore, did not adopt this comment.

Proposed Sec. 134.408, which dealt with decisions on appeal,

replaced Sec. 124.210. A commenter requested that the term ``re-

examine'' be changed to ``reconsider,'' and that a time limit be placed

on when the decision is final. SBA determined that for clarity purposes

the term ``re-examine'' should be changed to ``reconsider.'' SBA

further determined that, in response to the commenter's request for a

reasonable time period after which the decision is final, a period of

20 days should be inserted into the proposed regulation after which

time the decision is final.

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

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

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

SBA certifies that this rule is not a major rule within the meaning

of Executive Order 12866 and will not have a significant economic

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

the Regulatory Flexibility Act, 5 U.S.C. 601, et seq.

The rule addresses changes in the SBA's 8(a) BD program. The

overall impact of the changes to the 8(a) BD program will be beneficial

to small businesses. The rule also makes several changes to SBA's size

regulations that will have an impact beyond that program, and should

result in more procurement opportunities for small business generally.

No definitive data exist that would allow SBA to conclude that the

proposed rule will have a substantial impact on a significant number of

small businesses.

Specifically, the rule improves and strengthens the 8(a) BD

program. It responds to the challenges posed by the findings in the

Adarand Constructors, Inc. v. Pena, 115 Sup. Ct. 2097 (1995) (Adarand),

and are designed to improve the success rates for firms after their

terms of participation in the 8(a) BD program end. The rule changes

fall within three major categories. They are: (1) measures designed to

more equitably distribute 8(a) contracts; (2) small business

affiliation rule revisions; and (3) a new mentor/protege program.

The changes that exclude certain joint venture and teaming

arrangements from SBA's affiliation rules and the 8(a) mentor/protege

program are designed to enable small businesses to effectively compete

for contracts that were previously too large for a single small

business to perform as a prime contractor. By allowing small businesses

to form joint venture and teaming relationships without regard to

affiliation, they can be considered responsible contractors for

``bundled'' and other large contracts which exceed the capability of

any of the individual small businesses to perform as prime contractors.

Likewise, 8(a) Participants will be able to submit offers for and be

considered responsible businesses for larger contracts than they would

be able to obtain individually without the newly established mentor/

protege program. Expanding the number and dollar amount of contracts

available for award through the 8(a) BD program may result in a shift

of dollars to small business.

In fiscal year (FY) 1996, the federal government spent $197.6

billion on the procurement of goods and services. Small businesses were

awarded $41.1 billion in prime contracts, representing about a 21

percent share of the total contract dollars. There are approximately

180,000 small firms registered on PRO-Net, SBA's database of small

businesses actively seeking federal government contracts. By

comparison, there are approximately 5,800 small firms certified as

eligible 8(a) Participants. In FY 1996, $6.4 billion or 3.2 percent of

the total government prime contracts were awarded to less than 2,000

8(a) certified small businesses. SBA believes that the changes set

forth in this rule will benefit small firms, but not increase the net

number of current 8(a) Participants by more than 500 to 800 businesses,

or less than 1 percent of the total universe of small firms seeking

federal government contracts.

Similarly, the changes regarding affiliation eligibility and the

mentor/protege program will benefit small business contractors, but

impact a relatively small number of businesses and dollars, when

compared to total government spending and the universe of small firms

seeking federal government contracts. Because of consolidation,

contracts are becoming larger and fewer in number. It has become

increasingly more difficult for small business to possess the

wherewithal to individually perform these larger contracts. The changes

in small business affiliation rules are designed to counter the growing

trend of contract consolidation and allow small firms to compete for

larger contracts.

For purposes of the Paperwork Reduction Act of 1995 (Public Law

104-13), SBA certifies that this final rule contains no new reporting

or recordkeeping requirements.

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

has no federalism implications warranting the preparation of a

Federalism Assessment.

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

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

set forth in Section 2 of that Order.

List of Subjects

13 CFR Part 121

Government procurement, Government property, Grant programs--

business, Individuals with disabilities, Loan programs--business, Small

businesses.

13 CFR Part 124

Government procurement, Hawaiian Natives, Minority businesses,

Reporting and recordkeeping requirements, Technical assistance,

Tribally-owned concerns.

13 CFR Part 134

Administrative practice and procedure, Organization and functions

(Government agencies).

Accordingly, for the reasons set forth above, SBA amends Title 13,

Code of Federal Regulations (CFR), as follows:

PART 121--[AMENDED]

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

follows:

Authority: Pub. L. 105-135 sec. 601 et seq., 111 Stat. 2592; 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) * * *

(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) Exclusion from affiliation. (i) A joint venture or teaming

arrangement 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 under paragraph (f) of this section 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

[[Page 35739]]

(B) For a procurement having an employee-based size standard, the

procurement exceeds $10 million.

(ii) A joint venture or teaming arrangement 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 under

paragraph (f) of this section so long as the requirements of 13 CFR

124.513(b)(1) are met.

(iii) Two firms approved by SBA to be a mentor and protege under 13

CFR 124.520 may joint venture as a small business for any Federal

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 13 CFR 124.519.

* * * * *

3. Section 121.1001 is amended by redesignating paragraphs (a)(2)

through (a)(6) as paragraphs (a)(3) through (a)(7), 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) * * *

(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

activity is located or the district office that services the apparent

successful offeror, or the Associate Administrator for 8(a) Business

Development.

* * * * *

(b) * * *

(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.

* * * * *

4. 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]

5. The authority citation for part 124 continues to read as

follows:

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.

6. In part 124, subpart B consisting of Secs. 124.601 through

124.610 is redesignated as subpart B, Secs. 124.1001 through 124.1010,

and subpart A is revised to read as follows:

PART 124--8(A) BUSINESS DEVELOPMENT/SMALL DISADVANTAGED BUSINESS

STATUS DETERMINATIONS

Subpart A--8(a) Business Development

Provisions of General Applicability

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) BD 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 activity 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 How is an 8(a) contract executed?

124.509 What are non-8(a) business activity targets?

[[Page 35740]]

124.510 What percentage of work must a Participant perform on an

8(a) contract?

124.511 How is fair market price determined for an 8(a) contract?

124.512 Delegation of contract administration to procuring

agencies.

124.513 Under what circumstances can a joint venture be awarded an

8(a) contract?

124.514 Exercise of 8(a) options and modifications.

124.515 Can a Participant change its ownership or control and

continue to perform an 8(a) contract, and can it transfer

performance to another firm?

124.516 Who decides contract disputes arising between a Participant

and a procuring activity after the award of an 8(a) contract?

124.517 Can the eligibility or size of a Participant for award of

an 8(a) contract be questioned?

124.518 How can an 8(a) contract be terminated before performance

is completed?

124.519 Are there any dollar limits on the amount of 8(a) contracts

that a Participant may receive?

124.520 Mentor/Protege program.

Miscellaneous Reporting Requirements

124.601 What reports does SBA require concerning parties who assist

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 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. The Participant must maintain its program eligibility during

its tenure in the program and must inform SBA of any changes that would

adversely affect its program eligibility. 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 graduation as

provided for in this subpart.

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 whom 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 a location where 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.

Day-to-day operations of a firm means the marketing, production,

sales, and administrative functions of the firm.

Immediate family member means father, mother, husband, wife, son,

daughter, brother, sister, grandfather, grandmother, grandson,

granddaughter, father-in-law, and mother-in-law.

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.

Non-disadvantaged 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 where 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

the offices from which management is directed and where the business

records are kept are in different locations, SBA will 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

[[Page 35741]]

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

activity 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 pledge or

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.

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

immediately 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 that he or she has held himself

or herself out, and is currently identified by others, as a member of a

designated group if SBA requires it.

(3) The presumption of social disadvantage may be overcome with

credible evidence to the contrary. Individuals possessing or knowing of

such evidence should submit the information in writing to the Associate

Administrator for 8(a) BD (AA/8(a)BD) for consideration.

(c) Individuals not members of designated groups. (1) An individual

who is not a member of one of the groups presumed to be socially

disadvantaged in paragraph (b)(1) of this section must establish

individual social disadvantage by a preponderance of the evidence.

(2) Evidence of individual social disadvantage must include the

following elements:

(i) At least one objective distinguishing feature that has

contributed to social disadvantage, such as race, ethnic origin,

gender, physical handicap, long-term residence in an environment

isolated from the mainstream of American society, or other similar

causes not common to individuals who are not socially disadvantaged;

(ii) Personal experiences of substantial and chronic social

disadvantage in American society, not in other countries; and

(iii) Negative impact on entry into or advancement in the business

world because of the disadvantage. SBA will consider any relevant

evidence in assessing this element. In every case, however, SBA will

consider education, employment and business history, where applicable,

to see if the totality of circumstances shows disadvantage in entering

into or advancing in the business world.

(A) Education. SBA considers such factors as denial of equal access

to institutions of higher education, exclusion from social and

professional association with students or teachers, denial of

educational honors rightfully earned, and social patterns or pressures

which discouraged the individual from pursuing a professional or

business education.

(B) Employment. SBA considers such factors as unequal treatment in

hiring, promotions and other aspects of professional advancement, pay

and fringe benefits, and other terms and conditions of employment;

retaliatory or discriminatory behavior by an employer; and social

patterns or pressures which have channelled the individual into

nonprofessional or non-business fields.

(C) Business history. SBA considers such factors as unequal access

to credit or capital, acquisition of credit or capital under

commercially unfavorable circumstances, unequal treatment in

opportunities for government contracts or other work, unequal treatment

by potential customers and business

[[Page 35742]]

associates, and exclusion from business or professional organizations.

(d) Socially disadvantaged group inclusion. (1) General.

Representatives of an identifiable group whose members believe that the

group has suffered chronic racial or ethnic prejudice or cultural bias

may petition SBA to be included as a presumptively socially

disadvantaged group under paragraph (b)(1) of this section. Upon

presentation of substantial evidence that members of the group have

been subjected to racial or ethnic prejudice or cultural bias because

of their identity as group members and without regard to their

individual qualities, SBA will publish a notice in the Federal Register

that it has received and is considering such a request, and that it

will consider public comments.

(2) Standards to be applied. In determining whether a group has

made an adequate showing that it has suffered chronic racial or ethnic

prejudice or cultural bias for the purposes of this section, SBA must

determine that:

(i) The group has suffered prejudice, bias, or discriminatory

practices;

(ii) Those conditions have resulted in economic deprivation for the

group of the type which Congress has found exists for the groups named

in the Small Business Act; and

(iii) Those conditions have produced impediments in the business

world for members of the group over which they have no control and

which are not common to small business owners generally.

(3) Procedure. The notice published under paragraph (d)(1) of this

section will authorize a specified period for the receipt of public

comments supporting or opposing the petition for socially disadvantaged

group status. If appropriate, SBA may hold hearings. SBA may also

conduct its own research relative to the group's petition.

(4) Decision. In making a final decision that a group should be

considered presumptively disadvantaged, SBA must find that a

preponderance of the evidence demonstrates that the group has met the

standards set forth in paragraph (d)(2) of this section based on SBA's

consideration of the group petition, the comments from the public, and

any independent research it performs. SBA will advise the petitioners

of its final decision in writing, and publish its conclusion as a

notice in the Federal Register. If appropriate, SBA will amend

paragraph (b)(1) of this section to include a new group.

Sec. 124.104 Who is economically disadvantaged?

(a) General. Economically disadvantaged individuals are socially

disadvantaged individuals whose ability to compete in the free

enterprise system has been impaired due to diminished capital and

credit opportunities as compared to others in the same or similar line

of business who are not socially disadvantaged.

(b) Submission of narrative and financial information. (1) Each

individual claiming economic disadvantage must describe it in a

narrative statement, and must submit personal financial information.

(2) When married, an individual claiming economic disadvantage also

must submit separate financial information for his or her spouse,

unless the individual and the spouse are legally separated.

(c) Factors to be considered. In considering diminished capital and

credit opportunities, SBA will examine factors relating to the personal

financial condition of any individual claiming disadvantaged status,

including personal income for the past two years (including bonuses and

the value of company stock given in lieu of cash), personal net worth,

and the fair market value of all assets, whether encumbered or not. SBA

will also consider the financial condition of the applicant compared to

the financial profiles of small businesses in the same primary industry

classification, or, if not available, in similar lines of business,

which are not owned and controlled by socially and economically

disadvantaged individuals in evaluating the individual's access to

credit and capital. The financial profiles that SBA compares include

total assets, net sales, pre tax profit, sales/working capital ratio,

and net worth.

(1) Transfers within two years. (i) Except as set forth in

paragraph (c)(1)(ii) of this section, SBA will attribute to an

individual claiming disadvantaged status any assets which that

individual has transferred to an immediate family member, or to a trust

a beneficiary of which is an immediate family member, for less than

fair market value, within two years prior to a concern's application

for participation in the 8(a) BD program or within two years of a

Participant's annual program review, unless the individual claiming

disadvantaged status can demonstrate that the transfer is to or on

behalf of an immediate family member for that individual's education,

medical expenses, or some other form of essential support.

(ii) SBA will not attribute to an individual claiming disadvantaged

status any assets transferred by that individual to an immediate family

member that are consistent with the customary recognition of special

occasions, such as birthdays, graduations, anniversaries, and

retirements.

(iii) In determining an individual's access to capital and credit,

SBA may consider any assets that the individual transferred within such

two-year period described by paragraph (c)(1)(i) of this section that

SBA does not consider in evaluating the individual's assets and net

worth (e.g., transfers to charities).

(2) Net worth. For initial 8(a) BD eligibility, the net worth of an

individual claiming disadvantage must be less than $250,000. For

continued 8(a) BD eligibility after admission to the program, net worth

must be less than $750,000. In determining such net worth, SBA will

exclude the ownership interest in the applicant or Participant and the

equity in the primary personal residence (except any portion of such

equity which is attributable to excessive withdrawals from the

applicant or Participant). Exclusions for net worth purposes are not

exclusions for asset valuation or access to capital and credit

purposes.

(i) A contingent liability does not reduce an individual's net

worth.

(ii) The personal net worth of an individual claiming to be an

Alaska Native will include assets and income from sources other than an

Alaska Native Corporation and exclude any of the following which the

individual receives from any Alaska Native Corporation: cash (including

cash dividends on stock received from an ANC) to the extent that it

does not, in the aggregate, exceed $2,000 per individual per annum;

stock (including stock issued or distributed by an ANC as a dividend or

distribution on stock); a partnership interest; land or an interest in

land (including land or an interest in land received from an ANC as a

dividend or distribution on stock); and an interest in a settlement

trust.

Sec. 124.105 What does it mean to be unconditionally owned by one or

more disadvantaged individuals?

An applicant or Participant must be at least 51 percent

unconditionally and directly owned by one or more socially and

economically disadvantaged individuals who are citizens of the United

States, except for concerns owned by Indian tribes, Alaska Native

Corporations, Native Hawaiian Organizations, or Community Development

Corporations (CDCs). See

[[Page 35743]]

Sec. 124.3 for definition of unconditional ownership; and

Secs. 124.109, 124.110, and 124.111, respectively, for special

ownership requirements for concerns owned by Indian tribes, ANCs,

Native Hawaiian Organizations, and CDCs.

(a) Ownership must be direct. Ownership by one or more

disadvantaged individuals must be direct ownership. An applicant or

Participant owned principally by another business entity or by a trust

(including employee stock ownership trusts) that is in turn owned and

controlled by one or more disadvantaged individuals does not meet this

requirement. However, ownership by a trust, such as a living trust, may

be treated as the functional equivalent of ownership by a disadvantaged

individual where the trust is revocable, and the disadvantaged

individual is the grantor, a trustee, and the sole current beneficiary

of the trust.

(b) Ownership of a partnership. In the case of a concern which is a

partnership, at least 51 percent of every class of partnership interest

must be unconditionally owned by one or more individuals determined by

SBA to be socially and economically disadvantaged. The ownership must

be reflected in the concern's partnership agreement.

(c) Ownership of a limited liability company. In the case of a

concern which is a limited liability company, at least 51 percent of

each class of member interest must be unconditionally owned by one or

more individuals determined by SBA to be socially and economically

disadvantaged.

(d) Ownership of a corporation. In the case of a concern which is a

corporation, at least 51 percent of each class of voting stock

outstanding and 51 percent of the aggregate of all stock outstanding

must be unconditionally owned by one or more individuals determined by

SBA to be socially and economically disadvantaged.

(e) Stock options' effect on ownership. In determining

unconditional ownership, SBA will disregard any unexercised stock

options or similar agreements held by disadvantaged individuals.

However, any unexercised stock options or similar agreements (including

rights to convert non-voting stock or debentures into voting stock)

held by non-disadvantaged individuals will be treated as exercised,

except for any ownership interests which are held by investment

companies licensed under the Small Business Investment Act of 1958.

(f) Dividends and distributions. One or more disadvantaged

individuals must be entitled to receive:

(1) At least 51 percent of the annual distribution of dividends

paid on the stock of a corporate applicant concern;

(2) 100 percent of the value of each share of stock owned by them

in the event that the stock is sold; and

(3) At least 51 percent of the retained earnings of the concern and

100 percent of the unencumbered value of each share of stock owned in

the event of dissolution of the corporation.

(g) Ownership of another Participant. The individuals determined to

be disadvantaged for purposes of one Participant, their immediate

family members, and the Participant itself, may not hold, in the

aggregate, more than a 20 percent equity ownership interest in any

other single Participant.

(h) Ownership restrictions for non-disadvantaged individuals and

concerns. (1) A non-disadvantaged individual (in the aggregate with all

immediate family members) or a non-Participant concern that is a

general partner or stockholder with at least a 10 percent ownership

interest in one Participant may not own more than a 10 percent interest

in another Participant that is in the developmental stage or more than

a 20 percent interest in another Participant in the transitional stage

of the program. This restriction does not apply to financial

institutions licensed or chartered by Federal, state or local

government, including investment companies which are licensed under the

Small Business Investment Act of 1958.

(2) A non-Participant concern in the same or similar line of

business may not own more than a 10 percent interest in a Participant

that is in the developmental stage or more than a 20 percent interest

in a Participant in a transitional stage of the program, except that a

former Participant or a principal of a former Participant (except those

that have been terminated from 8(a) BD program participation pursuant

to Secs. 124.303 and 124.304) may have an equity ownership interest of

up to 20 percent in a current Participant in the developmental stage of

the program or up to 30 percent in a transitional stage Participant, in

the same or similar line of business.

(i) Change of ownership. A Participant may change its ownership or

business structure so long as one or more disadvantaged individuals own

and control it after the change and SBA approves the transaction in

writing prior to the change. The decision to approve or deny a

Participant's request for a change in ownership or business structure

will be made and communicated to the firm by the AA/8(a)BD. The

decision of the AA/8(a)BD is the final decision of the Agency. The AA/

8(a)BD will issue a decision within 60 days from receipt of a request

containing all necessary documentation, or as soon thereafter as

possible. If 60 days lapse without a decision from SBA, the Participant

cannot presume that it can complete the change without written approval

from SBA. A decision to deny a request for change of ownership or

business structure may be grounds for program termination where the

change is made nevertheless.

(1) Any Participant that was awarded one or more 8(a) contracts may

substitute one disadvantaged individual for another disadvantaged

individual without requiring the termination of those contracts or a

request for waiver under Sec. 124.515, as long as it receives SBA's

approval prior to the change.

(2) Where the previous owner held less than a 10 percent interest

in the concern, or the transfer results from the death or incapacity

due to a serious, long-term illness or injury of a disadvantaged

principal, prior approval is not required, but the concern must notify

SBA within 60 days.

(3) Continued participation of the Participant with new ownership

and the award of any new 8(a) contracts requires SBA's determination

that all eligibility requirements are met by the concern and the new

owners.

(4) Where a Participant requests a change of ownership or business

structure, and proceeds with the change prior to receiving SBA approval

(or where a change of ownership results from the death or incapacity of

a disadvantaged individual for which a request prior to the change in

ownership could not occur), SBA will suspend the Participant from

program benefits pending resolution of the request. If the change is

approved, the length of the suspension will be restored to the

Participant's program term in the case of death or incapacity, or if

the firm requested prior approval and waited 60 days for SBA approval.

(5) A change in ownership does not provide the new owner(s) with a

new 8(a) BD program term. For example, if a concern has been in the

8(a) BD program for five years when a change in ownership occurs, the

new owner will have four years remaining until program graduation.

(j) Public offering. A Participant's request for SBA's approval for

the issuance of a public offering will be treated as a request for a

change of ownership. Such request will cause SBA to examine the

concern's continued need for access to the business

[[Page 35744]]

development resources of the 8(a) BD program.

(k) Community property laws given effect. In determining ownership

interests when an owner resides in any of the community property states

or territories of the United States (Arizona, California, Idaho,

Louisiana, Nevada, New Mexico, Puerto Rico, Texas, Washington and

Wisconsin), SBA considers applicable state community property laws. If

only one spouse claims disadvantaged status, that spouse's ownership

interest will be considered unconditionally held only to the extent it

is vested by the community property laws. A transfer or relinquishment

of interest by the non-disadvantaged spouse may be necessary in some

cases to establish eligibility.

Sec. 124.106 When do disadvantaged individuals control an applicant or

Participant?

Control is not the same as ownership, although both may reside in

the same person. SBA regards control as including both the strategic

policy setting exercised by boards of directors and the day-to-day

management and administration of business operations. An applicant or

Participant's management and daily business operations must be

conducted by one or more disadvantaged individuals, except for concerns

owned by Indian tribes, ANCs, Native Hawaiian Organizations, or

Community Development Corporations (CDCs). (See Secs. 124.109, 124.110,

and 124.111, respectively, for the requirements for concerns owned by

Indian tribes or ANCs, for concerns owned by Native Hawaiian

Organizations, and for CDC-owned concerns.) Disadvantaged individuals

managing the concern must have managerial experience of the extent and

complexity needed to run the concern. A disadvantaged individual need

not have the technical expertise or possess a required license to be

found to control an applicant or Participant if he or she can

demonstrate that he or she has ultimate managerial and supervisory

control over those who possess the required licenses or technical

expertise. However, where a critical license is held by a non-

disadvantaged individual having an equity interest in the applicant or

Participant firm, the non-disadvantaged individual may be found to

control the firm.

(a)(1) An applicant or Participant must be managed on a full-time

basis by one or more disadvantaged individuals who possess requisite

management capabilities.

(2) A disadvantaged full-time manager must hold the highest officer

position (usually President or Chief Executive Officer) in the

applicant or Participant.

(3) One or more disadvantaged individuals who manage the applicant

or Participant must devote full-time to the business during the normal

working hours of firms in the same or similar line of business. Work in

a wholly-owned subsidiary of the applicant or participant may be

considered to meet the requirement of full-time devotion. This applies

only to a subsidiary owned by the 8(a) firm, and not to firms in which

the disadvantaged individual has an ownership interest.

(4) Any disadvantaged manager who wishes to engage in outside

employment must notify SBA of the nature and anticipated duration of

the outside employment and obtain the prior written approval of SBA.

SBA will deny a request for outside employment which could conflict

with the management of the firm or could hinder it in achieving the

objectives of its business development plan.

(5) Except as provided in paragraph (d)(1) of this section, a

disadvantaged owner's unexercised right to cause a change in the

control or management of the applicant concern does not in itself

constitute disadvantaged control and management, regardless of how

quickly or easily the right could be exercised.

(b) In the case of a partnership, one or more disadvantaged

individuals must serve as general partners, with control over all

partnership decisions. A partnership in which no disadvantaged

individual is a general partner will be ineligible for participation.

(c) In the case of a limited liability company, one or more

disadvantaged individuals must serve as management members, with

control over all decisions of the limited liability company.

(d) One or more disadvantaged individuals must control the Board of

Directors of a corporate applicant or Participant.

(1) SBA will deem disadvantaged individuals to control the Board of

Directors where:

(i) A single disadvantaged individual owns 100% of all voting stock

of an applicant or Participant concern;

(ii) A single disadvantaged individual owns at least 51% of all

voting stock of an applicant or Participant concern, the individual is

on the Board of Directors and no super majority voting requirements

exist for shareholders to approve corporation actions. Where super

majority voting requirements are provided for in the concern's articles

of incorporation, its by-laws, or by state law, the disadvantaged

individual must own at least the percent of the voting stock needed to

overcome any such super majority voting requirements; or

(iii) More than one disadvantaged shareholder seeks to qualify the

concern (i.e., no one individual owns 51%), each such individual is on

the Board of Directors, together they own at least 51% of all voting

stock of the concern, no super majority voting requirements exist, and

the disadvantaged shareholders can demonstrate that they have made

enforceable arrangements to permit one of them to vote the stock of all

as a block without a shareholder meeting. Where the concern has super

majority voting requirements, the disadvantaged shareholders must own

at least that percentage of voting stock needed to overcome any such

super majority ownership requirements.

(2) Where an applicant or Participant does not meet the

requirements set forth in paragraph (d)(1) of this section, the

disadvantaged individual(s) upon whom eligibility is based must control

the Board of Directors through actual numbers of voting directors or,

where permitted by state law, through weighted voting (e.g., in a

concern having a two-person Board of Directors where one individual on

the Board is disadvantaged and one is not, the disadvantaged vote must

be weighted--worth more than one vote--in order for the concern to be

eligible for 8(a) participation). Where a concern seeks to comply with

this paragraph:

(i) Provisions for the establishment of a quorum cannot permit non-

disadvantaged Directors to control the Board of Directors, directly or

indirectly;

(ii) Any Executive Committee of Directors must be controlled by

disadvantaged directors unless the Executive Committee can only make

recommendations to and cannot independently exercise the authority of

the Board of Directors.

(3) An applicant must inform SBA of any super majority voting

requirements provided for in its articles of incorporation, its by-

laws, by state law, or otherwise. Similarly, after being admitted to

the program, a Participant must inform SBA of changes regarding super

majority voting requirements.

(4) Non-voting, advisory, or honorary Directors may be appointed

without affecting disadvantaged individuals' control of the Board of

Directors.

(5) Arrangements regarding the structure and voting rights of the

Board of Directors must comply with applicable state law.

(e) Non-disadvantaged individuals may be involved in the management

of an applicant or Participant, and may be stockholders, partners,

limited liability

[[Page 35745]]

members, officers, and/or directors of the applicant or Participant.

However, no such non-disadvantaged individual or immediate family

member may:

(1) Exercise actual control or have the power to control the

applicant or Participant;

(2) Be a former employer or a principal of a former employer of any

disadvantaged owner of the applicant or Participant, unless it is

determined by the AA/8(a)BD that the relationship between the former

employer or principal and the disadvantaged individual or applicant

concern does not give the former employer actual control or the

potential to control the applicant or Participant and such relationship

is in the best interests of the 8(a) BD firm; or

(3) Receive compensation from the applicant or Participant in any

form as directors, officers or employees, including dividends, that

exceeds the compensation to be received by the highest officer (usually

CEO or President). The highest ranking officer may elect to take a

lower salary than a non-disadvantaged individual only upon

demonstrating that it helps the applicant or Participant. In the case

of a Participant, the Participant must also obtain the prior written

consent of the AA/8(a)BD or designee before changing the compensation

paid to the highest ranking officer to be below that paid to a non-

disadvantaged individual.

(f) Non-disadvantaged individuals who transfer majority stock

ownership or control of the firm to an immediate family member within

two years prior to the application and remain involved in the firm as a

stockholder, officer, director, or key employee of the firm are

presumed to control the firm. The presumption may be rebutted by

showing that the transferee has independent management experience

necessary to control the operation of the firm.

(g) Non-disadvantaged individuals or entities may be found to

control or have the power to control in any of the following

circumstances, which are illustrative only and not all inclusive:

(1) In circumstances where an applicant or Participant seeks to

establish disadvantaged control of the Board of Directors through

paragraph (d)(2) of this section, non-disadvantaged individuals control

the Board of Directors of the applicant or Participant, either directly

through majority voting membership, or indirectly, where the by-laws

allow non-disadvantaged individuals effectively to prevent a quorum or

block actions proposed by the disadvantaged individuals.

(2) A non-disadvantaged individual or entity, having an equity

interest in the applicant or participant, provides critical financial

or bonding support or a critical license to the applicant or

Participant which directly or indirectly allows the non-disadvantaged

individual significantly to influence business decisions of the

Participant.

(3) A non-disadvantaged individual or entity controls the applicant

or Participant or an individual disadvantaged owner through loan

arrangements. Providing a loan guaranty on commercially reasonable

terms does not, by itself, give a non-disadvantaged individual or

entity the power to control a firm.

(4) Business relationships exist with non-disadvantaged individuals

or entities which cause such dependence that the applicant or

Participant cannot exercise independent business judgment without great

economic risk.

Sec. 124.107 What is potential for success?

The applicant concern must possess reasonable prospects for success

in competing in the private sector if admitted to the 8(a) BD program.

To do so, it must be in business in its primary industry classification

for at least two full years immediately prior to the date of its 8(a)

BD application, unless a waiver for this requirement is granted

pursuant to paragraph (b) of this section.

(a) Income tax returns for each of the two previous tax years must

show operating revenues in the primary industry in which the applicant

is seeking 8(a) BD certification.

(b)(1) SBA may waive the two years in business requirement if each

of the following five conditions are met:

(i) The individual or individuals upon whom eligibility is based

have substantial business management experience;

(ii) The applicant has demonstrated technical experience to carry

out its business plan with a substantial likelihood for success if

admitted to the 8(a) BD program;

(iii) The applicant has adequate capital to sustain its operations

and carry out its business plan as a Participant;

(iv) The applicant has a record of successful performance on

contracts from governmental or nongovernmental sources in its primary

industry category; and

(v) The applicant has, or can demonstrate its ability to timely

obtain, the personnel, facilities, equipment, and any other

requirements needed to perform contracts as a Participant.

(2) The concern seeking a waiver under paragraph (b) must provide

information on governmental and nongovernmental contracts in progress

and completed (including letters of reference) in order to establish

successful contract performance, and must demonstrate how it otherwise

meets the five conditions for waiver. SBA considers an applicant's

performance on both government and private sector contracts in

determining whether the firm has an overall successful performance

record. If, however, the applicant has performed only government

contracts or only private sector contracts, SBA will review its

performance on those contracts alone to determine whether the applicant

possesses a record of successful performance.

(c) In assessing potential for success, SBA considers the concern's

access to credit and capital, including, but not limited to, access to

long-term financing, access to working capital financing, equipment

trade credit, access to raw materials and supplier trade credit, and

bonding capability.

(d) In assessing potential for success, SBA will also consider the

technical and managerial experience of the applicant concern's

managers, the operating history of the concern, the concern's record of

performance on previous Federal and private sector contracts in the

primary industry in which the concern is seeking 8(a) BD certification,

and its financial capacity. The applicant concern as a whole must

demonstrate both technical knowledge in its primary industry category

and management experience sufficient to run its day-to-day operations.

(e) The Participant or individuals employed by the Participant must

hold all requisite licenses if the concern is engaged in an industry

requiring professional licensing (e.g., public accountancy, law,

professional engineering).

(f) An applicant will not be denied admission into the 8(a) BD

program due solely to a determination that potential 8(a) contract

opportunities are unavailable to assist in the development of the

concern unless:

(1) The Government has not previously procured and is unlikely to

procure the types of products or services offered by the concern; or

(2) The purchase of such products or services by the Federal

Government will not be in quantities sufficient to support the

developmental needs of the applicant and other Participants providing

the same or similar items or services.

[[Page 35746]]

Sec. 124.108 What other eligibility requirements apply for individuals

or businesses?

(a) Good character. The applicant or Participant and all its

principals must have good character.

(1) If, during the processing of an application, adverse

information is obtained from the applicant or a credible source

regarding possible criminal conduct by the applicant or any of its

principals, no further action will be taken on the application until

SBA's Inspector General has collected relevant information and has

advised the AA/8(a)BD of his or her findings. The AA/8(a)BD will

consider those findings when evaluating the application.

(2) Violations of any of SBA's regulations may result in denial of

participation in the 8(a) BD program. The AA/8(a)BD will consider the

nature and severity of the violation in making an eligibility

determination.

(3) Debarred or suspended concerns or concerns owned by debarred or

suspended persons are ineligible for admission to the 8(a) BD program.

(4) An applicant is ineligible for admission to the 8(a) BD program

if the applicant concern or a proprietor, partner, limited liability

member, director, officer, or holder of at least 10 percent of its

stock, or another person (including key employees) with significant

authority over the concern:

(i) Lacks business integrity as demonstrated by information related

to an indictment or guilty plea, conviction, civil judgment, or

settlement; or

(ii) Is currently incarcerated, or on parole or probation pursuant

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

crime involving business integrity.

(5) If, during the processing of an application, SBA determines

that an applicant has knowingly submitted false information, regardless

of whether correct information would cause SBA to deny the application,

and regardless of whether correct information was given to SBA in

accompanying documents, SBA will deny the application. If, after

admission to the program, SBA discovers that false information has been

knowingly submitted by a firm, SBA will initiate termination

proceedings and suspend the firm under Secs. 124.304 and 124.305.

Whenever SBA determines that the applicant submitted false information,

the matter will be referred to SBA's Office of Inspector General for

review.

(b) One-time eligibility. Once a concern or disadvantaged

individual upon whom eligibility was based has participated in the 8(a)

BD program, neither the concern nor that individual will be eligible

again.

(1) An individual who claims disadvantage and completes the

appropriate SBA forms to qualify an applicant has participated in the

8(a) BD program if SBA approves the application.

(2) Use of eligibility will take effect on the date of the

concern's approval for admission into the program.

(3) An individual who uses his or her one-time eligibility to

qualify a concern for the 8(a) BD program will be considered a non-

disadvantaged individual for ownership or control purposes of another

applicant or Participant. The criteria restricting participation by

non-disadvantaged individuals will apply to such an individual. See

Secs. 124.105 and 124.106.

(4) When at least 50% of the assets of a concern are the same as

those of a former Participant, the concern will not be eligible for

entry into the program.

(5) Participants which change their form of business organization

and transfer their assets and liabilities to the new organization may

do so without affecting the eligibility of the new organization

provided the previous business is dissolved and all other eligibility

criteria are met. In such a case, the new organization may complete the

remaining program term of the previous organization. A request for a

change in business form will be treated as a change of ownership under

Sec. 124.105(i).

(c) Wholesalers. An applicant concern seeking admission to the 8(a)

BD program as a wholesaler need not demonstrate that it is capable of

meeting the requirements of the nonmanufacturer rule for its primary

industry classification.

(d) Brokers. Brokers are ineligible to participate in the 8(a) BD

program. A broker is a concern that adds no material value to an item

being supplied to a procuring activity or which does not take ownership

or possession of or handle the item being procured with its own

equipment or facilities.

(e) Federal financial obligations. Neither a firm nor any of its

principals that fails to pay significant financial obligations owed to

the Federal Government, including unresolved tax liens and defaults on

Federal loans or other Federally assisted financing, is eligible for

admission to or participation in the 8(a) BD program.

Sec. 124.109 Do Indian tribes and Alaska Native Corporations have any

special rules for applying to the 8(a) BD program?

(a) Special rules for ANCs. Small business concerns owned and

controlled by ANCs are eligible for participation in the 8(a) program

and must meet the eligibility criteria set forth in Sec. 124.112 to the

extent the criteria are not inconsistent with this section. ANC-owned

concerns are subject to the same conditions that apply to tribally-

owned concerns, as described in paragraphs (b) and (c) of this section,

except that the following provisions and exceptions apply only to ANC-

owned concerns:

(1) Alaska Natives and descendants of Natives must own a majority

of both the total equity of the ANC and the total voting powers to

elect directors of the ANC through their holdings of settlement common

stock. Settlement common stock means stock of an ANC issued pursuant to

43 U.S.C. 1606(g)(1), which is subject to the rights and restrictions

listed in 43 U.S.C. 1606(h)(1).

(2) An ANC that meets the requirements set forth in paragraph

(a)(1) of this section is deemed economically disadvantaged under 43

U.S.C. 1626(e), and need not establish economic disadvantage as

required by paragraph (b)(2) of this section.

(3) Even though an ANC can be either for profit or non-profit, a

small business concern owned and controlled by an ANC must be for

profit to be eligible for the 8(a) program. The concern will be deemed

owned and controlled by the ANC where both the majority of stock or

other ownership interest and total voting power are held by the ANC and

holders of its settlement common stock.

(4) The Alaska Native Claims Settlement Act provides that a concern

which is majority owned by an ANC shall be deemed to be both owned and

controlled by Alaska Natives and an economically disadvantaged

business. Therefore, an individual responsible for control and

management of an ANC-owned applicant or Participant need not establish

personal social and economic disadvantage.

(5) Paragraphs (b)(3)(i), (ii) and (iv) of this section are not

applicable to an ANC, provided its status as an ANC is clearly shown in

its articles of incorporation.

(6) Paragraph (c)(1) of this section is not applicable to an ANC-

owned concern to the extent it requires an express waiver of sovereign

immunity or a ``sue and be sued'' clause.

(b) Tribal eligibility. In order to qualify a concern which it owns

and controls for participation in the 8(a) BD program, an Indian tribe

must establish its own economic disadvantaged status under paragraph

(b)(2) of this section. Thereafter, it need not reestablish such status

in order to have other businesses

[[Page 35747]]

that it owns certified for 8(a) BD program participation, unless

specifically required to do so by the AA/8(a)BD or designee. Each

tribally-owned concern seeking to be certified for 8(a) BD

participation must comply with the provisions of paragraph (c) of this

section.

(1) Social disadvantage. An Indian tribe as defined in Sec. 124.3

is considered to be socially disadvantaged.

(2) Economic disadvantage. In order to be eligible to participate

in the 8(a) BD program, the Indian tribe must demonstrate to SBA that

the tribe itself is economically disadvantaged. This must involve the

consideration of available data showing the tribe's economic condition,

including but not limited to, the following information:

(i) The number of tribal members.

(ii) The present tribal unemployment rate.

(iii) The per capita income of tribal members, excluding judgment

awards.

(iv) The percentage of the local Indian population below the

poverty level.

(v) The tribe's access to capital.

(vi) The tribal assets as disclosed in a current tribal financial

statement. The statement must list all assets including those which are

encumbered or held in trust, but the status of those encumbered or in

trust must be clearly delineated.

(vii) A list of all wholly or partially owned tribal enterprises or

affiliates and the primary industry classification of each. The list

must also specify the members of the tribe who manage or control such

enterprises by serving as officers or directors.

(3) Forms and documents required to be submitted. Except as

otherwise provided in this section, the Indian tribe generally must

submit the forms and documents required of 8(a) BD applicants as well

as the following material:

(i) A copy of all governing documents such as the tribe's

constitution or business charter.

(ii) Evidence of its recognition as a tribe eligible for the

special programs and services provided by the United States or by its

state of residence.

(iii) Copies of its articles of incorporation and bylaws as filed

with the organizing or chartering authority, or similar documents

needed to establish and govern a non-corporate legal entity.

(iv) Documents or materials needed to show the tribe's economically

disadvantaged status as described in paragraph (b)(2) of this section.

(c) Business eligibility. In order to be eligible to participate in

the 8(a) BD program, a concern which is owned by an eligible Indian

tribe (or wholly owned business entities of such tribe) must meet the

conditions set forth in paragraphs (c)(1) through (c)(7) of this

section.

(1) Legal business entity organized for profit and susceptible to

suit. The applicant or participating concern must be a separate and

distinct legal entity organized or chartered by the tribe, or Federal

or state authorities. The concern's articles of incorporation,

partnership agreement or limited liability company articles of

organization must contain express sovereign immunity waiver language,

or a ``sue and be sued'' clause which designates United States Federal

Courts to be among the courts of competent jurisdiction for all matters

relating to SBA's programs including, but not limited to, 8(a) BD

program participation, loans, and contract performance. Also, the

concern must be organized for profit, and the tribe must possess

economic development powers in the tribe's governing documents.

(2) Size. (i) A tribally-owned applicant concern must qualify as a

small business concern as defined for purposes of Federal Government

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

be applied is based on the primary industry classification of the

applicant concern.

(ii) A tribally-owned Participant must certify to SBA that it is a

small business pursuant to the provisions of part 121 of this title for

the purpose of performing each individual contract which it is awarded.

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

a socially and economically disadvantaged Indian tribe (or a wholly

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

or contract award, the firm's size shall be determined independently

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

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

unless the Administrator determines that one or more such tribally-

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

substantial unfair competitive advantage within an industry category.

(3) Ownership. (i) For corporate entities, a tribe must own at

least 51 percent of the voting stock and at least 51 percent of the

aggregate of all classes of stock. For non-corporate entities, a tribe

must own at least a 51 percent interest.

(ii) A tribe cannot own 51% or more of another firm which, either

at the time of application or within the previous two years, has been

operating in the 8(a) program under the same primary SIC code as the

applicant. A tribe may, however, own a Participant or an applicant that

conducts or will conduct secondary business in the 8(a) BD program

under the same SIC code that a current Participant owned by the tribe

operates in the 8(a) BD program as its primary SIC code.

(iii) The restrictions of Sec. 124.105(h) do not apply to tribes;

they do, however, apply to non disadvantaged individuals or other

business concerns that are partial owners of a tribally-owned concern.

(4) Control and management. (i) The management and daily business

operations of a tribally-owned concern must be controlled by the tribe,

through one or more disadvantaged individual members who possess

sufficient management experience of an extent and complexity needed to

run the concern, or through management as follows:

(A) Management may be provided by committees, teams, or Boards of

Directors which are controlled by one or more members of an

economically disadvantaged tribe, or

(B) Management may be provided by non-tribal members if SBA

determines that such management is required to assist the concern's

development, that the tribe will retain control of all management

decisions common to boards of directors, including strategic planning,

budget approval, and the employment and compensation of officers, and

that a written management development plan exists which shows how

disadvantaged tribal members will develop managerial skills sufficient

to manage the concern or similar tribally-owned concerns in the future.

(ii) Members of the management team, business committee members,

officers, and directors are precluded from engaging in any outside

employment or other business interests which conflict with the

management of the concern or prevent the concern from achieving the

objectives set forth in its business development plan. This is not

intended to preclude participation in tribal or other activities which

do not interfere with such individual's responsibilities in the

operation of the applicant concern.

(5) Individual eligibility limitation. SBA does not deem an

individual involved in the management or daily business operations of a

tribally-owned concern to have used his or her individual eligibility

within the meaning of Sec. 124.108(b).

(6) Potential for success. (i) A tribally-owned applicant concern

must be in business for at least two years, as evidenced by income tax

returns for

[[Page 35748]]

each of the two previous tax years showing operating revenues in the

primary industry in which the applicant is seeking 8(a) BD

certification, or demonstrate potential for success as set forth in

paragraph (c)(6)(ii) of this section.

(ii) In determining whether a tribally-owned concern has the

potential for success, SBA will look at a number of factors including,

but not limited to:

(A) The technical and managerial experience and competency of the

individual(s) who will manage and control the daily operation of the

concern;

(B) The financial capacity of the concern; and

(C) The concern's record of performance on any previous Federal or

private sector contracts in the primary industry in which the concern

is seeking 8(a) certification.

(7) Other eligibility criteria. (i) As with other 8(a) applicants,

a tribally-owned applicant concern shall not be denied admission into

the 8(a) program due solely to a determination that specific contract

opportunities are unavailable to assist the development of the concern

unless:

(A) The Government has not previously procured and is unlikely to

procure the types of products or services offered by the concern; or

(B) The purchase of such products or services by the Federal

Government will not be in quantities sufficient to support the

developmental needs of the applicant and other program participants

providing the same or similar items or services.

(ii) Except for the tribe itself, the concern's officers,

directors, and all shareholders owning an interest of 20% or more must

demonstrate good character. See Sec. 124.108(a).

Sec. 124.110 Do Native Hawaiian Organizations have any special rules

for applying to the 8(a) BD program?

(a) Concerns owned by economically disadvantaged Native Hawaiian

Organizations, as defined in Sec. 124.3, are eligible for participation

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

determine social and economic disadvantage as a condition of

eligibility. Such concerns must meet all eligibility criteria set forth

in Secs. 124.

This text is long and has been trimmed here. Open the source document for the complete record.