HUBZone Empowerment Contracting Program

SMALL BUSINESS ADMINISTRATION

13 CFR Parts 121, 125, and 126

HUBZone Empowerment Contracting Program

AGENCY: Small Business Administration.

ACTION: Proposed rule.

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SUMMARY: The U.S. Small Business Administration (SBA) is proposing to

add to its regulations a new Part 126 to implement a new program

entitled the ``HUBZone Empowerment Contracting Program'' (``hereinafter

the HUBZone Program''). This program was created by the HUBZone Act of

1997, which is contained in Title VI of Public Law 105-135, enacted on

December 2, 1997 (111 Stat. 2592). The proposed rule would set forth

the program requirements for qualification as a HUBZone small business

concern (HUBZone SBC), the federal contracting assistance available to

qualified HUBZone SBCs, and other aspects of this program.

DATES: SBA must receive comments by no later than May 4, 1998.

ADDRESSES: You may submit your comments by first class mail to Michael

McHale, U.S. Small Business Administration, 409 Third Street, SW,

Washington, DC 20416.

FOR FURTHER INFORMATION CONTACT: Michael McHale, Assistant

Administrator, Office of Procurement Policy and Liaison, (202) 205-

6731.

SUPPLEMENTARY INFORMATION: Title VI of the Small Business

Reauthorization Act of 1997, Public Law 105-135, December 2, 1997,

creates a new program called the ``HUBZone Program''. The purpose of

the HUBZone program is to provide federal contracting opportunities for

certain qualified small business concerns (SBCs) located in distressed

communities in an effort to promote private-sector investment and

employment opportunities in these communities. Fostering the growth of

federal contractors in these areas and ensuring that these contractors

remain viable businesses for the long-term will help to empower these

areas while not adversely affecting recent efforts to streamline and

improve the federal procurement process.

The legislative history contains many strong indications that

Congress wanted the SBA to implement the program in a manner that

builds on the President's proposed Empowerment Contracting program

(launched by Executive Order, May 21, 1996) and is consistent with the

Federal government's other existing community empowerment programs-most

notably the Empowerment Zone program. The legislative history also

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contains many indications that Congress wanted SBA to implement the

HUBZone program without harming SBA's existing 8(a) program.

Furthermore, by increasing the small business contracting goal in this

title, Congress sent a strong signal to SBA that it also should avoid

harm to other Congressionally recognized programs which benefit small

business. SBA is sensitive to these indications of Congressional intent

and believes that this proposal reflects a balanced approach to HUBZone

implementation.

The HUBZone Act directs the Administrator of SBA to promulgate

regulations to ``carry out this title and the amendments made by this

title.'' (Pub.L. 105-135, Sec. 605(a)). This proposed rule would add a

new part to Title 13 of the Code of Federal Regulations to include the

regulations for the HUBZone program. The regulations set out the

general principles and definitions applicable to the program; the

departments and agencies affected by the program; the qualification

requirements for HUBZone concerns; the certification procedures of the

program; the verification processes which SBA will use for this

program; the contractual assistance provided by the program; the

applicable subcontracting percentage requirements; the protest and

appeal procedures; and various applicable penalties.

The proposed rule would also provide conforming amendments

necessary to integrate the HUBZone program into the SBA size

regulations and regulations related to government procurement.

The HUBZone Act requires the Administrator of SBA to establish and

maintain a database of qualified HUBZone SBCs. The proposed rule refers

to this database as the List of those concerns that have been certified

by SBA as qualified HUBZone SBCs (the List). The List will include, to

the extent practicable, the name, address, and type of business of each

concern; must be updated at least annually; and must be provided upon

request to any Federal agency or other entity.

SBA has attempted to write the proposed regulations in plain

English. To this end, SBA has written proposed section headings in

question and answer format for ease of use and has tried to avoid

unnecessary verbiage.

SBA encourages comments on all aspects of this proposed rule. This

is a new government program with the potential to achieve significant

public policy objectives. Like many new programs, it also carries the

potential for abuse. SBA has developed these proposed regulations in an

effort to achieve an appropriate balance; broad public comment will

assist it in developing a final rule.

Section by Section Analysis

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

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

The authority citation for 13 CFR Part 121 would be revised to

include Title VI of Public Law 105-135, as Part 121 would be amended to

include references to the HUBZone program.

Section 121.401 would be amended to add the HUBZone program to the

list of government procurement programs subject to size determinations.

Section 121.1001 would be amended by redesignating paragraph (a)(6)

as (a)(7) and adding a new paragraph (a)(6) to describe who may

initiate a size protest or request for formal size determination in the

HUBZone program.

Section 121.1008 would be amended by adding a sentence which

requires the SBA Government Contracting Area Director, or designee, to

notify the AA/HUB of receipt of a size protest concerning a qualified

HUBZone SBC.

The authority citation for Part 125 of this title would be revised

to include Title VI of Public Law 105-135, as Sec. 125.3 would be

amended to include HUBZone SBCs in the subcontracting assistance

provisions of this section.

A new part 126 would be added to Title 13 of the Code of Federal

Regulations to implement the HUBZone program.

Section 126.100 would explain that the purpose of the HUBZone

program is to provide federal contracting assistance for qualified SBCs

located in historically underutilized business zones in an effort to

increase employment opportunities and investment in those areas.

Proposed Sec. 126.101 lists the departments and agencies affected

directly by the HUBZone program.

Section 126.102 would describe the effect the HUBZone program would

have on the section 8(d) subcontracting program. The HUBZone Act of

1997 amended section 8(d) of the Small Business Act, 15 USC 637(d), to

include qualified HUBZone SBCs in the formal subcontracting plans

required by section 8(d) of the Small Business Act and described in

Sec. 125.3 of this title.

Section 126.103 would define terms that are important to the

HUBZone program. In defining some terms essential to the HUBZone

program, the HUBZone Act of 1997 relied upon definitions provided by

other federal agencies. This proposed rule would cross reference those

definitions for use in connection with the HUBZone program.

For example, the HUBZone Act defines a ``HUBZone'' as an

``historically underutilized business zone which is in an area located

within one or more qualified census tracts, qualified non-metropolitan

counties, or lands within the external boundaries of an Indian

reservation.'' Further, the HUBZone Act states that the term

``qualified census tracts'' has the meaning given that term in section

42(d)(5)(C)(ii)(I) of the Internal Revenue Code. This section of the

Internal Revenue Code refers to the low-income housing credit program

maintained by the Department of Housing and Urban Development (HUD).

The Secretary of HUD designates the qualified census tracts by Notice

published periodically in the Federal Register. These notices are

titled ``Statutorily Mandated Designation of Qualified Census Tracts

and Difficult Development Areas for Section 42 of the Internal Revenue

Code of 1986.'' The most recent Notice may be found at 59 FR 53518

(1994). The proposed rule includes a cross reference to section

42(d)(5)(C)(ii)(I) of the Internal Revenue Code.

The term ``qualified non-metropolitan counties'' is based on the

most recent data available concerning median household income and

unemployment rates. The Bureau of Census of the Department of Commerce

gathers the data regarding median household income and the Bureau of

Labor Statistics of the Department of Labor gathers the data regarding

unemployment rates. One may find the information from the Bureau of

Census at any local Federal Depository Library. To find the nearest

Federal Depository Library, one may call toll-free (888) 293-6498. The

information from the Bureau of Labor Statistics is available for public

inspection at the US Department of Labor, Bureau of Labor Statistics,

Division of Local Area Unemployment Statistics office in Washington DC

(the text of the proposed rule lists the complete address). Again, the

proposed rule would cross reference this information to provide

guidance in determining whether or not a small business concern is

located in a HUBZone.

The terms ``qualified census tract'' and ``qualified non-

metropolitan counties'' are based on statistics gathered periodically

by various federal agencies. The census reflects changes every 10

years, while unemployment statistics are calculated annually. Changes

in either can generate changes in the areas that qualify as HUBZones--

even as often as annually.

[[Page 16150]]

The HUBZone Act of 1997 does not define ``lands within the external

boundaries of an Indian reservation.'' For purposes of the HUBZone

program, SBA has adopted the definition of ``Indian reservation'' used

in the Bureau of Indian Affairs' (BIA) regulations and the proposed

rule includes a cross-reference to 25 CFR 151.2(f). The BIA definition

of ``Indian reservation'' includes ``that area of land over which the

tribe is recognized by the United States as having governmental

jurisdiction, except that, in the State of Oklahoma or where there has

been a final judicial determination that a reservation has been

disestablished or diminished, Indian reservation means that area of

land constituting the former reservation of the tribe as defined by the

Secretary [of the Interior or authorized representative].'' 25 CFR

151.2(f). BIA's definition of ``tribe'' includes Alaska Native

entities. See 25 CFR 81.1(w).

SBA created a website that enables individuals to input the address

of their business to determine if it is located in a HUBZone.

Additionally, through the SBA website, individuals may obtain lists of

the qualified census tracts and qualified non-metropolitan counties on

a state-by-state basis. The website also contains a ``hot link'' to a

directory of BIA's Land Titles and Records Offices and their respective

jurisdictions.

Proposed Sec. 126.200 contains the HUBZone eligibility

requirements. In general, as described in the regulations, the company

must be a small business concern; the company must be owned and

controlled by one or more persons each of whom is a citizen of the

United States; the principal office of the concern must be located in a

HUBZone; and at least thirty-five percent (35%) of the concern's

employees must reside in a HUBZone. To be counted as residing in the

HUBZone, an employee must either be registered to vote in the HUBZone

or have resided in the HUBZone for a period of not less than 180 days.

Proposed Sec. 126.201 describes who is considered to own a HUBZone

SBC.

Proposed Sec. 126.202 explains who is considered to control a

HUBZone SBC.

Section 126.203 would state that a HUBZone SBC must meet SBA's size

standards for its primary industry classification as defined in Part

121.

SBA believes that current size standards for the procurement

assistance program is an effective size standard for HUBZone purposes.

However, because the focus of the HUBZone program is creating jobs in

HUBZone communities rather than development of individual businesses,

SBA is considering whether a different approach for HUBZones may be

more appropriate. SBA is specifically seeking comments on policies that

may help to create HUBZone areas. One way SBA is considering is a

minimum alternative size standard for non-8(a) HUBZone SBCs of at least

16 employees. SBCs in the 8(a) program could have fewer than 16

employees. SBA is also considering a maximum size standard for most

SBCs of one-half the procurement assistance size standard for purposes

of initial qualification only. (The full procurement assistance size

standard would apply to HUBZone contracting opportunities.) SBA is

specifically seeking comments on the potential impact of a minimum size

standard of 16 employees, except for 8(a) SBCs and a maximum size

standard of one-half of the SBA size standard for initial qualification

purposes, except for 8(a) firms and women-owned firms. Comments should

address the potential impact of such size standards on types of

businesses and specific industries, particularly those with large

numbers of firms with very few employees, such as business consulting,

health care, and construction.

SBA believes a minimum size standard might better ensure that the

HUBZone program concentrates its benefits on concerns with at least a

minimum base of employees residing in HUBZones. Such a minimum base

could enhance the impact that a HUBZone contract would have, both in

terms of number of required resident employees and in terms of number

of new employees to perform contracts. Directing HUBZone contracts to

somewhat large firms may also ease the task of contract administration

for contracting officers who will be dealing with HUBZone SBCs for the

first time, and increase the likelihood that they will view favorably

the prospect of working with such concerns.

It should also be noted that, unlike the 8(a) program, the HUBZone

program is not primarily aimed at encouraging the development of

individual concerns. The HUBZone program focuses on job creation and

investment in HUBZone communities, and uses Federal procurement

contract awards to qualified HUBZone SBCs to achieve that purpose. The

exception for 8(a) firms also ties in with the fact that smaller 8(a)

participants have a mechanism in place to assist them with performing

contracts--the Mentor-Protege program.

The minimum size standard of 16 employees also would help

distinguish the HUBZone program from the Very Small Business (VSB)

program. The VSB program sets a maximum size standard of 15 employees.

Like the 8(a) program, the VSB program is primarily designed as a

developmental program and uses Federal contracting opportunities to

assist in the development of individual firms. Setting a minimum size

standard of 16 employees for the HUBZone program could help balance the

objectives of the HUBZone program, the 8(a) program, and the VSB

program.

In addition to the minimum size standard under discussion, SBA also

is reviewing a maximum size standard for qualified HUBZone SBCs. Under

this alternative approach, at the time of application for

certification, a concern could not exceed one-half the size standard

corresponding to the SIC code of the concern's primary industry, unless

the concern is an 8(a) participant or a small business concern owned

and controlled by women.

SBA is inviting public comment on whether this reduced size

standard would best fulfill the purposes of the HUBZone program. SBA

wants to avoid the situation where the award of a single HUBZone

contract likely would result in a qualified HUBZone SBC exceeding the

size standard for its primary industry classification. (Example: Assume

that a qualified HUBZone SBC has 499 employees and its primary industry

has a size standard of 500 employees. Should the concern receive a

HUBZone contract and add 10 new employees to perform the contract, it

would no longer meet the employee size standard.) The program may

better achieve its intended purposes by providing incentives for

existing qualified HUBZone SBCs to remain and expand in HUBZones

without losing their eligibility, and by attracting non-HUBZone SBCs

into HUBZones where they will provide new employment opportunities and

spur community economic development. With a maximum size standard for

qualified HUBZone SBCs, they will have room to grow in HUBZone

communities before they are no longer small for purposes of obtaining

contract awards under the program. SBA specifically invites comments on

the question of whether there should be a maximum size standard for the

HUBZone program that is different from other procurement programs, and

what the impact of such a size standard would be on different types of

business and specific industries.

Additionally, if the commenter believes a lower initial maximum

size standard for the HUBZone program is appropriate, SBA asks that the

commenter address the issue of whether there should be an exception to

that size standard for 8(a) participants or SBCs owned and controlled

by women. SBA

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is discussing exceptions for such firms. The 8(a) program is clearly a

developmental program with its purpose to develop concerns owned and

controlled by socially and economically disadvantaged individuals into

competitively viable businesses that can survive upon graduation from

the 8(a) program. SBA believes the HUBZone program could provide an

additional source of government contract support while the 8(a)

participant remains in the program. It is reluctant to impose any

restrictions on such concerns that would conflict with other

regulations governing the 8(a) program directly.

In addition, the Small Business Act contains a congressional

finding that assistance to women-owned businesses (WOBs) is needed to

remove discriminatory barriers to their development. Similar to the

developmental objectives of the 8(a) program, SBA is seeking comment on

whether allowing WOBs a maximum opportunity to qualify as HUBZone SBCs

would assist in overcoming such barriers and aid in their development.

Under proposed Sec. 126.203, if SBA cannot verify that a concern is

small, SBA may deny the concern status as a qualified HUBZone SBC, or

SBA may request a formal size determination from the responsible

Government Contracting Area Director or designee.

Section 126.204 would provide that qualified HUBZone SBCs may have

affiliates so long as the affiliates are also qualified HUBZone SBCs.

Proposed Sec. 126.205 explains that WOBs, 8(a) participants, and

small disadvantaged business concerns (SDBs) also can qualify as

HUBZone SBCs if they meet the requirements set forth in this part.

Section 126.206 would state the conditions under which regular

dealers can qualify as HUBZone SBCs.

Proposed Sec. 126.207 explains that a qualified HUBZone SBC may

have offices or facilities located in another HUBZone or even outside a

HUBZone. However, in order to qualify as a HUBZone SBC, the concern's

principal office must be located in a HUBZone.

Sections 126.300 through 126.306 would describe how a concern is

certified as a qualified HUBZone SBC. This section would explain how

SBA certifies a concern for the program, when the certification takes

place, and whether a concern can certify itself.

Proposed Sec. 126.304 sets forth what a concern must submit to be

certified by SBA as a qualified HUBZone SBC. Proposed Sec. 126.304(f)

explains that if a concern is applying for certification based on a

location ``within the external boundaries of an Indian reservation'',

it must submit official documentation from the Bureau of Indian Affairs

Land Titles and Records Office governing their area that confirms that

the concern is located within the external boundaries of an Indian

reservation. This additional requirement is necessary because, while

the qualified census tracts and qualified non-metropolitan counties are

contained in databases available in an electronic format, the data

concerning Indian reservations is available only through the BIA Land

Titles and Records Offices and is not available in an electronic

format. Consequently, concerns applying for HUBZone status based on

location within the external boundaries of an Indian reservation must

submit the additional documentation.

Proposed Sec. 126.307 states where SBA will maintain the List and

proposed Sec. 126.308 explains what a concern can do in the event SBA

inadvertently omits it from the List.

Section 126.309 would state that if SBA declines or de-certifies a

concern, it may seek certification or re-certification no sooner than

one year from the date of decline or de-certification, if it believes

that it has overcome all of the reasons for decline or de-

certification. SBA requests comments addressing the prohibition on

seeking certification sooner than one year from the date of decline or

de-certification and, in particular, whether the time period is

appropriate. SBA asks commenters to propose alternatives if they

believe the time period is inappropriate.

Proposed Secs. 126.400 through 126.405 discuss program

examinations, including who will conduct program exams, what the

examiners will review, and when examinations will be conducted. In

addition, this section would set out the action SBA may take when it

cannot verify a concern's eligibility and what action SBA will take

once it has verified a concern's eligibility. Concerns would have an

obligation to maintain relevant documentation for 6 years.

Sections 126.500 through 126.503 would set forth how a concern

maintains its HUBZone status; a qualified HUBZone SBC's ongoing

obligation to SBA and the consequences for failure to uphold that

obligation; the length of time a concern may qualify as a HUBZone SBC;

and when SBA may remove a concern from the List. Specifically, a

concern wishing to remain on the List must self-certify annually to SBA

that it remains a qualified HUBZone SBC. This self-certification must

take place within 30 days after the one-year anniversary of their date

of certification. SBA is particularly interested in comments

specifically addressing the requirement of annual self-certification to

SBA. SBA asks commenters to propose alternatives if they believe the

time period is inappropriate.

This section would also explain the qualified HUBZone SBC's ongoing

obligation to immediately notify SBA of any material change which could

affect its eligibility. The consequences for failure to do so will be

immediate de-certification, removal from the List, and possibly the

imposition of penalties under Sec. 126.900 of this part. In order to be

placed upon the List again, the concern must re-apply for certification

pursuant to Secs. 126.300 through 126.309 of this part. Additionally,

the application for certification must include a full explanation of

why the concern failed to notify SBA of the material change. If SBA is

not satisfied with the explanation, SBA may decline to certify the

concern pursuant to Sec. 126.306 of this part.

SBA proposes that qualified HUBZone SBCs remain eligible for

HUBZone status for a period of 3 years beyond the date that the HUBZone

in which the concern is located ceases to meet the definition of a

HUBZone, if the concern continues to meet all other eligibility

requirements. SBA specifically invites public comment on this

particular issue. SBA desires to balance the need to de-certify

concerns that are no longer located in a HUBZone against the need to

not discourage concerns from investing in HUBZone communities and

creating jobs and expanded business operations in those communities in

reliance on HUBZone program benefits.

Proposed Secs. 126.600 through 126.616 explain the general

conditions applicable to HUBZone contracts. These sections include

provisions regarding sole source contract awards; competitive contract

awards; price evaluation preferences and their effect on qualified

HUBZone SBCs; when SBA may appeal a non-award to a qualified HUBZone

SBC; and when a HUBZone contract may be prohibited by other SBA

programs or other Government programs.

Proposed Sec. 126.609 discusses what a contracting officer may do

if a contract opportunity does not exist for competition among

qualified HUBZone SBCs. This section explains that, in this situation,

the contracting officer may make an award under the 8(a) program on

either a sole source or competitive basis, make award to a HUBZone SBC

on a sole source award basis, or utilize a small business set-aside, in

that order

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of precedence. If the criteria are not met for any of these special

contracting authorities, then the contracting officer may solicit the

procurement through full and open competition. SBA believes this order

of precedence will aid in providing the maximum practicable opportunity

for the development of SBCs owned by members of socially and

economically disadvantaged groups, as Congress intended in the Small

Business Act (15 U.S.C. 632(f)(1)(e)), and yet is consistent with the

new HUBZone legislation.

Proposed Sec. 126.613 explains how a price evaluation preference

affects the bid of a qualified HUBZone SBC in full and open

competition. In a full and open competition, a contracting officer must

deem the price offered by a qualified HUBZone SBC to be lower than the

price offered by another offeror (other than another small business

concern) if the price offered by the qualified HUBZone SBC is not more

than 10% higher than the price offered by the otherwise lowest,

responsive, and responsible offeror. An example of the application of

the HUBZone price evaluation preference is included in this section of

the proposed rule.

Proposed Sec. 126.614 describes how a contracting officer must

apply both HUBZone and SDB price evaluation preferences in a full and

open competition. The HUBZone price evaluation preference is described

in proposed Sec. 126.613 of this part. The SDB price evaluation

preference currently applies to the Department of Defense only, and is

set forth in 10 U.S.C. 2323. The Department of Defense regulations

implementing this preference are set out in Sec. 252.219-7006 of the

Defense Federal Acquisition Regulation Supplement.

This proposed rule requires that the contracting officer first

apply the SDB price evaluation preference, then apply the HUBZone price

evaluation preference. The SDB price evaluation preference should be

applied first in order to establish the lowest, responsive, and

responsible offeror. Once the contracting officer establishes the

lowest, responsive, and responsible offeror, if the qualified HUBZone

SBC's offer is not more than 10 percent higher than that offer (unless

the lowest, responsive, responsible offeror is another small business

concern) the contracting officer must deem the price offered by the

qualified HUBZone SBC to be lower than the price offered by the

otherwise lowest, responsive, and responsible offeror. The SDB price

evaluation must be applied first because if the contracting officer

applies the HUBZone price evaluation preference first, the SDB price

evaluation preference would effectively negate the HUBZone price

evaluation preference. An example of the application of both HUBZone

and SDB price evaluation preferences is included in proposed

Sec. 126.614 of the regulations.

It is possible that the qualified HUBZone SBC that submits an offer

on a contract will be both a qualified HUBZone SBC and an SDB. For

example, a qualified HUBZone SBC (but not an SDB) submits an offer of

$102; a qualified HUBZone SBC that is also an SDB submits an offer of

$105; an SDB (but not a qualified HUBZone SBC) submits an offer of

$107; a small business concern (but not a qualified HUBZone SBC or an

SDB) submits an offer of $100; and a large business submits an offer of

$93. Under this proposal, the contracting officer must go through the

following steps:

1. Apply the SDB price evaluation preference to establish the

lowest, responsive, and responsible offeror. Thus, the qualified

HUBZone SBC's offer becomes $112.2; the qualified HUBZone SBC/SDB's

offer remains $105; the SDB's offer remains $107; the small business

concern's offer becomes $110; and the large business's offer becomes

$102.3. As a result of the SDB price evaluation preference, the large

business is the lowest, responsive, and responsible offeror.

2. Apply the HUBZone price evaluation preference and if a qualified

HUBZone SBC's price is not more than 10 percent higher than the large

business's price, the contracting officer must deem its price to be

lower than the large business's price. In this example, the qualified

HUBZone price of $112.2 is not more than 10 percent higher than the

large business's price, however, the qualified HUBZone/SDB's price of

$105 is also not more than 10 percent higher than the large business's

price and is lower than the qualified HUBZone SBC's price.

Consequently, as specified by this proposed rule, the contracting

officer must deem the price of the qualified HUBZone/SDB as the lowest,

responsive, and responsible offeror.

This example illustrates the potential effect of according a small

business concern a ``dual status'' as both a qualified HUBZone SBC and

an SDB. SBA invites comments specifically addressing whether such an

application of ``dual status'' is appropriate. Should concerns be able

to benefit from both their qualified HUBZone status and their small

disadvantaged status? Or, should they be required to choose one or the

other when submitting an offer on a contract in full and open

competition?

Proposed Sec. 126.616 specifically discusses the circumstances in

which a contracting officer may award a HUBZone contract to a joint

venture. This section explains that a qualified HUBZone SBC may enter

into a joint venture with one or more other qualified HUBZone SBCs for

the purpose of performing a specific HUBZone contract. By allowing

joint ventures between qualified HUBZone SBCs, 8(a) participants and

WOBs, SBA would make it more possible for such concerns to bid on

larger contracts.

Proposed Sec. 126.616(b) explains the size standards applicable to

such joint ventures. A joint venture of qualified HUBZone SBCs could

submit an offer for a HUBZone procurement so long as each concern is

small under the size standard corresponding to the SIC code assigned to

the contract, provided that, for a procurement having an employee-based

size standard, the procurement exceeds $10 million. On August 14, 1997,

SBA proposed a similar rule for the 8(a) program. Although the final

rule for the 8(a) program has yet to be published, SBA anticipates that

the final rule will be the same on this issue. To achieve consistency

within its programs, SBA modeled this section of the proposed rule

after Sec. 124.512 of the 8(a) program proposed rule.

Since a principal purpose of the HUBZone program is job creation

and job growth, SBA would like commenters to address specifically

whether HUBZone contract opportunities should be limited to certain

types of contracts only. For example, should HUBZone contracts only be

available for industries that are considered ``labor-intensive''? The

proposed rule does not now contain such a restriction.

Additionally, SBA requests that commenters discuss whether HUBZone

contract opportunities should be limited to those not now awarded to

SBCs. It also invites suggestions for ways in which HUBZone

implementation can better help government contracting activities meet

their SDB and WOB goals.

Proposed Sec. 126.700 discusses the subcontracting percentage

requirements applicable to the HUBZone program; the limited

circumstances under which the subcontracting percentage requirements

may be changed; and the procedures for changing those requirements. For

purposes of definitions applicable to Sec. 126.700, as well as Secs.

126.304(a)(5) and 126.602(b), SBA specifically solicits comment and, in

particular, with regard to an appropriate definition for ``materials''.

SBA asks commenters to discuss whether substantially completed products

with only minor

[[Page 16153]]

modifications should be considered materials, and whether and how labor

costs involved in producing such products should be considered.

Proposed Sec. 126.800 addresses protests relating to a small

business concern's HUBZone status. This section would explain who may

file a protest, what the protest must contain, how and where a protest

must be filed, who decides the protest, and what appeal rights are

available.

Proposed Sec. 126.900 prescribes the penalties applicable under the

HUBZone program including procurement and non-procurement suspension or

debarment, as well as applicable civil and criminal penalties.

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

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

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

SBA certifies that this proposed rule may constitute a major rule

within the meaning of Executive Order 12866, and may have a significant

economic impact on a substantial number of small entities within the

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

submits the following economic analysis prepared pursuant to Executive

Order 12866 and Initial Regulatory Flexibility Analysis (IRFA) prepared

pursuant to the Regulatory Flexibility Act.

In making its determination that this proposed rule may constitute

a major rule and may have a significant economic impact on a

substantial number of small entities, SBA used the definition of small

business set forth in 13 CFR Part 121.

The HUBZone Act of 1997, Title VI of Public Law 105-135, 111 Stat.

2592 (December 2, 1997), creates the HUBZone program and directs the

Administrator of SBA to promulgate regulations to implement it. The

proposed rule sets forth the program requirements for qualification as

a HUBZone SBC, the federal contracting assistance available to

qualified HUBZone SBCs, and other aspects of this program.

The HUBZone program will benefit SBCs by increasing the number of

federal government contracts awarded to them. SBA cannot predict with

any accuracy the number or dollar amount of contracts that will be

awarded to qualified HUBZone SBCs or determine the magnitude of the

shift, if any, among small and large businesses. SBA is seeking data or

comments from the public on the impact of the proposed rule on all

small businesses. The program also will benefit HUBZone communities by

providing much needed jobs and investment in those communities.

Prior to submitting an offer on a HUBZone contract, an interested

small business must apply to SBA for certification as a qualified

HUBZone SBC. The concern must submit information relating to its

eligibility for the program, including supporting documentation. Once a

concern is certified as a qualified HUBZone SBC, it must self-certify

annually to SBA that there has been no material change in its

circumstances that would affect eligibility. The information required

for certification consists of general information about the business.

SBA estimates that each concern will be able to complete the

certification application in one hour or less.

As the HUBZone program is new and this proposed rule is designed to

implement the program, there are no relevant federal rules that may

duplicate, overlap or conflict with the proposed rule. Additionally,

since the HUBZone Act of 1997 directs the Administrator to promulgate

regulations to implement this program, without new legislation there

are no alternatives to implementing this proposed rule.

The small entities who this proposed rule may affect are those who

fit within the definition of a small business concern as defined by SBA

in 13 CFR Part 121 and new Part 126 and who participate in government

contracting. Because the program is new, SBA cannot estimate precisely

the number or classes of small entities that this proposed rule will

affect. However, as explained below, SBA estimates that more than

30,000 SBCs will apply for certification as qualified HUBZone SBCs.

Based on 1992 census data and making reasonable extrapolations to

account for growth in recent years, SBA estimates that there are

approximately 5 million businesses with employees in the United States;

of this number, approximately 4.9 million--or 98 percent--are

considered small. Clearly, not all of the businesses who are considered

small seek to participate in federal government contracting or will

seek to participate in the HUBZone program. Currently, there are

approximately 170,000 SBCs registered on PRO-Net, SBA's database of

SBCs actively seeking federal government contracts.

The number of entities that seek certification as qualified HUBZone

SBCs will depend, first, on the number of businesses located in

HUBZones. The potential number of HUBZones is significant. Based on the

data available, there are approximately 61,000 census tracts in the

United States; of those tracts, about 7,000--or 11 percent--are

qualified census tracts for purposes of the HUBZone program. In

addition, there are approximately 3,000 non-metropolitan counties in

the United States; of those counties, about 900 -or 30 percent--are

qualified non-metropolitan counties for purposes of the HUBZone

program. (At the time of publishing this proposed rule, there was no

data available on the number of Indian reservations in the United

States.) Based on combining the qualified census tract and qualified

non-metropolitan county data, SBA estimates that approximately 12

percent of the census tracts and non-metropolitan counties in the

United States will qualify as HUBZones. For purposes of these

estimates, the number of Indian reservations is not significant.

If all small businesses interested in Federal procurement were

evenly distributed geographically, then approximately 12 percent of the

170,000 SBCs registered on PRO-Net--or 20,000--would be located in

HUBZones. However, SBA believes that a much higher number of small

business are located in qualified census tracts than in qualified non-

metropolitan counties; therefore, SBA adjusts this number upward and

estimates that 25,000 SBCs--or 15 percent--interested in Federal

procurement will be located in HUBZones.

The incentives available through participation in the program

should result in additional relocating to HUBZone areas. SBA is unable

to predict the impact of this factor on the total number of qualified

HUBZone SBCs, but estimates that roughly 30,000 concerns are either now

HUBZone SBCs or will become HUBZone SBCs and will apply for

certification.

Because the HUBZone program is new, SBA also cannot estimate

precisely the economic impact the proposed rule may have on the

economy. According to the Congressional Budget Office (CBO), in 1996

the federal agencies specified in the HUBZone Act contracted for more

than 90 percent of all federal procurement obligations. (143 Cong. Rec.

S8976 (daily ed. September 9, 1997)). In FY 1996, the federal

government spent $197.6 billion on the procurement of goods and

services. The government awarded small businesses $41.1 billion in

direct contract actions--21 percent of the total $197.6 billion in

contract actions.

The HUBZone Act of 1997 amends the Small Business Act to increase

the Government-wide federal contracting goal for SBCs from 20 percent

to 23

[[Page 16154]]

percent of all federal prime contracts. In addition, the HUBZone Act

sets the government contracting goal for HUBZone SBCs initially at 1

percent of all federal prime contracts with a gradual increase to 3

percent by the year 2003. Thus, by 2003, assuming the participating

agencies reach the 3 percent contracting goal, HUBZone SBCs may be

awarded approximately $6 billion in federal contract actions (3 percent

of $197.6 billion).

In addition to the procurement contract awards available to

qualified HUBZone concerns, the HUBZone program will have other effects

on the economy including the possibility of increased costs to the

government. CBO anticipates that implementation of the HUBZone program

will increase the incidence of sole source contracting. According to

CBO, about 19 percent of federal procurement is awarded through sole

source contracts. It is not possible to project any increase in sole

source awards at this time, however, there might not be any increase in

sole source awards at all. Instead, qualified HUBZone SBCs might

receive sole source awards that would otherwise go to large businesses

or other small businesses.

CBO also estimates that implementing the HUBZone program would

significantly increase discretionary spending for the federal agencies

affected by the program. According to CBO, ``[s]uch costs could total

tens of millions of dollars each year, but CBO cannot estimate such

costs precisely.'' (143 Cong. Rec. S8976 (daily ed. September 9,

1997)). CBO anticipated that these additional costs would stem from

both additional administrative responsibilities for SBA and other

federal agencies, as well as the likely increased use of sole source

contracting. SBA is not in a position to shed much additional light on

this subject. It has received an appropriation of $2 million in FY 1998

to begin implementing the program and has requested $4 million for FY

1999. No other cost information is available at the present time.

Assessing whether the government will have a net cost from this program

is very subjective. It is at least possible that increased competition

from HUBZone SBCs will cause competing concerns to lower prices thereby

reducing government procurement costs (perhaps substantially).

Under all of these circumstances, SBA has determined that this

proposed rule may constitute a major rule within the meaning of E.O.

12866, and may have a significant impact on a substantial number of

small entities within the meaning of the Regulatory Flexibility Act.

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

certifies that this proposed rule imposes new reporting or

recordkeeping requirements on concerns applying to be certified as

qualified HUBZone SBCs. The proposed rule requires such concerns to

submit evidence that they meet the eligibility requirements set forth

in the rule; once certified, in order to remain on the List a concern

must self-certify annually to SBA that it remains qualified; and

qualified HUBZone SBCs must notify SBA immediately of any material

change in circumstances which could affect their eligibility.

For purposes of Executive Order 12612, SBA certifies that this

proposed rule has no federalism implications warranting the preparation

of a Federalism Assessment.

For purposes of Executive Order 12778, SBA certifies that it has

drafted this rule, to the extent practicable, in accordance with the

standards set forth in section 2 of that Order.

(Catalog of Federal Domestic Assistance Programs, No. 59.009)

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 125

Government contracts; Government procurement; Reporting and

recordkeeping requirements; Research; Small businesses; Technical

assistance.

13 CFR Part 126

Administrative practice and procedure, Government procurement,

Reporting and recordkeeping requirements, Small business.

Accordingly, for the reasons set forth above, SBA proposes to amend

Title 13, Code of Federal Regulations (CFR), as follows:

PART 121--[AMENDED]

1. The authority citation for 13 CFR Part 121 is revised 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 121.401 is amended by deleting the word ``and'' before

``Federal Small Disadvantaged Business Programs,'' adding a comma after

``Federal Small Disadvantaged Business Programs,'' and adding the

following language at the end of the sentence ``and SBA's HUBZone

program''.

3. Section 121.1001 is amended by redesignating paragraph (a)(5) as

(a)(6) and by adding the following new paragraph (a)(5) to read as

follows:

Sec. 121.1001 Who may initiate a size protest or a request for formal

size determination?

(c) Size Status Protests. * * *

(5) For SBA's HUBZone program, the following entities may protest

in connection with a particular HUBZone procurement:

(i) Any concern that submits an offer for a specific HUBZone set-

aside contract;

(ii) Any concern that submitted an offer in full and open

competition and its opportunity for award will be affected by a price

evaluation preference given a qualified HUBZone SBC;

(iii) The contracting officer; and

(iv) The Associate Administrator for Government Contracting, or

designee.

* * * * *

4. Section 121.1008 is amended by revising paragraph (a) to read as

follows:

Sec. 121.1008 What happens after SBA receives a size protest or a

request for a formal size determination?

(a) When a size protest is received, the SBA Government Contracting

Area Director, or designee, will promptly notify the contracting

officer, the protested concern, and the protestor that a protest has

been received. In the event the size protest pertains to a requirement

involving SBA's HUBZone Program, the Government Contracting Area

Director will advise the AA/HUB of receipt of the protest. In the event

the size protest pertains to a requirement involving SBA's SBIR

Program, the Government Contracting Area Director will advise the

Assistant Administrator for Technology of the receipt of the protest.

SBA will provide a copy of the protest to the protested concern along

with a blank SBA Application for Small Business Size Determination (SBA

Form 355) by certified mail, return receipt requested, or by any

overnight delivery service that provides proof of receipt. SBA will ask

the protested concern to respond to the allegations of the protestor.

* * * * *

PART 125--[AMENDED]

5. The authority section for 13 CFR Part 125 is revised to read as

follows:

Authority: Pub. L. 105-135 sec. 601 et seq., 111 Stat. 2592; 15

U.S.C. 634(b)(6), 637, and 644; 31 U.S.C. 9701, 9792.

[[Page 16155]]

6. Section 125.3 is amended by revising paragraphs (b) and (c) and

by revising the last sentence of paragraph (d) to read as follows:

Sec. 125.3 Subcontracting assistance.

(a) * * *

(b) Upon determination of the successful subcontract offeror on a

subcontract for which a small business, small disadvantaged business,

and/or a HUBZone small business received a preference, but prior to

award, the prime contractor must inform each unsuccessful offeror in

writing of the name and location of the apparent successful offeror and

if the successful offeror was a small business, small disadvantaged

business, or HUBZone business. This applies to all subcontracts over

$10,000.

(c) SBA Commercial Market Representatives (CMRs) facilitate the

process of matching large prime contractors with small, small

disadvantaged, and HUBZone subcontractors. CMRs identify, develop, and

market small businesses to the prime contractors and assist the small

firms in obtaining subcontracts.

(d) * * * Source identification means identifying those small,

small disadvantaged, and HUBZone firms which can fulfill the needs

assessed from the opportunity development process.

7. Add a new part 126 to read as follows:

PART 126--HUBZONE PROGRAM

Subpart A--Provisions of General Applicability

Sec.

126.100 What is the purpose of the HUBZone program?

126.101 Which government departments or agencies are affected

directly by the HUBZone program?

126.102 What is the effect of the HUBZone program on the section

8(d) subcontracting program?

126.103 What definitions are important in the HUBZone program?

Subpart B--Requirements to be a Qualified Hubzone SBC

126.200 What requirements must a concern meet to receive SBA

certification as a qualified HUBZone SBC?

126.201 For this purpose, who does SBA consider to own a HUBZone

SBC?

126.202 Who does SBA consider to control a HUBZone SBC?

126.203 What size standards apply to HUBZone SBCs?

126.204 May a qualified HUBZone SBC have affiliates?

126.205 May WOBs, 8(a) participants or SDBs be qualified HUBZone

SBCs?

126.206 May regular dealers be qualified HUBZone SBCs?

126.207 May a qualified HUBZone SBC have offices or facilities in

another HUBZone or outside a HUBZone?

Subpart C--Certification

126.300 How may a concern be certified as a qualified HUBZone SBC?

126.301 Is there any other way for a concern to obtain

certification?

126.302 When may a concern apply for certification?

126.303 Where must a concern file its certification?

126.304 What must a concern submit to SBA?

126.305 What format must the certification to SBA take?

126.306 How will SBA process the certification?

126.307 Where will SBA maintain the List of qualified HUBZone SBCs?

126.308 What happens if SBA inadvertently omits a qualified HUBZone

SBC from the List?

126.309 How may a declined or de-certified concern seek

certification at a later date?

Subpart D--Program Examinations

126.400 Who will conduct program examinations?

126.401 What will SBA examine?

126.402 When may SBA conduct program examinations?

126.403 May SBA require additional information from a HUBZone SBC?

126.404 What happens if SBA is unable to verify a qualified HUBZone

SBC's eligibility?

126.405 What happens if SBA verifies eligibility?

Subpart E--Maintaining HUBZone Status

126.500 How does a qualified HUBZone SBC maintain HUBZone status?

126.501 What are a qualified HUBZone SBC's ongoing obligations to

SBA?

126.502 Is there a limit to the length of time a qualified HUBZone

SBC may be on the List?

126.503 When is a concern removed from the List?

Subpart F--Contractual Assistance

126.600 What are HUBZone contracts?

126.601 What additional requirements must a qualified HUBZone SBC

meet to bid on a contract?

126.602 What additional requirements apply during contract

performance?

126.603 Does HUBZone certification guarantee receipt of HUBZone

contracts?

126.604 Who decides if a HUBZone contract opportunity exists?

126.605 What requirements are not available for HUBZone contracts?

126.606 May a contracting officer request that SBA release an 8(a)

requirement for award as a HUBZone contract?

126.607 When must a contracting officer set aside a requirement for

competition among qualified HUBZone SBCs?

126.608 What may the contracting officer do if an award cannot be

made based on a set-aside for competition among qualified HUBZone

SBCs?

126.609 What may the contracting officer do if a contract

opportunity does not exist for competition among qualified HUBZone

SBCs?

126.610 May SBA appeal a contracting officer's decision not to

reserve a procurement for award as a HUBZone contract?

126.611 What is the process for such an appeal?

126.612 When may a contracting officer award sole source contracts

to a qualified HUBZone SBC?

126.613 How does a price evaluation preference affect the bid of a

qualified HUBZone SBC in full and open competition?

126.614 How must a contracting officer apply HUBZone and SDB price

evaluation preferences in a full and open competition?

126.615 May a large business participate on a HUBZone contract?

126.616 What requirements must a joint venture satisfy to bid on a

HUBZone contract?

Subpart G--Subcontracting Percentage Requirements

126.700 What are the subcontracting percentage requirements under

this program?

126.701 Can these subcontracting percentage requirements change?

126.702 How can the subcontracting percentage requirements be

changed?

126.703 What are the procedures for requesting changes in

subcontracting percentages?

Subpart H--Protests

126.800 Who may protest the status of a qualified HUBZone SBC?

126.801 How does one submit a HUBZone status protest?

126.802 Who decides a HUBZone status protest?

126.803 How will SBA process a HUBZone status protest?

126.804 Will SBA decide all HUBZone status protests?

126.805 What are the procedures for appeals of HUBZone status

determinations?

Subpart I--Penalties

126.900 What penalties may be imposed under this part?

Authority: Pub.L. 105-135 sec. 601 et seq., 111 Stat. 2592; 15

U.S.C. 632(a).

Subpart A--Provisions of General Applicability

Sec. 126.100 What is the purpose of the HUBZone program?

The purpose of the HUBZone program is to provide federal

contracting assistance for qualified SBCs located in historically

underutilized business zones in an effort to increase employment

opportunities, investment, and economic development in such areas.

[[Page 16156]]

Sec. 126.101 Which government departments or agencies are affected

directly by the HUBZone program?

(a) Until September 30, 2000, the HUBZone program applies only to

procurements by the following departments and agencies:

(1) Department of Agriculture;

(2) Department of Defense;

(3) Department of Energy;

(4) Department of Health and Human Services;

(5) Department of Housing and Urban Development;

(6) Department of Transportation;

(7) Department of Veterans Affairs;

(8) Environmental Protection Agency;

(9) General Services Administration; and

(10) National Aeronautics and Space Administration.

(b) After September 30, 2000, the HUBZone program will apply to all

federal departments and agencies which employ one or more contracting

officers as defined by 41 U.S.C. 423(f)(5).

Sec. 126.102 What is the effect of the HUBZone program on the section

8(d) subcontracting program?

The HUBZone Act of 1997 amended the section 8(d) subcontracting

program to include qualified HUBZone SBCs in the formal subcontracting

plans described in Sec. 125.3 of this title.

Sec. 126.103 What definitions are important in the HUBZone program?

Administrator means the Administrator of the United States Small

Business Administration (SBA).

AA/8(a)BD means SBA's Associate Administrator for 8(a) Business

Development.

AA/HUB means SBA's Associate Administrator for the HUBZone Program.

ADA/GC&8(a)BD means SBA's Associate Deputy Administrator for

Government Contracting and 8(a) Business Development.

Certify means the process by which SBA determines that a HUBZone

SBC is qualified for the HUBZone program and entitled to be included in

SBA's ``List of Qualified HUBZone SBCs.''

Citizen means a person born or naturalized in the United States.

SBA does not consider holders of permanent visas and resident aliens to

be citizens.

Concern means a firm which satisfies the requirements in

Secs. 121.105(a) and (b) of this title.

Contract opportunity means a situation in which a requirement for a

procurement exists, and either:

(1) HUBZone contracts (including options) awarded by the

contracting activity to HUBZone SBCs do not aggregate more than 3

percent of all contract awards by that activity that fiscal year; or

(2) The contracting activity has reached a HUBZone contracting

level of 3 percent but the contracting activity also has met all other

contracting goals applicable to SDBs and WOBs. See other definitions in

this section for further details.

County unemployment rate is the rate of unemployment for a county

based on the most recent data available from the United States

Department of Labor, Bureau of Labor Statistics. The appropriate data

may be found in the DOL/BLS publication titled ``Supplement 2,

Unemployment in States and Local Areas.'' This publication is available

for public inspection at the Department of Labor, Bureau of Labor

Statistics, Division of Local Area Unemployment Statistics located at 2

Massachusetts Ave., NE, Room 4675, Washington DC 20212. A copy is also

available at SBA, Office of AA/HUB, 409 3rd Street, SW, Washington DC

20416.

De-certify means the process by which SBA determines that a concern

is no longer a qualified HUBZone SBC and removes that concern from its

List.

Employee means a person (or persons) employed by a HUBZone SBC on a

full-time (or full-time equivalent), permanent basis. Full-time

equivalent includes employees who work 30 hours per week or more. Full-

time equivalent also includes the aggregate of employees who work less

than 30 hours a week, where the work hours of such employees add up to

at least a 40 hour work week. The totality of the circumstances,

including factors relevant for tax purposes, will determine whether

persons are employees of a concern. Temporary employees, independent

contractors or leased employees are not employees for these purposes.

Example 1: 4 employees each work 20 hours per week; SBA will

regard that circumstance as 2 full-time equivalent employees.

Example 2: 1 employee works 20 hours per week and 1 employee

works 15 hours per week; SBA will regard that circumstance as not a

full-time equivalent.

Example 3: 1 employee works 15 hours per week, 1 employee works

10 hours per week, and 1 employee works 20 hours per week; SBA will

regard that circumstance as 1 full-time equivalent employee.

Example 4: 1 employee works 30 hours per week and 2 employees

each work 15 hours per week; SBA will regard that circumstance as 1

full-time equivalent employee.

HUBZone means a historically underutilized business zone, which is

an area located within one or more qualified census tracts, qualified

non-metropolitan counties, or lands within the external boundaries of

an Indian reservation. See other definitions in this section for

further details.

HUBZone small business concern (HUBZone SBC) means a concern that

is small as defined by Sec. 126.203, is exclusively owned and

controlled by persons who are United States citizens, and has its

principal office located in a HUBZone.

Indian reservation has the meaning used by the Bureau of Indian

Affairs in 25 CFR 151.2(f). This definition refers generally to land

over which a ``tribe'' has jurisdiction, and ``tribe'' includes Alaska

Native entities under 25 CFR 81.1(w).

Interested party means any concern that submits an offer for a

specific HUBZone sole source or set-aside contract, any concern that

submitted an offer in full and open competition and its opportunity for

award will be affected by a price evaluation preference given a

qualified HUBZone SBC, the contracting activity's contracting officer,

or SBA.

List refers to the database of qualified HUBZone SBCs that SBA has

certified.

Median household income has the meaning used by the Bureau of the

Census, United States Department of Commerce, in its publication

titled, ``1990 Census of Population, Social and Economic

Characteristics,'' Report Number CP-2, pages B-14 and B-17. This

publication is available for inspection at any local Federal Depository

Library. For the location of a Federal Depository library, call toll-

free (888) 293-6498 or contact the Bureau of the Census, Income

Statistics Branch, Housing and Economic Statistics Division, Washington

DC 20233-8500.

Metropolitan statistical area means an area as defined in section

143(k)(2)(B) of the Internal Revenue Code of 1986. (title 26, United

States Code).

Non-metropolitan has the meaning used by the Bureau of the Census,

United States Department of Commerce, in its publication titled, ``1990

Census of Population, Social and Economic Characteristics,'' Report

Number CP-2, page A-9. This publication is available for inspection at

any local Federal Depository Library. For the location of a Federal

Depository Library, call toll-free (888) 293-6498 or contact the Bureau

of the Census, Population Distribution Branch, Population Division,

Washington DC 20233-8800.

Person means a natural person. Pursuant to the Alaska Native Claims

Settlement Act, 43 U.S.C. 1626(e), Alaska Native Corporations and any

[[Page 16157]]

direct or indirect subsidiary corporations, joint ventures, and

partnerships of a Native Corporation are deemed to be owned and

controlled by Natives, and are thus persons.

Principal office means the location where the greatest number of

the concern's employees at any one location perform their work.

Qualified census tract has the meaning given that term in section

42(d)(5)(C)(ii)(I) of the Internal Revenue Code (title 26, United

States Code).

Qualified HUBZone SBC means a HUBZone SBC that SBA certifies as

qualified for federal contracting assistance under the HUBZone program.

Qualified non-metropolitan county means any county that:

(1) Based on the most recent data available from the Bureau of the

Census of the Department of Commerce--

(i) Is not located in a metropolitan statistical area; and

(ii) In which the median household income is less than 80 percent

of the non-metropolitan State median household income; or

(2) Based on the most recent data available from the Secretary of

Labor, has an unemployment rate that is not less than 140 percent of

the statewide average unemployment rate for the State in which the

county is located.

Reside means to live in a primary residence at a place for at least

180 days, or as a currently registered voter, and with intent to live

there indefinitely.

Small disadvantaged business (SDB) means a concern that is small

pursuant to part 121 of this title, and is owned and controlled by

socially and economically disadvantaged individuals, tribes, Alaska

Native Corporations, Native Hawaiian Organizations, or Community

Development Corporations.

Statewide average unemployment rate is the rate based on the most

recent data available from the Bureau of Labor Statistics, United

States Department of Labor, Division of Local Area Unemployment

Statistics, 2 Massachusetts Ave., NE, Room 4675, Washington, DC 20212.

A copy is also available at SBA, Office of AA/HUB, 409 3rd Street, SW,

Washington DC 20416.

Women-owned business (WOB) means a concern that is small pursuant

to part 121 of this title, and is at least 51 percent owned and

controlled by women.

Subpart B--Requirements to be a Qualified HUBZone SBC

Sec. 126.200 What requirements must a concern meet to receive SBA

certification as a qualified HUBZone SBC?

(a) The concern must be a HUBZone SBC as defined in Sec. 126.103;

and

(b) At least 35 percent of the concern's employees must reside in a

HUBZone. When determining the percentage of employees that reside in a

HUBZone, if the percentage results in a fraction round up to the

nearest whole number.

Example 1: A concern has 25 employees, 35 percent or 8.75

employees must reside in a HUBZone. Thus, 9 employees must reside in

a HUBZone.

Example 2: A concern has 95 employees, 35 percent or 33.25

employees must reside in a HUBZone. Thus, 34 employees must reside

in a HUBZone.

Sec. 126.201 For this purpose, who does SBA consider to own a HUBZone

SBC?

An owner of a HUBZone SBC is a person who owns any legal or

equitable interest in such HUBZone SBC. More specifically:

(a) Corporations. SBA will consider any person who owns stock,

whether voting or non-voting, to be an owner. SBA will consider options

to purchase stock to have been exercised. SBA will consider the right

to convert debentures into voting stock to have been exercised.

(b) Partnerships. SBA will consider a partner, whether general or

limited, to be an owner if that partner owns an equitable interest in

the partnership.

(c) Sole proprietorships. The proprietor is the owner.

(d) Limited liability companies. SBA will consider each member to

be an owner of a limited liability company.

Example 1: All stock of a corporation is owned by U.S. citizens.

The president of the corporation, a non-U.S. citizen, owns no stock

in the corporation, but owns options to purchase stock in the

corporation. SBA will consider the option exercised, and the

corporation is not eligible to be a qualified HUBZone SBC.

Example 2: A partnership is owned 99.9 percent by persons who

are U.S. citizens, and 0.1 percent by someone who is not. The

partnership is not eligible because it is not 100 percent owned by

U.S. citizens.

Sec. 126.202 Who does SBA consider to control a HUBZone SBC?

Control means both the day-to-day management and long-term

decisionmaking authority for the HUBZone SBC. Many persons share

control of a concern, including each of those occupying the following

positions: officer, director, general partner, managing partner, and

manager. In addition, key employees who possess critical licenses,

expertise or responsibilities related to the concern's primary economic

activity may share significant control of the concern. SBA will

consider the control potential of such key employees on a case by case

basis.

Sec. 126.203 What size standards apply to HUBZone SBCs?

(a) At time of application for certification. A HUBZone SBC must

meet SBA's size standards for its primary industry classification as

defined in Sec. 121.201 of this title. If SBA is unable to verify that

a concern is small, SBA may deny the concern status as a qualified

HUBZone SBC, or SBA may request a formal size determination from the

responsible Government Contracting Area Director or designee.

(b) At time of contract offer. A HUBZone SBC must be small within

the size standard corresponding to the SIC code assigned to the

contract.

Sec. 126.204 May a qualified HUBZone SBC have affiliates?

Yes. A qualified HUBZone SBC may have affiliates so long as the

affiliates also are qualified HUBZone SBCs, 8(a) participants, or WOBs.

Sec. 126.205 May WOBs, 8(a) participants or SDBs be qualified HUBZone

SBCs?

Yes. WOBs, 8(a) participants, and SDBs can qualify as HUBZone SBCs

if they meet the additional requirements in this part.

Sec. 126.206 May regular dealers be qualified HUBZone SBCs?

Yes. Regular dealers (also known as non-manufacturers) may

certified as qualified HUBZone SBCs if they meet all the requirements

set forth in Sec. 126.200 and they can demonstrate that there are

manufacturers located in a HUBZone who can provide the product required

in the contract. The manufacturer must be located in a HUBZone and must

meet the employee residence requirement set forth in Sec. 126.200(b).

Additional requirements that regular dealers must meet to bid on a

contract are set out in Sec. 126.601(d).

Sec. 126.207 May a qualified HUBZone SBC have offices or facilities in

another HUBZone or outside a HUBZone?

Yes. A qualified HUBZone SBC may have offices or facilities in

another HUBZone or even outside a HUBZone and still be a qualified

HUBZone SBC. However, in order to qualify, the concern's principal

office must be located in a HUBZone.

[[Page 16158]]

Subpart C--Certification

Sec. 126.300 How may a concern be certified as a qualified HUBZone

SBC?

A concern must apply to SBA for certification. The application must

include a representation that it meets the eligibility requirements

described in Sec. 126.200 and must submit relevant supporting

information. SBA will consider the information provided by the concern

in order to determine whether the concern qualifies. SBA, in its sole

discretion, may rely solely upon the information submitted to establish

eligibility, or may request additional information, or may verify the

information before making a determination. If SBA determines that the

concern is a qualified HUBZone SBC, it will issue a certification to

that effect and add the concern to the List.

Sec. 126.301 Is there any other way for a concern to obtain

certification?

No. SBA certification is the only way to qualify for HUBZone

program status.

Sec. 126.302 When may a concern apply for certification?

A concern may apply to SBA and submit the required information

whenever it can represent that it meets the eligibility requirements,

subject to Sec. 126.309. All representations and supporting information

contained in the application must be complete and accurate as of the

date of submission. The application must be signed by an officer of the

concern who is authorized to represent the concern.

Sec. 126.303 Where must a concern file its certification?

The concern must file its certification with the AA/HUB, U.S. Small

Business Administration, 409 Third Street, SW, Washington, DC 20416.

Sec. 126.304 What must a concern submit to SBA?

(a) To be certified by SBA as a qualified HUBZone SBC, a concern

must represent to SBA that under the definitions set forth in

Sec. 126.103:

(1) It is a small business concern that is both owned only by

United States citizens and controlled only by United States citizens;

(2) Its principal office is located in a HUBZone;

(3) Not less than 35 percent of its employees reside in a HUBZone;

(4) It will use good faith efforts to ensure that a minimum

percentage of 35 percent of its employees continue to reside in a

HUBZone so long as SBA certifies it as qualified and during the

performance of any contract awarded to it on the basis of its status as

a qualified HUBZone SBC; and

(5) It will ensure that, where it enters into subcontracts to aid

in performance of any prime contracts awarded to it because of its

status as a qualified HUBZone SBC, it will incur not less than a

certain minimum percentage of certain contract costs for itself or

subcontractor qualified HUBZone SBCs, as follows:

(i) If a service contract, 50 percent of the cost of the contract

performance incurred for personnel on the concern's employees or on the

employees of other qualified HUBZone SBCs;

(ii) If a contract for supplies not from a regular dealer in such

supplies, 50 percent of the manufacturing cost (excluding the cost of

materials) on performing the contract in a HUBZone;

(iii) If a contract for general construction, 15 percent of the

cost of contract performance incurred for personnel on the concern's

employees or the employees of other qualified HUBZone SBCs; and

(iv) If a contract for special trade construction, 25 percent of

the cost of contract performance incurred for personnel on the

concern's employees or the employees of other qualified HUBZone SBCs.

(b) If the concern is applying for HUBZone status based on a

location within the external boundaries of an Indian reservation, the

concern must submit with its application for certification official

documentation from the appropriate Bureau of Indian Affairs (BIA) Land

Titles and Records Office with jurisdiction over the concern's area,

confirming that it is located within the external boundaries of an

Indian reservation. BIA lists the Land Titles and Records Offices and

their jurisdiction in 25 CFR 150.4 and 150.5.

(c) In addition to these representations, the concern must submit

the forms, attachments, and any additional information required by SBA.

Sec. 126.305 What format must the certification to SBA take?

A concern must submit the required information in either a written

or electronic application form provided by SBA. An electronic

application must be sufficiently authenticated for enforcement

purposes.

Sec. 126.306 How will SBA process the certification?

(a) The AA/HUB is authorized to approve or decline certifications.

SBA will receive and review all certifications, but SBA will not

process incomplete packages. SBA will make its determination within 30

calendar days after receipt of a complete package whenever practicable.

The decision of the AA/HUB is the final agency decision.

(b) SBA will base its certification on facts existing on the date

of submission. SBA, in its sole discretion, may request additional

information or clarification of information contained in the submission

at any time.

(c) If SBA approves the application, SBA will send a written notice

to the concern and automatically enter it on the List described in

Sec. 126.307.

(d) A decision to deny eligibility must be in writing and state the

specific reasons for denial.

Sec. 126.307 Where will SBA maintain the List of qualified HUBZone

SBCs?

SBA maintains the List at its Internet website at http://

www.sba.gov/HUB. Requesters also may obtain a copy of the List by

writing to the AA/HUB at U.S. Small Business Administration, 409 Third

Street, SW, Washington, DC 20416 or via e-mail at [email protected].

Sec. 126.308 What happens if SBA inadvertently omits a qualified

HUBZone SBC from the List?

A HUBZone SBC that has received SBA's notice of certification, but

is not on the List within 10 business days thereafter should

immediately notify the AA/HUB in writing at U.S. Small Business

Administration, 409 Third Street, SW, Washington, DC 20416 or via e-

mail at [email protected]. The concern must appear on the List to be

eligible for HUBZone contracts.

Sec. 126.309 How may a declined or de-certified concern seek

certification at a later date?

A concern that SBA has declined or de-certified may seek

certification no sooner than one year from the date of decline or de-

certification if it believes that it has overcome all reasons for

decline through changed circumstances, and is otherwise eligible.

Subpart D--Program Examinations

Sec. 126.400 Who will conduct program examinations?

SBA field staff or others designated by the AA/HUB will conduct

program examinations.

Sec. 126.401 What will SBA examine?

(a) Eligibility. Examiners will verify that the qualified HUBZone

SBC met the requirements set forth in Sec. 126.200 at the time of its

application for certification and at the time of examination.

(b) Scope of review. Examiners may review any information related

to the

[[Page 16159]]

HUBZone SBC qualifying requirements, including documentation related to

the location and ownership of the concern and the employee percentage

requirements. The qualified HUBZone SBC must document each employee's

residence address through employment records. The examiner also may

review property tax, public utility or postal records, and other

relevant documents. The concern must retain documentation demonstrating

satisfaction of the employee residence and other qualifying

requirements for 6 years from date of submission to SBA.

Sec. 126.402 When may SBA conduct program examinations?

SBA may conduct a program examination at the time the concern

certifies to SBA that it meets the requirements of the program or at

any other time while the concern is on the List or subsequent to

receipt of HUBZone contract benefits. For example, SBA may conduct a

program examination to verify eligibility upon notification of a

material change under Sec. 126.501. Additionally, SBA, in its sole

discretion, may perform random program examinations to determine

continuing compliance with program requirements, or it may conduct a

program examination in response to credible information calling into

question the HUBZone status of a small business concern. For protests

to the HUBZone status of a small business concern in regard to a

particular procurement, see Sec. 126.800.

Sec. 126.403 May SBA require additional information from a HUBZone

SBC?

Yes. At the discretion of the AA/HUB, SBA has the right to require

that a HUBZone SBC submit additional information as part of the

certification process, or at any time thereafter. If SBA finds a

HUBZone SBC is not qualified, SBA will de-certify the concern and

delete its name from the List. SBA may choose to pursue penalties

against any concern that has made material misrepresentations in its

submissions to SBA in accordance with Sec. 126.900.

Sec. 126.404 What happens if SBA is unable to verify a qualified

HUBZone SBC's eligibility?

(a) Authorized SBA headquarters personnel will first notify the

concern in writing of the reasons why it is no longer eligible.

(b) The concern will have 10 business days to respond to the

notification.

(c) The AA/HUB will consider the reasons for proposed de-

certification and the concern's response before making a decision

whether to de-certify.

Sec. 126.405 What happens if SBA verifies eligibility?

If SBA verifies that the concern is eligible, it will amend the

date of certification on the List to reflect the date of verification.

Subpart E--Maintaining HUBZone Status

Sec. 126.500 How does a qualified HUBZone SBC maintain HUBZone status?

(a) Any qualified HUBZone SBC wishing to remain on the List must

self-certify annually to SBA that it remains a qualified HUBZone SBC.

There is no limit to the length of time a concern may remain on the

List so long as it continues to satisfy SBA that it meets all

eligibility requirements set forth in Sec. 126.200.

(b) Concerns wishing to remain in the program without any

interruption must self-certify their continued eligibility to SBA

within 30 calendar days after the one-year anniversary of their date of

certification. Failure to do so will result in SBA de-certifying the

concern. The concern then would have to submit a new application for

certification under Secs. 126.300 through 126.306.

(c) The self-certification to SBA must be in writing and must

represent that the circumstances relative to eligibility which existed

on the date of certification showing on the List have not materially

changed.

Sec. 126.501 What are a qualified HUBZone SBC's ongoing obligations to

SBA?

The concern must immediately notify SBA of any material change

which could affect its eligibility. The notification must be in

writing, and must be sent or delivered to the AA/HUB to comply with

this requirement. Failure of a qualified HUBZone SBC to notify SBA of

such a material change will result in immediate de-certification and

removal from the List, and SBA may seek the imposition of penalties

under Sec. 126.900. If the concern later becomes eligible for the

program, the concern must apply for certification pursuant to

Secs. 126.300 through 126.309 and must include with its application for

certification a full explanation of why it failed to notify SBA of the

material change. If SBA is not satisfied with the explanation provided,

SBA may decline to certify the concern pursuant to Sec. 126.306.

Sec. 126.502 Is there a limit to the length of time a qualified

HUBZone SBC may be on the List?

(a)There is no limit to the length of time a qualified HUBZone SBC

may remain on the List so long as it continues to follow the provisions

of Secs. 126.500, 126.501, and 126.503, and so long as the HUBZone in

which it is located remains a HUBZone.

(b) In the event a HUBZone ceases to meet the definition of a

HUBZone, qualified HUBZone SBCs may remain on the List for a period of

3 years from the date of the change in the status of the HUBZone, if

they continue to meet all the eligibility requirements set forth in

this part.

Sec. 126.503 When is a concern removed from the List?

If SBA determines at any time that a HUBZone SBC is not qualified,

SBA may de-certify the HUBZone SBC, remove the concern from the List,

and seek imposition of penalties pursuant to Sec. 126.900. An adverse

finding in the resolution of a protest also may result in de-

certification and removal from the List, and the imposition of

penalties pursuant to Sec. 126.900. Failure to notify SBA of a material

change which could affect a concern's eligibility will result in

immediate de-certification, removal from the List, and SBA may seek the

imposition of penalties under Sec. 126.900.

Subpart F--Contractual Assistance

Sec. 126.600 What are HUBZone contracts?

HUBZone contracts are contracts awarded to a qualified HUBZone SBC

through any of the following procurement methods:

(a) Sole source awards to qualified HUBZone SBCs;

(b) Set-aside awards based on competition restricted to qualified

HUBZone SBCs; or

(c) Awards to qualified HUBZone SBCs through full and open

competition after a price evaluation preference in favor of qualified

HUBZone SBCs.

Sec. 126.601 What additional requirements must a qualified HUBZone SBC

meet to bid on a contract?

(a) In order to submit an offer on a specific HUBZone contract, a

concern must be small under the size standard corresponding to the SIC

code assigned to the contract.

(b) At the time a qualified HUBZone SBC submits its offer on a

specific contract, it must certify to the contracting officer that:

(1) It is a qualified HUBZone SBC which appears on SBA's List;

(2) there has been no material change in its circumstances since

the date of certification shown on the List which could affect its

HUBZone eligibility; and

(3) It is small under the SIC code assigned to the procurement.

(c) If bidding as a joint venture, each qualified HUBZone SBC must

make the

[[Page 16160]]

certifications in paragraphs (b)(1), (2), and (3) separately under its

own name.

(d) A qualified HUBZone SBC which is a regular dealer may submit an

offer on a contract for supplies if it meets the requirements under the

non-manufacturer rule as defined in Sec. 121.406(b) of this title and

if the small manufacturer is located in a HUBZone and meets the

employee residence requirement of Sec. 126.200(b). The Administrator or

designee may waive the requirement set forth in Sec. 121.406(b)(1)(iii)

of this title, but the manufacturer must be located in a HUBZone and

must meet the employee residence requirement of Sec. 126.200(b). The

procedures for waivers of the non-manufacturer rule are set out in

Secs. 121.1201 through 121.1205 of this title.

Sec. 126.602 What additional requirements apply during contract

performance?

(a) The qualified HUBZone SBC must attempt to maintain the required

percentage of employees who reside in a HUBZone during the performance

of any contract awarded to the concern on the basis of HUBZone status.

``Attempt to maintain'' means making substantive and documented efforts

to maintain that percentage such as written offers of employment,

published advertisements seeking employees, and attendance at job

fairs. HUBZone contracts are described more fully in Sec. 126.600.

(b) During the performance of a contract for procurement of

supplies (other than a procurement from a regular dealer in such

supplies), the qualified HUBZone SBC must spend at least 50 percent of

the manufacturing cost (excluding the cost of materials) on performing

the contract in a HUBZone. See Sec. 126.700(a)(4).

(c) Enforcement of paragraphs (a) and (b) of this section will be

the responsibility of the contracting officer and violation of either

requirement may be grounds for termination of the contract at the

election of the contracting officer.

Sec. 126.603 Does HUBZone certification guarantee receipt of HUBZone

contracts?

No. Qualified HUBZone SBCs should market their capabilities to

appropriate procuring agencies in order to increase their prospects of

having a requirement set aside for HUBZone contract award.

Sec. 126.604 Who decides if a HUBZone contract opportunity exists?

The contracting officer for the contracting activity makes this

decision.

Sec. 126.605 What requirements are not available for HUBZone

contracts?

A contracting activity may not make a requirement available for a

HUBZone contract if:

(a) The contracting activity otherwise would fulfill that

requirement through award to Federal Prison Industries, Inc. under 18

U.S.C. 4124 or 4125, or to Javits-Wagner-O'Day Act participating non-

profit agencies for the blind and severely disabled, under 41 U.S.C. 46

et seq., as amended; or

(b) An 8(a) participant currently is performing that requirement or

SBA has accepted that requirement for performance under the authority

of the section 8(a) program, unless SBA has consented to release of the

requirement from the 8(a) program; or

(c) That requirement has an estimated value of between $2,500 and

$100,000 and otherwise would be procured under simplified acquisition

procedures; or

(d) The requirement does not meet the definition of contract

opportunity in Sec. 126.103. This provision does not apply to awards

made to a qualified HUBZone SBC as a result of a price evaluation

preference in a full and open competition.

Sec. 126.606 May a contracting officer request that SBA release an

8(a) requirement for award as a HUBZone contract?

Yes. However, SBA will grant its consent only where neither the

incumbent nor any other 8(a) participant(s) can perform the

requirement, and where the 8(a) program will not be adversely affected.

The SBA official authorized to grant such consent is the AA/8(a)BD.

Sec. 126.607 When must a contracting officer set aside a requirement

for competition among qualified HUBZone SBCs?

(a) The contracting officer first must review a requirement to

determine whether it is excluded from HUBZone contracting or is not a

``contract opportunity,'' pursuant to Sec. 126.605. If the requirement

is not excluded and is not a contract opportunity, then the contracting

officer must set aside the requirement for competition restricted to

qualified HUBZone SBCs if the contracting officer:

(1) Has a reasonable expectation that at least 2 qualified HUBZone

SBCs will submit offers; and

(2) Determines that award can be made at a fair market price.

(b) The contracting officer must review SBA's List of qualified

HUBZone SBCs to determine whether there are 2 or more qualified HUBZone

SBCs available to perform the requirement.

Sec. 126.608 What may the contracting officer do if an award cannot be

made based on a set-aside for competition among qualified HUBZone SBCs?

If the contracting officer sets the requirement aside for

competition restricted to qualified HUBZone SBCs, and

(a) If the contracting officer only receives one acceptable offer

from a responsible qualified HUBZone SBC, the contracting officer may

make an award to that concern on a sole source basis; or

(b) If the contracting officer receives no acceptable offers from

responsible qualified HUBZone SBCs, the contracting officer may

withdraw the set-aside and re-solicit the requirement, if still valid,

as an 8(a) contract or a small business set-aside. If procurement

through the 8(a) program or through a small business set-aside is not

possible, the contracting officer may re-solicit the procurement

through full and open competition.

Sec. 126.609 What may the contracting officer do if a contracting

opportunity does not exist for competition among qualified HUBZone

SBCs?

The contracting officer may make an award under the 8(a) program on

either a sole source or competitive basis, make award to a qualified

HUBZone SBC on a sole source award basis, or utilize a small business

set-aside, in that order of precedence. If the criteria are not met for

any of these special contracting authorities, then the contracting

officer may solicit the procurement through full and open competition.

Sec. 126.610 May SBA appeal a contracting officer's decision not to

reserve a procurement for award as a HUBZone contract?

The Administrator may appeal a contracting officer's decision not

to make a particular requirement available for award as a HUBZone sole

source or a HUBZone set-aside contract.

Sec. 126.611 What is the process for such an appeal?

(a) Notice of appeal. SBA must notify the contracting officer

within 5 business days of SBA's receipt of the contracting officer's

decision if the Administrator intends to appeal the decision. The

contracting officer must notify SBA's procurement center representative

or the AA/HUB as soon as practicable after a decision to not make an

award to a qualified HUBZone SBC on either a HUBZone sole source or

set-aside basis provided the decision was for reasons other than the

applicability of Sec. 126.605.

(b) Suspension of action. Upon receipt of notice of SBA's intent to

appeal, the

[[Page 16161]]

contracting officer must suspend further action regarding the

procurement until the head of the contracting activity issues a written

decision on the appeal, unless the head of the contracting activity

makes a written determination that urgent and compelling circumstances

which significantly affect the interests of the United States compel

award of the contract.

(c) Deadline for appeal. Within 15 business days of SBA's

notification to the contracting officer, SBA must file its formal

appeal with the head of the contracting activity or that agency may

consider the appeal withdrawn.

(d) Decision. The contracting activity must specify in writing the

reasons for a denial of an appeal brought under this section.

Sec. 126.612 When may a contracting officer award sole source

contracts to a qualified HUBZone SBC?

A contracting officer may award a sole source contract to a

qualified HUBZone SBC only if the contracting officer determines that

(a) None of the provisions of Sec. 126.605 apply;

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

will not exceed:

(1) $5,000,000 for a requirement within the SIC codes for

manufacturing; or

(2) $3,000,000 for a requirement within all other SIC codes;

(c) Two or more qualified HUBZone SBCs are not likely to submit

offers;

(d) A qualified HUBZone SBC is a responsible contractor able to

perform the contract; and

(e) Contract award can be made at a fair and reasonable price.

Sec. 126.613 How does a price evaluation preference affect the bid of

a qualified HUBZone SBC in full and open competition?

Where a contracting officer will award a contract on the basis of

full and open competition, the contracting officer must deem the price

offered by a qualified HUBZone SBC to be lower than the price offered

by another offeror (other than another small business concern) if the

price offered by the qualified HUBZone SBC is not more than 10 percent

higher than the price offered by the otherwise lowest, responsive, and

responsible offeror.

Example: In a full and open competition, a qualified HUBZone SBC

submits an offer of $102; another small business concern submits an

offer of $100; and a large business submits an offer of $93. The

lowest, responsive, responsible offeror would be the large business.

However, the contracting officer must consider whether to apply the

HUBZone price evaluation preference. If the qualified HUBZone SBC's

offer is not more than 10 percent higher than the large business's

offer, the contracting officer must deem the qualified HUBZone SBC's

price as lower than the price of the large business. In this

example, the qualified HUBZone SBC's price is not more than 10

percent higher than the large business's price and, consequently,

the qualified HUBZone SBC displaces the large business as the

lowest, responsive, and responsible offeror.

Sec. 126.614 How must a contracting officer apply HUBZone and SDB

price evaluation preferences in a full and open competition?

A contracting officer may receive offers from both qualified

HUBZone SBCs and SDB concerns, or from concerns that qualify as both,

during a full and open competition. First, the contracting officer must

apply the SDB price evaluation preference described in 10 U.S.C. 2323

to all appropriate offerors. Second, the contracting officer must apply

the HUBZone price evaluation preference as described in Sec. 126.613 to

all appropriate offerors. A contracting officer must apply both price

preferences to concerns that qualify as both qualified HUBZone SBCs and

SDB concerns.

Example: In a full and open competition, a qualified HUBZone SBC

(but not an SDB) submits an offer of $102; an SDB (but not a

qualified HUBZone SBC) submits an offer of $107; and a large

business submits an offer of $93. The contracting officer first

applies the SDB price evaluation preference and adds 10 percent to

the qualified HUBZone SBC's offer thereby making that offer $112.2,

and to the large business's offer thereby making that offer $102.3.

As a result, the large business is the lowest, responsive, and

responsible offeror. Now the contracting officer applies the HUBZone

preference and, since the qualified HUBZone SBC's offer is not more

than 10 percent higher than the large business's offer, the

contracting officer must deem the price offered by the qualified

HUBZone SBC to be lower than the price offered by the large

business.

Sec. 126.615 May a large business participate on a HUBZone contract?

A large business may not participate as a prime contractor on a

HUBZone award but may participate as a subcontractor to an otherwise

qualified HUBZone SBC, subject to the subcontracting limitations set

forth in Sec. 126.700.

Sec. 126.616 What requirements must a joint venture satisfy to bid on

a HUBZone contract?

A joint venture may bid on a HUBZone contract if the joint venture

meets all of the following requirements:

(a) HUBZone joint venture. A qualified HUBZone SBC may enter into a

joint venture with one or more other qualified HUBZone SBCs, 8(a)

participants, or WOBs for the purpose of performing a specific HUBZone

contract.

(b) For a procurement having an employee-based size standard, the

procurement exceeds $10 million.

(c) Performance of work. The aggregate of the qualified HUBZone

SBCs to the joint venture, not each concern separately, must perform

the applicable percentage of work required by Sec. 126.700.

Subpart G--Subcontracting Percentage Requirements

Sec. 126.700 What are the subcontracting percentage requirements under

this program?

(a) Subcontracting percentage requirements. A qualified HUBZone SBC

can subcontract part of a HUBZone contract, provided:

(1) In the case of a contract for services (except construction),

the qualified HUBZone SBC spends at least 50 percent of the cost of the

contract performance incurred for personnel on the concern's employees

or on the employees of other qualified HUBZone SBCs;

(2) In the case of a contract for general construction, the

qualified HUBZone SBC spends at least 15 percent of the cost of

contract performance incurred for personnel on the concern's employees

or the employees of other qualified HUBZone SBCs;

(3) In the case of a contract for construction by special trade

contractors, the qualified HUBZone SBC spends at least 25 percent of

the cost of contract performance incurred for personnel on the

concern's employees or the employees of other qualified HUBZone SBCs;

or

(4) In the case of a contract for procurement of supplies (other

than a procurement from a regular dealer in such supplies), the

qualified HUBZone SBC spends at least 50 percent of the manufacturing

cost (excluding the cost of materials) on performing the contract in a

HUBZone. One or more qualified HUBZone SBCs may combine to meet this

subcontracting percentage requirement.

(b) Definitions. Many definitions applicable to this section can be

found in Sec. 125.6 of this title.

Sec. 126.701 Can these subcontracting percentage requirements change?

Yes. The Administrator may change the subcontracting percentage

requirements if the Administrator determines that such action is

necessary to reflect conventional industry practices.

[[Page 16162]]

Sec. 126.702 How can the subcontracting percentage requirements be

changed?

Representatives of a national trade or industry group (as defined

by two-digit Major Group industry codes) may request a change in

subcontracting percentage requirements for that industry. Changes in

subcontracting percentage requirements may be requested only for

categories defined by two-digit Major Group industry codes in the

Standard Industry Classification (SIC) Code system. SBA will not

consider requests from anyone other than a representative of a national

trade or industry group or requests for changes for four-digit SIC Code

categories.

Sec. 126.703 What are the procedures for requesting changes in

subcontracting percentages?

(a) Format of request. There is no prescribed format, but the

requester should try to demonstrate to the Administrator that a change

in percentage is necessary to reflect conventional industry practices,

and should support its request with information including, but not

limited to:

(1) Information relative to the economic conditions and structure

of the entire national industry;

(2) Market data, technical changes in the industry and industry

trends;

(3) Specific reasons and justifications for the change in the

subcontracting percentage;

(4) The effect such a change would have on the Federal procurement

process; and

(5) Information demonstrating how the proposed change would promote

the purposes of the HUBZone Program.

(b) Notice to public. Upon an adequate preliminary showing to SBA,

SBA will publish in the Federal Register a notice of its receipt of a

request that it consider a change in the subcontracting percentage

requirements for a particular industry for HUBZone contracts. The

notice will identify the group making the request, and give the public

an opportunity to submit to the Administrator information and arguments

in both support and opposition.

(c) Comments. Once SBA has published a notice in the Federal

Register, it will afford a period of not less than 60 days for public

comment.

(d) Decision. SBA will render its decision after the close of the

comment period. If it decides against a change, it will publish notice

of its decision in the Federal Register. Concurrent with the notice,

SBA will advise the requester of its decision in writing. If it decides

in favor of a change, SBA will propose an appropriate change to this

part in accordance with proper rulemaking procedures.

Subpart H--Protests

Sec. 126.800 Who may protest the status of a qualified HUBZone SBC?

(a) For sole source procurements. SBA or the contracting officer

may protest the apparent successful offeror's qualified HUBZone SBC

status.

(b) For all other procurements. Any interested party may protest

the apparent successful offeror's qualified HUBZone SBC status.

Sec. 126.801 How does one submit a HUBZone status protest?

(a) General. The protest procedures described in this part are

separate from those governing size protests and appeals. All protests

relating to whether a qualified HUBZone SBC is a ``small'' business for

purposes of any Federal program are subject to part 121 of this title.

If a protest includes both the size of the HUBZone SBC and whether the

concern meets the HUBZone qualifying requirements set forth in

Sec. 126.200, SBA will process each protest concurrently, under the

procedures set forth in part 121 of this title and this part.

(b) Format. Protests must be in writing and state all specific

grounds for the protest. A protest merely asserting that the protested

concern is not a qualified HUBZone SBC, without setting forth specific

facts or allegations, is insufficient.

(c) Filing. (1) An unsuccessful offeror must submit its written

protest to the contracting officer.

(2) A contracting officer and SBA must submit their protest to the

AA/HUB.

(3) Protestors may deliver their protests in person, by facsimile,

by express delivery service, or by U.S. mail (postmarked within the

applicable time period).

(d) Timeliness. (1) An interested party must submit its protest by

close of business on the fifth business day after bid opening (in

sealed bid acquisitions) or by close of business on the fifth business

day after notification by the contracting officer of the apparent

successful offeror (in negotiated acquisitions).

(2) Any protest received after the time limits is untimely.

(3) Any protest received prior to bid opening or notification of

intended award, whichever applies, is premature.

(e) Referral to SBA. The contracting officer must forward to SBA

any non-premature protest received, notwithstanding whether he or she

believes it is sufficiently specific or timely. The contracting officer

must send protests to AA/HUB, U.S. Small Business Administration, 409

3rd Street, SW, Washington, DC 20416.

Sec. 126.802 Who decides a HUBZone status protest?

The AA/HUB or designee will determine whether the concern has

qualified HUBZone status.

Sec. 126.803 How will SBA process a HUBZone status protest?

(a) Notice of receipt of protest. (1) SBA immediately will notify

the contracting officer and the protestor of the date SBA receives a

protest and whether SBA will process the protest or dismiss it in

accordance with Sec. 126.804.

(2) If SBA determines the protest is timely and sufficiently

specific, SBA will notify the protested HUBZone SBC of the protest and

the identity of the protestor. The protested HUBZone SBC may submit

information responsive to the protest within 5 business days.

(b) Time period for determination. (1) SBA will determine the

HUBZone status of the protested HUBZone SBC within 15 business days

after receipt of a protest.

(2) If SBA does not contact the contracting officer within 15

business days, the contracting officer may award the contract, unless

the contracting officer has granted SBA an extension.

(3) The contracting officer may award the contract after receipt of

a protest if the contracting officer determines in writing that an

award must be made to protect the public interest.

(c) Notice of determination. SBA will notify the contracting

officer, the protestor, and the protested concern of its determination.

(d) Effect of determination. The determination is effective

immediately and is final unless overturned on appeal by the ADA/

GC&8(a)BD, pursuant to Sec. 126.805. If SBA upholds the protest, SBA

will de-certify the concern as a qualified HUBZone SBC. If SBA denies

the protest, after considering the merits of the protest, SBA will

amend the date of certification on the List to reflect the date of

protest decision.

Sec. 126.804 Will SBA decide all HUBZone status protests?

SBA will decide all protests not dismissed as premature, untimely

or non-specific.

Sec. 126.805 What are the procedures for appeals of HUBZone status

determinations?

(a) Who may appeal. The protested HUBZone SBC, the protestor, or

the

[[Page 16163]]

contracting officer may file appeals of protest determinations with

SBA's ADA/GC&8(a)BD.

(b) Timeliness of appeal. SBA's ADA/GC&8(a)BD must receive the

appeal no later than 5 business days after the date of receipt of the

protest determination. SBA will dismiss any appeal received after the

5-day period.

(c) Method of submission. The party appealing the decision may

deliver its appeal in person, by facsimile, by express delivery

service, or by U.S. mail (postmarked within the applicable time

period).

(d) Notice of appeal. The party bringing an appeal must provide

notice of the appeal to the contracting activity contracting officer

and either the protested HUBZone SBC or original protestor, as

appropriate.

(e) Grounds for appeal. (1) SBA will re-examine a protest

determination only if there was a clear and significant error in the

processing of the protest or if the AA/HUB failed completely to

consider a significant fact contained within the information supplied

by the protestor or the protested HUBZone SBC.

(2) SBA will not consider additional information or changed

circumstances that were not disclosed at the time of the AA/HUB's

decision or that are based on disagreement with the findings and

conclusions contained in the determination.

(f) Contents of appeal. The appeal must be in writing. The appeal

must identify the protest determination being appealed and set forth a

full and specific statement as to why the decision is erroneous or what

significant fact the AA/HUB failed to consider.

(g) Completion of appeal after award. An appeal may proceed to

completion even after award of the contract that prompted the protest,

if so desired by the protested HUBZone SBC, or where SBA determines

that a decision on appeal is meaningful.

(h) Decision. The ADA/GC&8(a)BD will make its decision within 5

business days of its receipt, if practicable, and will base its

decision only on the information and documentation in the protest

record as supplemented by the appeal. SBA will provide a copy of the

decision to the contracting officer, the protestor, and the protested

HUBZone SBC, consistent with law. The ADA/GC&8(a)BD's decision is the

final agency decision.

Subpart I--Penalties

Sec. 126.900 What penalties may be imposed under this part?

(a) Suspension or debarment. The Agency Debarring Official may

suspend or debar a person or concern pursuant to the procedures set

forth in part 145 of this title. The contracting agency debarring

official may debar or suspend a person or concern under the Federal

Acquisition Regulation, 8 CFR part 9, subpart 9.4.

(b) Civil penalties. Persons or concerns are subject to civil

remedies under the False Claims Act, 31 U.S.C. 3729-3733, and under the

Program Fraud Civil Remedies Act, 31 U.S.C. 3801-3812, and any other

applicable laws.

(c) Criminal penalties. Persons or concerns are subject to severe

criminal penalties for knowingly misrepresenting the HUBZone status of

a small business concern in connection with procurement programs

pursuant to sec. 16(d) of the Small Business Act, 15 U.S.C. 645(d), as

amended; 18 U.S.C. 1001; and 31 U.S.C. 3729-3733. Persons or concerns

also are subject to criminal penalties for knowingly making false

statements or misrepresentations to SBA for the purpose of influencing

any actions of SBA pursuant to sec. 16(a) of the Small Business Act, 15

U.S.C. 645(a), as amended, including failure to correct ``continuing

representations'' that are no longer true.

Dated: March 26, 1998.

Aida Alvarez,

Administrator.

[FR Doc. 98-8585 Filed 4-1-98; 8:45 am]

BILLING CODE 8025-01-P