[Federal Register Volume 63, Number 125 (Tuesday, June 30, 1998)]
[Rules and Regulations]
[Pages 35726-35767]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-17196]
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SMALL BUSINESS ADMINISTRATION
13 CFR Parts 121, 124, and 134
Small Business Size Regulations; 8(a) Business Development/Small
Disadvantaged Business Status Determinations; Rules of Procedure
Governing Cases Before the Office of Hearings and Appeals
AGENCY: Small Business Administration.
ACTION: Final rule.
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SUMMARY: In response to President Clinton's government-wide regulatory
reform initiative, the Small Business Administration (SBA) amends both
the eligibility requirements for, and contractual assistance provisions
within, the SBA's 8(a) Business Development (8(a) BD) program. This
final rule changes the name of the program from the Minority Small
Business and Capital Ownership Development program to the 8(a) BD
program to better reflect the purpose of the program. This rule
streamlines the operation of the 8(a) BD program, eases certain
restrictions perceived to be burdensome on Program Participants,
clarifies certain eligibility requirements, and deletes obsolete
regulations.
DATES: Effective Date: This rule is effective on July 30, 1998.
Compliance Dates: Subpart A applies to all applications for the
8(a) Business Development program pending as of July 30, 1998 and all
8(a) procurement requirements accepted by SBA on or after July 30,
1998. These rules do not apply to any appeals pending before SBA's
Office of Hearings and Appeals. The revisions to 13 CFR part 121 apply
with respect to all solicitations issued on or after June 30, 1998.
Except for 13 CFR 134.408(c), the procedural revisions to 13 CFR part
134 apply to all appeals served or filed on or after June
[[Page 35727]]
30, 1998. 13 CFR 134.408(c) applies as of the publication to all
pending appeals before SBA's Office of Hearings and Appeals.
FOR FURTHER INFORMATION CONTACT: William A. Fisher, Acting Associate
Administrator for Minority Enterprise Development, at (202) 205-6412.
SUPPLEMENTARY INFORMATION: On March 4, 1995, President Clinton issued a
Memorandum to federal agencies, directing them to simplify their
regulations. In response to this directive, SBA completed a page-by-
page, line-by-line review of all of its then existing regulations to
determine which might be revised or eliminated. Revisions to 13 CFR
Part 124 awaited a review by the Department of Justice (DOJ) of all
Federal procurement affirmative action programs. On May 23, 1996, DOJ
published in the Federal Register a comprehensive proposal for
tailoring affirmative action programs in the Federal procurement arena
(see 61 FR 26042), and on May 9, 1997 the Department of Defense, the
General Services Administration, and the National Aeronautics and Space
Administration proposed amendments to the Federal Acquisition
Regulation (FAR) concerning programs for small disadvantaged business
(SDB) concerns. In response to and in conjunction with the DOJ and FAR
reform proposals, on August 14, 1997, SBA published in the Federal
Register, 62 FR 43584, a proposed rule to amend 13 CFR part 124.
Subpart A of the proposed part 124 dealt with changes pertaining to the
8(a) Business Development (8(a) BD) program which is authorized by
sections 7(j)(10) and 8(a) of the Small Business Act, 15 U.S.C.
636(j)(10), 637(a). Subpart B of proposed part 124 dealt with SBA's
role in the certification and protest of small disadvantaged
businesses, as contemplated by the DOJ and FAR proposals. During the
proposed rule's 60-day comment period, SBA received 95 timely comments,
the majority of which favored the proposed changes. This rule finalizes
subpart A of 13 CFR part 124 (its regulations relating to the SBA's
8(a) Business Development Program. SBA continues to consider issues
relating to subpart B of 13 CFR part 124, and will finalize those
regulations at a later time. This rule does not address any comments
made regarding subpart B of part 124 or SBA's response thereto.
A substantial number of commenters applauded SBA's effort to remove
duplicative provisions, and rewrite those that appeared wordy or
unclearly written. For the most part, the comments also supported the
substantive changes proposed by SBA. SBA received comments on many
aspects of the proposed rule. With the exception of comments which did
not set forth any rationale or make suggestions, SBA discusses and
responds fully to all the comments below.
In addition to the changes to 13 CFR part 124, the final rule also
makes changes to SBA's size regulations (part 121) to permit size
protests and appeals of Standard Industrial Classification (SIC) code
designations in connection with 8(a) competitive procurements, and to
exclude certain joint venture arrangements from SBA's affiliation
rules. These changes should increase the potential pool of small
businesses available to compete for particular procurements and should
encourage contracting officers to consider small business contractors
more closely before determining a procurement strategy. The final rule
also transfers the procedures relating to certain statutorily
authorized appeals in the 8(a) program from part 124 to part 134 of 13
CFR.
This final rule streamlines the operation of the 8(a) BD program,
eases certain restrictions perceived to be burdensome on Participants,
amends certain eligibility procedures, and deletes obsolete
regulations. It reorganizes the regulations into identifiable
substantive areas for ease of use and clarity. It also changes all
references to SBA's Office of Minority Small Business and Capital
Ownership Development to the Office of 8(a) Business Development to
emphasize that individuals participating in the program need not be
members of minority groups and to stress the importance of assisting
participating firms in their overall business development.
SBA has attempted to rewrite the regulations in plain English
wherever possible. To this end, SBA has written section headings in
question format for ease of use, and has eliminated unnecessary
verbiage from the regulations.
This rule amends eligibility procedures for admission to the 8(a)
BD program and also amends contractual assistance provisions within the
8(a) BD program. It eliminates the requirement that a Participant must
have specified SIC codes approved by SBA in its business plan in order
to be eligible for 8(a) contracts, establishes consistent remedial
measures for firms that do not meet their non-8(a) business activity
targets, eases certain joint venture restrictions, and establishes a
mentor/protege program for developing 8(a) Participants. This rule also
liberalizes the standard of review for non-group members seeking
disadvantaged status from a clear and convincing evidence test to a
preponderance of the evidence standard.
Summary of Comments and SBA's Response
Part 121: SBA received a substantial number of comments agreeing
with SBA's proposal to exclude certain joint venture arrangements from
the normal affiliation rules. This provision will encourage contracting
officers to use small business contractors to a greater extent. With
the consolidation of procurements becoming an increasing reality, some
contracting officers may feel that requirements are too big for a small
business to perform successfully. The proposed rule would have
permitted two or more small business concerns to joint venture for a
particular procurement and be considered a small business concern so
long as each concern individually was small. Several commenters
recommended that this provision be broadened to exclude affiliation
rules where there are ``teaming'' agreements as well. SBA concurs with
this recommendation, and has changed the rule accordingly.
Part 124, subpart A: Most of the comments received by SBA focused
on subpart A of part 124. The following analysis discusses each of the
significant comments received.
The proposed rule contained no provision for reporting changes that
would adversely affect a firm's eligibility, either during the
application stage or during a Participant's tenure in the program. As a
result of a number of comments, several new provisions have been
included in the regulation. Section 124.2 requires, in part, that a
Participant must maintain its program eligibility throughout its tenure
in the program and is obligated to inform SBA of any changes that would
adversely affect its program eligibility. To continue a firm's
participation in the program, Sec. 124.112 specifically reasserts this
obligation and Sec. 124.112(b)(2) requires program Participants as part
of their annual review to represent that no adverse change occurred or,
in the alternative, to describe any adverse changes that have occurred.
During the application stage, the 8(a) applicant is obligated to inform
SBA of any adverse changes that may have occurred since the actual
application.
Section 124.103(c) of the proposed rule stated that individuals who
are not members of designated socially disadvantaged groups must
establish individual social disadvantage by a ``preponderance of the
evidence.''
[[Page 35728]]
Previously, individuals not members of a designated group needed to
prove individual social disadvantage by ``clear and convincing''
evidence. SBA received many comments regarding the proposed change in
the evidentiary standard. The majority of commenters did not favor
changing the standard. SBA believes that all individuals who can show
that they have personally suffered social disadvantage, including women
and handicapped individuals, should be admitted to the 8(a) BD program,
and that the change in the evidentiary standard is necessary for
constitutional reasons. In response to the Supreme Court's decision in
Adarand Constructors, Inc. v. Pena, 115 Sup. Ct. 2097 (1995), which
requires programs to provide a race-based remedy to be ``narrowly
tailored,'' the Department of Justice recommended the ``preponderance
of the evidence'' standard for government-wide disadvantaged business
programs. SBA based the ``preponderance of the evidence'' standard on
the Department of Justice proposal, and continues to believe that the
use of this standard strengthens the defense of the 8(a) BD program.
Therefore, SBA retains the ``preponderance of the evidence'' standard
in the final rule. While the criteria for a case of individual social
disadvantage remains basically the same, the final rule changes the
evidentiary standard that must be shown to demonstrate an individual
case of social disadvantage. In assessing a claim of individual social
disadvantage, SBA will consider all relevant information submitted by
an applicant. Evidence which tends to show generalized patterns of
discrimination against a non-designated group or statistical data
showing that businesses owned by a specific non-designated group are
disproportionately underrepresented in a particular industry may be
used to augment an individual's case. Statistics and generalized
patterns are not sufficient by themselves to establish a case of
individual social disadvantage. However, an individual's statement of
personal experiences in combination with the generalized evidence may
be sufficient to demonstrate social disadvantage.
Proposed Sec. 124.103(d) stated that representatives of an
identifiable group whose members believe that the group has suffered
chronic racial or ethnic prejudice or cultural bias may petition SBA to
be included as a group presumed to be socially disadvantaged. One
commenter asked what the evidentiary standard should be for approval of
a designated group. As a result of this comment, Sec. 124.103(d)(1) of
the final rule provides that a preliminary showing must be made that
substantial evidence exists that a group meets the criteria to be
determined presumptively socially disadvantaged. Once this showing is
made, SBA will publish a notice for comment and, where deemed
appropriate, hold hearings and/or conduct its own research. After
completion of the process, SBA will determine whether a preponderance
of the evidence shows that the group meets the necessary criteria to be
considered presumptively disadvantaged.
Proposed Sec. 124.104, which set forth the factors to be reviewed
to determine the economic status of socially disadvantaged individuals,
clarified that a contingent liability does not reduce an individual's
net worth. A commenter remarked that contingent liabilities reduce
capital and credit opportunities and should be considered as reducing
net worth. SBA understands this possibility, but does not adopt the
comment. There are wide varieties of contingencies and their impacts on
credit opportunities. Moreover, individuals should not be permitted to
satisfy the net worth criterion by offering guarantees and indemnities
with remote possibilities of becoming actual liabilities.
Another commenter felt that Sec. 124.104 needed to set forth in
greater detail the criteria SBA uses to determine whether an individual
is economically disadvantaged. SBA will study this issue for possible
later revision.
Another commenter suggested that under Sec. 124.104, review of the
financial status of individuals claiming economic disadvantage should
be performed going back two years prior to application. This is already
addressed in two subsections of this section and no further provisions
are needed. Proposed Sec. 124.104(c) provides that SBA will take into
account the individual's personal income for the previous two years.
Proposed Sec. 124.104(c)(1) provides that SBA will attribute to an
individual claiming disadvantaged status any assets which that
individual has transferred to an immediate family member, or to a trust
a or beneficiary of which is an immediate family member, for less than
fair market value, within two years prior to a concern's application
for participation in the 8(a) BD program or within two years of a
Participant's annual program review, unless the individual claiming
disadvantaged status can demonstrate that the transfer is to or on
behalf of an immediate family member for that individual's education,
medical expenses, or some other form of essential support.
One commenter expressed concern that transfers of assets to family
members within two years prior to application should be objectionable
even if the transfer was ``for fair market value.'' The commenter felt
that sham transfers would be made to enable individuals to qualify as
economically disadvantaged under the thresholds. SBA has not adopted
this comment since, if a transferee received fair market value for an
asset, the transfer would be a sale, not a sham. As such, the transfer
would not distort a calculation of the transferor's net worth.
SBA had specifically requested comments on proposed Sec. 124.105,
seeking input on whether and under what circumstances trust
arrangements might be considered permissible without violating the
statutory requirement that an applicant or Participant must be at least
51 percent unconditionally owned by one or more socially and
economically disadvantaged individuals. SBA received several comments
on this issue. Upon further reflection, SBA has determined that
ownership of an 8(a) applicant or Participant by trusts that are the
functional equivalent of individuals, like living trusts, are
tantamount to individual ownership and should be permitted in the
program. One commenter noted that the IRS treats living trusts as
individuals for the purposes of income tax calculation, and urged SBA
to do the same. The SBA recognizes that an increasing number of
entrepreneurs are using such vehicles for tax and estate planning
purposes. Therefore, a provision making certain trusts eligible for
8(a) participation has been included in Sec. 124.105(a). The new
provision states that an 8(a) BD concern owned by a trust is considered
to be directly owned by a disadvantaged individual if the trust is
revocable and the disadvantaged individual is also the grantor, a
trustee and the sole current beneficiary of the trust.
Section 124.105(h) of the proposed rule set forth certain ownership
restrictions for non-disadvantaged individuals and concerns. Proposed
Sec. 124.105(h)(1) stated that a non-disadvantaged individual or a non-
Participant concern that owns a 10 percent or greater interest in a
Participant as a general partner or stockholder may not own more than a
10 percent interest in another Participant. Proposed Sec. 124.105(h)(2)
stated that a non-Participant concern in the same or similar line of
business may not own more than 10 percent in a current Participant, and
a former
[[Page 35729]]
Participant in the same or similar line of business may not own more
than 20 percent in a current Participant. Five commenters disagreed
with these restrictions. They felt they were unnecessary and would
place extra burdens on 8(a) firms that non-8(a) firms do not have. Most
felt that if SBA determines that the firm is 51 percent owned, managed
and controlled by a disadvantaged individual, no other ownership
restrictions should apply. Two commenters pointed out that the
regulation as proposed would hinder the firm's access to capital. The
commenters pointed out that access to money is necessary to make the
transition into the competitive market place. In response to these
comments, the SBA has revised its regulations to raise the percentages
that non-disadvantaged individuals, non-disadvantaged firms and former
8(a) firms may own in an 8(a) Participant in the transitional stage of
program participation. With respect to a firm in the transitional stage
of 8(a) program participation, the final rule states that (1) a non-
disadvantaged individual or a non-Participant concern with at least a
10 percent ownership interest in another Participant may own up to a 20
percent interest; (2) a non-disadvantaged individual or concern in the
same or similar line of business may own up to a 20 percent interest;
and (3) a former 8(a) Participant may own up to a 30 percent interest.
Percentages of ownership for firms in the developmental stage of
program participation are not changed in this rule. SBA's decision to
ease the current restrictions on ownership of an 8(a) BD concern should
improve access to sources of capital. SBA decided not to raise the
percentages higher than 20 and 30 percent at this time due to its
continued concern over program abuse through the possible establishment
of fronts. SBA will continue to monitor this section of the rule and
may adjust the percentages further in the future if it deems it
appropriate to do so.
Section 124.105(i) contains standards for obtaining SBA approval of
a change in a Participant's ownership. Several commenters expressed
concern that a time limit should be imposed on SBA to approve or
decline change of ownership requests. The final rule provides that the
AA/8(a)BD will issue a decision within 60 days of receipt by the Agency
of a request containing all necessary documentation, and that the
decision of the AA/8(a)BD will be the final Agency decision. The final
rule further provides that the denial of a request for a change of
ownership may be grounds for program termination if the change is
nonetheless completed.
The preamble to the proposed rule solicited comments on a proposal
to use suspension as a tool to allow time for an SBA inquiry into a
Participant's change of ownership or control. No negative comments were
received relating to this issue. Commenters who did address the matter
approved of such use, providing that SBA would restore the length of
the suspension to the firm's program term if the change is ultimately
approved. As a result of the comments, SBA has revised Sec. 124.105(i).
As revised, Sec. 124.105(i) provides that, where a Participant requests
a change of ownership or business sture, and the che change has already
occurred, SBA will suspend the Participant pending a decision on the
request. If the change is approved, the SBA will restore the length of
the suspension to the Participant's program term where the change in
ownership results from the death or incapacity of a disadvantaged
individual, or where the firm requested prior approval and waited 60
days for SBA approval before making the change. SBA will not restore
the length of a suspension for any firm that did not request a change
in ownership prior to making the change (except, as noted, for a change
due to death or incapacity). This provision has also been added to
Sec. 124.305 governing suspensions.
The proposed regulation regarding suspension (Sec. 124.305) has
been modified to clarify the jurisdiction of the Office of Hearings and
Appeals and the standard of evidence necessary for SBA to sustain its
suspension action. The proposed rule stated that SBA has the burden of
showing that ``substantial'' evidence exists in support of at least one
of the grounds for termination cited in the Letter of Intent to
Terminate. SBA has decided not to adopt this new standard in the final
rule. The final rule provides that SBA is required to show only that
``adequate'' evidence exists in support of a least one of the grounds
for termination. The final rule defines the term ``adequate evidence''
as information sufficient to support the reasonable belief that a
particular act or omission has occurred. This definition is adopted
from Sec. 9.403 of Title 48 of the Code of Federal Regulations.
Section 124.305 has also been amended to provide that, unless the
Administrative Law Judge consolidates the suspension and termination
proceedings, the review must be limited to determining whether the
government's interest needs protection. SBA's Office of Hearings and
Appeals (OHA) may not review the grounds for termination under a
suspension action.
A commenter questioned whether proposed Sec. 124.105(i) conflicts
with the requirement in Sec. 124.515 that a change in ownership of an
8(a) BD concern requires a waiver from SBA for the Participant to
continue performing on an 8(a) contract. Section 124.105(i) allows
continued performance of a contract without a waiver if a disadvantaged
individual is substituted for another, with SBA approval before the
change is implemented. SBA requires waivers under Sec. 124.515 only
where ownership of an 8(a) Participant would be changed to an extent
that the 8(a) BD concern would be no longer at least 51 percent owned
by one or more disadvantaged individuals. If SBA does not approve a
change in ownership because it determines that the acquiring individual
is not disadvantaged or that the firm as structured after the change is
no longer owned and controlled by disadvantaged individuals, then the
firm must seek a waiver under Sec. 124.515 in order to continue to
perform any of its 8(a) contracts.
Proposed Sec. 124.106 explained the concept of control and the
factors which SBA looks at to determine who controls an 8(a) BD
concern. Several commenters raised issues of control where a non-
disadvantaged individual held a critical license. SBA does not believe
that the mere fact that a non-disadvantaged employee who is not also an
equity owner of the firm holds a critical license would cause the
disadvantaged principal(s) to lose control. In such a case, the
disadvantaged principal(s) must demonstrate their management expertise
and the right to replace the non-disadvantaged employee at any time
with another technical employee. However, SBA agrees that the situation
is much more complicated where the non-disadvantaged individual who
holds a critical license is also an equity owner of the firm. The final
rule permits SBA to find negative control where a non-disadvantaged
owner holds a critical license. The burden is on the applicant or
Participant to demonstrate that control is in the hands of one or more
disadvantaged individuals. The final rule provides that an individual
need not have the technical expertise or possess a required license to
be found to control an applicant or Participant if he or she can
demonstrate that he or she has ultimate managerial and supervisory
control over those who possess the required licenses or technical
expertise. SBA recognizes that failure to possess technical expertise
or a required license are factors that may be considered in evaluating
the disadvantaged
[[Page 35730]]
individual's control of the concern, but that such circumstances are
not dispositive.
One commenter suggested that 8(a) concerns be allowed to own
subsidiary concerns without being in violation of the requirement under
proposed Sec. 124.106(a)(3) that an owner of an 8(a) concern devote
full time to management of the concern. SBA's policy is to allow such
ownership since working with the subsidiary indirectly advances the
interests of the 8(a) concern. Therefore, a provision expressly
allowing such ownership has been added to Sec. 124.106(a)(3). However,
this exception does not change the general requirement that an owner of
an 8(a) concern devote full time to manage the concern.
A few commenters requested that some flexibility be given to the
requirement under Sec. 124.106(a)(3) that a disadvantaged individual
who manages the Participant concern must devote full-time to the
business during normal working hours. As stated in the preamble to the
proposed regulations, this requirement is not intended to prevent such
individual from spending normal business hours away from the premises
in such areas as marketing and outreach that benefit the concern. The
rule does not imply that business activities could not be conducted by
such individual outside the office. It does, however, prohibit such
individual from being physically located at a site on a continuing
basis which is separate and distinct from the Participant concern
during normal business hours, despite any claim that he or she is
managing the concern from that location. SBA believes it is important
for the growth and development of the 8(a) BD concern that the
disadvantaged individual who manages the concern devote full time to
such management. Therefore, SBA makes no change to the final rule.
The proposed regulations continued SBA's current approach and
required that disadvantaged individuals have majority control of the
board of directors. Some commenters felt that this requirement did not
reflect business practice in the corporate world. One commenter felt
that, particularly in smaller corporations, the sole shareholder or the
majority shareholder virtually always controls the board of directors.
This control stems from his or her ability to replace directors at
will. The commenter recognized, however, that in rare situations the
sole or majority owner might not control the board, such as where
directors have fixed terms and cannot be removed before the end of such
terms. In addition, SBA notes that cumulative voting practices and
super majority requirements (i.e., any provisions requiring more than a
simple majority vote) may make it difficult for a shareholder owning
only 51% of a corporate concern to control the board of directors of
that concern. Likewise, where more than one disadvantaged owner is
involved, voting rights and control of the board of directors is harder
to pinpoint. As such, SBA accepts this comment to a point. The final
rule gives several alternatives for finding control by disadvantaged
individuals of the board of directors. Where a single disadvantaged
individual owns 100% of an applicant or Participant, SBA deems that
individual to control the board of directors, and no further analysis
is needed. Where a single disadvantaged individual owning less than
100% seeks to qualify a concern, SBA deems that individual to control
the board of directors where he or she owns at least 51% of the concern
or, where the concern has super majority voting requirements, that
percentage of ownership needed to overcome any such super majority
ownership requirements, and he or she is on the board of directors. The
applicant will be required to inform SBA of any super majority voting
requirements provided for in its articles of incorporation, its by-
laws, or by state law. Thus, the disadvantaged owner is able to convene
a shareholder's meeting, change corporate by-laws and articles of
incorporation, and change directors on the board at will. In such a
case, SBA will not look at the makeup of the board of directors for
determining control of the firm (although SBA will continue to examine
the character of directors). Where more than one disadvantaged owner
seeks to qualify an applicant or Participant (i.e., no one individual
owns 51%) and each such individual is on the board of directors, SBA
deems those individuals to control the board of directors where
together they own at least 51% of the concern or, where the concern has
super majority voting requirements, that percentage of ownership needed
to overcome any such super majority ownership requirements, and they
can demonstrate that they have made arrangements to overcome any
potential stalemates and that they have the comparable ability of a
single majority owner to act quickly. For example, where a concern has
three disadvantaged individuals each owning 17%, SBA will deem the
individuals to control the board of directors without looking at the
board's make-up if two of the three individuals have given their voting
rights to the third individual. Where an applicant or Participant
cannot demonstrate the ability for a disadvantaged individual to act
quickly to replace members of the board of directors, SBA will look at
the composition of the board of directors and will apply the current
board of directors control requirements to the concern. The concern
must meet the current requirement that one or more disadvantaged
individuals must control the board of directors through numbers of
individuals on the board or, where permitted by state law, through
weighted voting.
Numerous commenters expressed concern that, with the lowering of
the evidentiary standard for eligibility in cases of individual social
disadvantage, there would be a greater need to police fraud in the
program application process. Many warned of potential front situations
involving the transfer of ownership and/or control of the applicant
firm from one family member to another. This final rule addresses these
issues at several points. Section 124.106(f) provides that if a non-
disadvantaged individual transfers majority ownership or control of the
applicant firm to a family member within two years of the date of
application while remaining an owner, officer, director or key employee
of the company, the non-disadvantaged individual will be presumed to
control the company. As noted above, the final rule also requires
program applicants (Sec. 124.204(d)) and Participants (Sec. 124.112(b))
to inform SBA of any changes that would adversely affect their
eligibility. Failure to inform SBA of these adverse changes, or falsely
certifying that no adverse changes exist, are grounds for denial of
entry into the program or, if concern is a already a program
Participant, grounds for termination from the program.
Proposed Sec. 124.107 set forth the requirement that an 8(a) BD
applicant must possess potential for success in competing in the
private sector. One commenter questioned whether an 8(a) applicant that
can meet the requirements under Sec. 124.107(b)(iii) and (iv), needs
8(a) BD assistance. These subsections provide that if an applicant to
the 8(a) BD program does not meet the requirement that it has been in
business in its primary industry classification for at least two full
years prior to applying, this requirement may be waived if certain
conditions are met. In 1990, Congress passed legislation that would
allow concerns to waive the two year rule after satisfying five
conditions. See The Small Business Administration Reauthorization and
Amendments Act
[[Page 35731]]
of 1990, Pub. L. No. 101-574 Sec. 203(b)(1), 104 Stat. 2814, 2818-2819
(1990). SBA adopted the same five conditions for waiver in the 8(a)
regulations, but has clarified that applicants will be assessed in the
context of their proposed participation in the program.
As indicated above, several commenters expressed a need for greater
oversight by SBA during the application process to prevent fraud. SBA
notes that provisions included in the proposed regulations at
Sec. 124.108(a)(5) provide that SBA may decline an application due to
the submission of false information. SBA may also terminate a firm from
the program under Sec. 124.303(a)(1)(15) if it discovers later that the
Participant falsified information in its application. SBA retains these
provisions in the final rule.
Proposed Sec. 124.108(a) provided that SBA could exclude firms from
program participation for lack of good character in circumstances where
there was credible evidence of criminal activity. Upon further internal
deliberation, the final rule significantly expands and clarifies
Sec. 124.108(a). SBA will also find a firm ineligible for the 8(a) BD
program if it or one of its principals (1) lacks integrity as
demonstrated by information related to an indictment, guilty plea,
conviction, civil judgment or settlement; (2) is currently
incarcerated, or on parole or probation pursuant to a pre-trial
diversion or following conviction for a felony or any crime involving
business integrity; or (3) has knowingly submitted false information as
part of the application for program admission. This clarification and
expansion of the definition of good character reinforces the concept of
business character as a requirement for program eligibility. It also
promotes greater consistency between the eligibility requirements in
this section and the grounds for termination in Sec. 124.303(a).
Several commenters believed that payment of obligations to the
Federal government should be included as an element of good business
character under Sec. 124.108(a). Failure to pay significant obligations
owed to the Federal Government is already a basis for program
termination under Sec. 124.303(a)(11). Additionally, the existence of
defaults resulting in a loss on a federal loan or federally assisted
financing has long been a reason for denying financial assistance in
other SBA programs. See 13 CFR Sec. 120.110. For these reasons, SBA has
added a new paragraph (e) to Sec. 124.108, providing that any firm or
principal that fails to pay significant financial obligations owed to
the Federal Government is not eligible for admission to the 8(a) BD
program.
Section 124.108(f) of the proposed rule defined a ``broker'' as a
concern that adds no value to an item being supplied to a procuring
activity. One commenter suggested that the definition of broker be
expanded to provide that a company would not be considered a broker if
it purchased and shipped an item, despite the fact that purchasing and
shipping do not technically ``add value'' to an item. SBA concurs that
the proposed language did not adequately capture the meaning of the
term ``broker.'' SBA has, therefore, added language to Sec. 124.108 to
refine the definition of a broker. The final rule (Sec. 124.108(d))
provides that a broker is a concern that adds no material value to an
item being supplied to a procuring activity or which does not take
ownership or possession of or handle the item being procured with its
own equipment or facilities. This definition of ``broker'' is specific
to this rule. Some firms which refer to themselves as brokers in their
line of business may not be ineligible for 8(a) participation as
``brokers'' under this rule.
The final rule also clarifies the provision restricting a tribe's
(or an ANC's) ability to own more than one firm in the 8(a) program
doing the same work. Section 124.109(c)(3)(ii) specifies that a tribe
may own a Participant or an applicant that conducts or will conduct
secondary business in the 8(a) BD program under the same SIC code that
a current Participant owned by the tribe operates in the 8(a) BD
program as its primary SIC code. In other words, SBA will not deny an
application from a tribally-owned concern where the application plans
to do some work (but not its primary work) in the same SIC as another
8(a) firm owned by the tribe. The final rule makes this same
clarification for CDCs and Native Hawaiian Organizations as well. See
Secs. 124.110(c) and 124.111(d), respectively.
Proposed Sec. 124.112 listed the criteria Participants must meet in
order to remain eligible for the 8(a) BD program. One commenter
suggested that if SBA determines that a Participant is no longer
eligible for the 8(a) BD program under Sec. 124.112, that the
Participant be allowed to respond to the factors supporting
ineligibility even before SBA initiates early graduation or termination
proceedings under Sec. 124.302 and Sec. 124.303, respectively. If SBA
initiates such proceedings, the Participant now has 30 days to respond
to SBA under Sec. 124.304(b). SBA believes these procedures give the
Participant an adequate opportunity to respond on the issue of
continued eligibility.
Another commenter recommended that a Participant which obtains an
SBA loan should not thereby be considered to have ``access to credit''
under Sec. 124.112 such that the socially disadvantaged individuals are
no longer considered economically disadvantaged. Since this is already
SBA's policy, no change to the regulation is necessary.
One commenter felt that requiring certification of the transfer of
assets to family members under Sec. 124.112(b)(4) would penalize
individuals for making gifts to their families and would serve no
legitimate purpose. SBA does not intend that each disadvantaged owner
report every gift made to his or her family members. SBA is merely
trying to determine if an individual has transferred significant assets
to his or her family members in order to remain eligible for the
program (i.e., in order to remain ``economically disadvantaged'').
Where the individual retains some use or enjoyment of the asset
transferred (e.g., real estate is ``transferred'' to a spouse and the
individual continues to have access to it; a piece of art is
``transferred'' to a family member, but continues to be displayed in
the individual's residence), SBA will attribute the asset back to the
disadvantaged individual for purposes of determining his or her
continued economic disadvantage status. Where the individual
demonstrates that the transfer is an irrevocable transfer as to which
the disadvantaged individual retains no use or enjoyment (e.g., the
one-time transfer of funds to an adult child to assist the child's
purchase of a residence), the asset will not be attributed back to the
disadvantaged individual. In addition, Sec. 124.104(c)(1)(ii) of the
final rule specifies that SBA will not attribute to an individual
claiming disadvantaged status any assets transferred by that individual
to an immediate family member that are consistent with the customary
recognition of special occasions, such as birthdays, graduations,
anniversaries, and retirements. This does not mean that an individual
claiming disadvantaged status may transfer unreasonably large funds or
other assets to an immediate family member and claim that it should not
be attributed back to him or her because the transfer was, for example,
a birthday present. The funds or assets transferred must be reasonable
and within customary limits for the occasion.
Another commenter suggested that SBA also attribute back to the
disadvantaged transferor all transfers to
[[Page 35732]]
non-family members for less than fair market value. SBA does not adopt
this suggestion. Such a rule could discourage, for example, an
irrevocable charitable transfer of assets. SBA notes that if an asset
is transferred subject to a retained interest or a remainder, then the
present value of the retained interest will continue to be counted as
an asset in determining the donor's net worth. As such, there is no
need to impose further restrictions or requirements on these transfers.
A few commenters noted that language in proposed Sec. 124.112,
concerning the continuing eligibility of businesses in the 8(a) BD
program, inadvertently requires concerns owned by Alaska Native
Corporations (ANCs) to comply with Secs. 124.101 through 124.108. SBA
has revised Sec. 124.112 to correct this error. In addition, this
section has been revised to address the continuing eligibility of
concerns owned by Indian tribes, Native Hawaiian Organizations and
Community Development Corporations (CDCs).
With respect to the new mentor/protege program, one commenter
suggested that SBA should measure the performance of the mentor and
benefits of the program. SBA has adopted this suggestion by revising
Sec. 124.112(b) to require from protege firms a narrative report on the
program as part of their annual report. SBA has also revised
Sec. 124.520 to provide specific standards for SBA reviews of mentor/
protege relationships.
Proposed Sec. 124.112(c) set forth examples under which SBA may
determine that a socially disadvantaged individual is no longer
economically disadvantaged. One commenter noted that the proposed rule
referred to the economic status of the 8(a) BD Participant, rather than
the disadvantaged individual. This error has been corrected in the
final regulations, and language has been added to clarify that the
economic status of the Participant may be considered in analyzing the
status of the individual.
Proposed Sec. 124.204 set forth the process of applying to the 8(a)
BD program. Proposed Sec. 124.204(b) stated that eligibility for the
program is based on the circumstances existing on the date of
application, but that SBA may request clarification of information in
the application. Several commenters felt that this was too harsh and
that concerns which might easily be eligible for the program would not
be allowed the chance to make simple changes in order to be eligible.
While SBA understands the desire an applicant would have to be able to
change its application at any point in time in order to come into
compliance with SBA's requirements during the application process, SBA
believes that it is more important for reviewers not to have an
application that is an ever-changing moving target. In addition, SBA
notes that the applicant still has its right to request reconsideration
of an initial decline letter and it is free to make any changes in its
application at that time.
Proposed Sec. 124.302 of the regulations set forth the criteria for
early graduation. A Participant could be graduated early if it either
successfully completes the program prior to the end of its program term
or if one or more of the disadvantaged owners are no longer
economically disadvantaged. Some commenters felt that successful firms
would be penalized for their success if they were graduated before the
expiration of their 9 year term. Although SBA is authorized to graduate
firms that meet their business objectives early, this process is at the
discretion of the Administrator. Early graduation is not an automatic
process. Only Participants that show sufficient competitive strength
and viability to compete successfully outside the program will be
subject to early graduation. Once they show such strength and
viability, their need for continued participation in the program has
ended. Accordingly, SBA has retained these provisions in the final
rule.
One commenter suggested that SBA should graduate Participants early
when the Participants have demonstrated the ability to compete in the
marketplace without assistance under the 8(a) BD program, whether or
not they have achieved the targets, goals and objectives set forth in
their business plans. SBA believes that this recommendation is contrary
to the Small Business Act. The Small Business Act authorizes SBA to
graduate Participants early only under limited circumstances, among
them where a Participant has successfully completed the program by
substantially achieving its targets, goals and objectives. SBA
understands the concerns of the commenter, and will take efforts to
ensure that the targets, goals and objectives in the business plans are
realistic and appropriate.
Section 124.303(a) of the proposed rule provides for early
termination from the 8(a) program prior to the expiration of a
concern's Program Term for good cause. Section 124.303(a)(13) lists, as
an example of good cause, excessive transfers of funds or other
business assets hindering development of the concern, and excessive
withdrawals from the concern for the personal benefit of any of its
owners or any entity affiliated with the owners. Several commenters
were concerned with SBA labeling withdrawals ``excessive'' without
reviewing the totality of the circumstances. Section 124.112(d)(3)
defines as excessive those withdrawals during any one fiscal year of a
Participant that exceed $150,000 for firms with sales up to $1,000,000;
$200,000 for firms with sales between $1,000,000 and $2,000,000; and
$300,000 for firms with sales over $2,000,000. The regulation permits
SBA to terminate the concern for good cause for such withdrawals.
However, it does not state that SBA will automatically terminate the
concern. SBA realizes that some withdrawals above the ``excessive''
guidelines are not excessive in light of the totality of the
circumstances. SBA decides terminations on a case-by-case basis and
always considers the totality of the circumstances beforehand.
Nonetheless, the final rule clarifies that SBA will presume to be
excessive all withdrawals exceeding the specified amounts.
The final rule changes Sec. 124.303 to add clarity and to eliminate
redundancy. Proposed Sec. 124.303(a)(18) stated that a suspension or
revocation of any license required to run the business is good cause
for termination. SBA has deleted this paragraph and transferred its
substance to Sec. 124.303(a)(12). Section 124.303(a)(12) of the final
rule now lists as a ground for termination the failure to keep
licenses, charters and permits current.
SBA received several comments concerning the application of
benchmarks to the 8(a) BD program. This application is based on the DOJ
review of Federal procurement affirmative action programs and the
Government-wide SDB program. Because this rule is not finalizing SBA's
implementation of the SDB program at this time, it eliminates all
references to benchmarks from the 8(a) regulations (i.e, subpart A).
SBA has changed many of the 8(a) contracting sections as a result
of the comments. It has amended the general provisions in proposed
Sec. 124.501 in several respects. The final rule eliminates proposed
paragraph (d) of Sec. 124.501 as unnecessary, and renumbers proposed
paragraphs (e) and (f) as paragraphs (d) and (e) respectively. That
paragraph had clarified that a concern's success in meeting its support
level would not preclude future 8(a) BD contract awards. Although SBA
thought this clarification necessary at the time the regulations were
originally amended to permit 8(a) concerns to exceed their support
levels, SBA believes that that need no longer exists.
[[Page 35733]]
One commenter requested clarification concerning the purpose of
delegating contract execution authority. The primary purpose behind
such delegation is improved efficiency. Procuring activities can award
contracts much more quickly and efficiently with such authority and
may, therefore, see more opportunities for making use of the 8(a) BD
program.
A sentence was added to proposed Sec. 124.501 to provide that,
where practicable, simplified acquisition procedures should be used for
8(a) contracts at or below the simplified acquisition threshold. This
change conforms SBA's regulations to the Federal Acquisition Regulation
(FAR) governing simplified acquisition procedures (48 CFR Part 13) and
promotes efficiency and economy. SBA has also amended its rule,
including Sec. 124.501(e), to change the term ``procuring agency'' to
``procuring activity,'' thus identifying correctly the Government
contracting entity referenced. Since Federal contracting is frequently
performed at the sub-Agency level, using the term ``procuring agency''
did not cover every entity that may enter into an 8(a) contract.
As a result of the comments, SBA added a new paragraph (f) to
provide that an 8(a) Participant that identifies a requirement should
request SBA to contact the procuring activity to request that the
requirement be offered to the 8(a) program.
Proposed Sec. 124.502 addressed offers of procurements to the 8(a)
BD Program. SBA has amended its proposed Sec. 124.502(a) to provide
that a procuring activity may transmit an offering letter to SBA by
electronic mail, if available, or by facsimile transmission, mail or
commercial delivery service. This conforms the rule to the simplified
acquisition procedures contained in the FAR and helps ensure that
procuring activities can award small contracts expeditiously. SBA has
amended its proposed Sec. 124.502(b) to provide that, in cases where
performance of a construction contract is to take place overseas, the
contract should be offered to the Office of 8(a) BD located in SBA
Headquarters.
One commenter asked why SBA verified the size of an 8(a) concern
prior to accepting a sole source contract on its behalf since self-
certification is accepted in every other case. SBA performs this
function for sole source awards since there is no mechanism in place
for protesting a concern's size in reference to a sole source award.
Thus, there is no other check to ensure that concerns in line for award
of sole source contracts are in fact small for such contracts.
Moreover, since sole source awards are significant benefits, enabling
firms to receive contracts without having to compete with other firms,
it is particularly important that eligibility, including size, is
verified.
Proposed Sec. 124.503 set forth the procedures for accepting a
requirement for the 8(a) BD Program. This rule amends Sec. 124.503(a)
to provide that, where a contract is valued at or below the simplified
acquisition threshold, SBA will accept or reject the requirement within
two days of receipt of the offer. In cases where the offer is made on
behalf of a particular Program Participant, if SBA does not accept or
reject the requirement or request an extension within two days, the
procuring activity may assume that the offer has been approved and go
forward with the award. SBA intends this change to conform to the
simplified acquisition procedures contained in Part 13 of the FAR and
to promote efficiency. This final rule also makes a significant change
to promote efficiency where SBA has delegated its 8(a) contract
execution functions to an agency and a procuring activity within that
agency has a procurement requirement whose value is less than the
Simplified Acquisition Procedures (SAP) threshold amount. In such case,
this rule authorizes SBA, in its discretion, to permit the procuring
activity to award an 8(a) contract under the SAP threshold amount
without sending an offering letter to SBA and without receiving SBA's
official acceptance of the requirement for the 8(a) program.
A number of comments requested clarification of the treatment of
multiple award and federal supply schedule contracts. SBA has added a
paragraph to Sec. 124.503 setting forth the standards to be applied to
these types of contracts. Since, unlike Basic Ordering Agreements
(BOA's), multiple award schedule contracts and federal supply schedule
contracts are contracts, a new task order under such a contract will
not require a new offer and acceptance. Likewise, if a concern
qualifies for award of a multiple award schedule or federal supply
schedule contract in terms of eligibility and size, it will not be
denied future task orders on that contract if it subsequently grows
large. Finally, if a multiple award schedule or federal supply schedule
contract was competed when awarded, subsequent task orders under such
contract will not require further competition under Sec. 124.506.
As a result of the comments, SBA has added a new paragraph (i) to
clarify that where SBA has delegated its 8(a) contract execution
authority to a procuring activity, the procuring activity must still
offer and SBA must accept all requirements intended to be awarded as
8(a) contracts. The only exception to the normal offer and acceptance
process is that identified above where a procurement requirement is
less than the SAP threshold amount and SBA has specifically authorized
(through the Memorandum of Understanding delegating its contract
execution functions or otherwise) a procuring activity to dispense with
offer and acceptance.
Proposed Sec. 124.504 set forth the circumstances limiting SBA's
ability to accept a procurement for award as an 8(a) contract. In
response to comments identified below, this final rule specifically
authorizes the use of SAP in connection with 8(a) contract awards, and
requires SBA to review offering letters for requirements under SAP in
an expedited two-day time frame. In order to meet this quick acceptance
turn around, SBA has decided not to consider adverse impact in
connection with a requirement offered under SAP. It is not feasible for
SBA to obtain current financial statements from affected small
businesses and to make adverse impact determinations within two days.
However, because the SAP threshold is $100,000, SBA believes that
adverse impact should not be a real factor with these smaller
contracts, and that this change should not have a harmful effect.
Proposed Sec. 124.504(e) (Sec. 124.504(d) in the final rule)
concerned the release of a procurement for non-8(a) competition. One
commenter pointed out that the language in proposed Sec. 124.504(e)(3)
was misleading. That language provided that if SBA declines to accept
an offer and releases the requirement, it will recommend to the
procuring agency that the requirement be procured as a small business
or SDB set-aside. The commenter correctly pointed out that SDB set-
asides are not authorized at this time. SBA has, therefore, amended
this paragraph to provide that if SBA declines to accept an offer for
the 8(a) program, it will recommend that the requirement be procured as
a small business or, if authorized, SDB set-aside.
One commenter suggested that industries for which SBA has elected
not to accept requirements should be listed on SBA's website. SBA is
considering adopting this idea; however, it need not revise its
regulations to adopt this policy. Another commenter recommended that
firms that have graduated be permitted to compete for follow-on
contracts where the firm had been awarded the original
[[Page 35734]]
contract. Applicable law precludes SBA from making this change.
A number of commenters requested additional procedures to protect
the rights of small firms which could be adversely impacted by a
decision to accept an award for the 8(a) BD program. SBA carefully
considered these comments and weighed them against the need of
procuring activities for prompt award of contracts. SBA determined that
the current procedures were sufficient to ensure that small businesses
performing contracts are not unduly harmed by the acceptance of an
award for the 8(a) program.
Proposed Sec. 124.506 provided that 8(a) procurements above certain
dollar thresholds must be competed among eligible Participants. A
number of commenters requested that the competitive thresholds be
lowered. These thresholds were set by statute and, therefore, may not
be lowered by SBA.
One commenter requested clarification concerning how the thresholds
are applied to indefinite delivery/indefinite quantity (ID/IQ)
contracts. The commenter asked whether the total value of such
contracts would be the value of what the procuring activity actually
expects to order or the maximum ordering amount it may order. SBA
considers the maximum ordering amount to be the total value of the
contract for purposes of determining whether a particular ID/IQ
contract must be competed. As a result of this comment,
Sec. 124.506(a)(2) has been amended to provide that for indefinite
delivery or indefinite quantity type contracts, the thresholds are
applied to the maximum order amount authorized.
Language was mistakenly included in proposed Sec. 124.507(c) which
referred to limiting competitions to the transitional stage of program
participation. SBA has eliminated this language in the final rule,
since it does not restrict competitions to the transitional stage.
One commenter objected to the language in proposed
Sec. 124.506(c)(3) requiring SBA to deny a request to compete a
requirement under the competitive thresholds where the request is made
following the inability of the procuring activity and the potential
sole source awardee to reach an agreement on price or some other
material term or condition. The commenter pointed out that this
provision unnecessarily restricts the flexibility of the Federal
Government. SBA agrees with this comment and has amended this paragraph
to provide only that SBA may deny a request under such circumstances.
A number of commenters objected to SBA's proposal to eliminate its
authority to award an 8(a) contract above the competitive threshold on
a sole-source basis where there is only one eligible firm capable of
performing the requirement. As a result of the comments, SBA has added
this provision back to the regulations at Sec. 124.506(d).
Proposed Sec. 124.507 set forth the procedures applicable to
competitive 8(a) contracts. One commenter objected to the elimination
of the requirement that a firm must obtain SBA approval to do business
under a particular SIC code. SBA has considered this comment, but has
rejected it. After several years of experience, SBA believes that the
burden on an 8(a) Participant to obtain SBA approval for every SIC code
under which the Participant might want to perform contracts hinders
more than helps the Participant's business development. Moreover, the
procuring activity's determination that a particular 8(a) Participant
is responsible to perform a given contract should suffice to prevent
firms from brokering contracts or from competing for contracts for
which they are not qualified.
One commenter correctly pointed out that Certificate of Competency
(COC) procedures should not be inapplicable in cases where SBA has
delegated contract execution authority to the procuring activity as
provided in proposed Sec. 124.507(b)(7). SBA agrees. SBA did not intend
to make the COC procedures inapplicable where contract execution
authority has been delegated. In addition, the final rule transfers the
substance of proposed Sec. 124.507(b)(6) (dealing with the execution of
competitive 8(a) contracts) to a new Sec. 124.508. The correction
regarding the availability of COCs where SBA has delegated its 8(a)
contract execution functions to a procuring activity and the transfer
of proposed Sec. 124.507(b)(6) to a new section make proposed
Sec. 124.507(b)(7) unnecessary. Thus, SBA has eliminated that provision
in this final rule.
A number of commenters objected to the special geographic
requirements for construction contracts in proposed Sec. 124.507(c)(2).
These requirements are mandated by the Small Business Act and,
therefore, may not be eliminated. One commenter correctly pointed out
that the reference to principal places of business in proposed
Sec. 124.507(c)(2) is incorrect and should be bona fide places of
business. SBA agrees with this comment and has made this correction.
This final rule adds a new Sec. 124.508 governing execution of 8(a)
contracts. This new section clarifies that SBA, the procuring activity
and the 8(a) firm may sign a tripartite agreement or, where SBA has
delegated contract execution authority, the procuring activity and the
Participant alone may sign an 8(a) contract. This section also provides
that, where SBA receives a contract for signature valued at or below
the simplified acquisition threshold, it will sign the contract and
return it to the procuring activity within three (3) days of receipt.
This addition was made to conform to the simplified acquisition
procedures in the FAR and to promote expeditious award of smaller
contracts.
Pursuant to proposed Sec. 124.508 (Sec. 124.509 in the final rule),
a Participant could not receive sole source 8(a) contracts where it was
not in compliance with its non-8(a) business activity targets. A
commenter recommended that SBA allow more flexibility to permit sole
source awards where the firm can demonstrate good faith efforts to
obtain non-8(a) revenue. SBA agrees that a waiver to the requirement
prohibiting further sole source contracts when a Participant does not
meet its non-8(a) business activity target may be appropriate in
limited, extraordinary circumstances. The final rule permits the AA/
8(a)BD, or his or her designee, to allow one or more sole source
contracts to a Participant that is not in compliance with its non-8(a)
business activity target where a denial of a sole source contract would
cause severe economic hardship to the Participant so that the
Participant's survival may be jeopardized, or where extenuating
circumstances beyond the Participant's control caused the Participant
not to meet its non-8(a) business activity target. For example, a
Participant might demonstrate that it was the apparent successful
offeror for a non-8(a) contract that was cancelled by the procuring
activity, and that a loss of that projected revenue caused the
Participant not to meet its non-8(a) business activity target. However,
loss of additional profit or other normal business consequences will
not be grounds for granting a waiver. SBA believes that a more
extensive waiver is not needed because the rule permits sufficient
flexibility by allowing a firm to come into compliance during
authorized quarterly reviews. The rule authorizes no appeal right for
decisions not to grant a waiver, and such a waiver is totally at SBA's
discretion. The final rule also adds a provision authorizing the SBA
Administrator to waive the requirement that a Participant cannot
receive an 8(a) sole source award when it is not in
[[Page 35735]]
compliance with its non-8(a) business activity targets where the head
of the procuring activity requests that award be made for the best
interests of the Government.
Proposed Sec. 124.509 (Sec. 124.510 in the final rule) set forth
the requirement that certain percentages of work be performed by the
8(a) BD concern on an 8(a) BD contract. One commenter pointed out that
compliance with the percentage of work requirements is an element of
responsibility and, therefore, should be determined as of the date of
award. SBA agrees with this comment and has amended this section to
provide that SBA will determine whether the firm will be capable of
complying with the percentage of work requirements by the time of award
of the contract for both sealed bid and negotiated procurements.
Another commenter correctly pointed out that the example in the
regulation conflicts with the requirements set forth in 13 CFR
Sec. 125.6, which refer to the work required as a percentage of total
labor rather than as a percentage of the total value of the contract.
SBA agrees with this comment and has changed example 1 as well as some
of the language in Sec. 124.510(c) of the final rule to conform to the
language in Sec. 125.6. (The legislation on which the performance of
work requirements are based states the percentage of work required as a
percentage of total labor and not total value.) Example 2 was not
changed because the example does not conflict with either Sec. 125.6 or
the legislation. Example 2 merely clarifies application of the rule in
the early stages of performance of an ID/IQ contract.
One commenter pointed out that application of the subcontracting
limitations at all times during performance of an ID/IQ contract would
keep many contractors from proposing on task orders. SBA agrees that
the regulation is not flexible enough in this regard and has amended
the language in paragraph (c) to provide that SBA may approve in
writing an 8(a) BD firm's request to subcontract out more than the
required percentage where it receives assurances from both the
contractor and the procuring activity that the percentages will be met
by the time performance is completed. SBA believes that this addition
will provide firms with the necessary flexibility without undermining
the purposes of the rule. Where a firm has received permission to
subcontract out more than the required percentage and does not comply
with the percentage requirements by the end of the contract, SBA will
not grant future waivers.
There were a number of comments on proposed Sec. 124.512 governing
joint ventures. Several commenters objected to the requirement in
proposed Sec. 124.512(e) that a contract be awarded in the name of the
8(a) BD participant or participants, even though the contract is to be
performed by the joint venture. The commenters argued that the contract
should be in the name of the joint venture to assure that all parties
to the joint venture are obligated to perform. SBA agrees with this
view and has amended this section to provide that the procuring
activity will execute an 8(a) contract in the name of the joint venture
entity. With respect to the statutory requirement that all 8(a)
contracts be performed by participant concerns, SBA interprets the AA/
8(a)BD's acceptance of Participants into the program to extend to
approved joint ventures in which the Participant is the lead joint
venture partner. In other words, for purposes of contracting, admission
into the program includes both a concern in its own capacity and any
approved joint venture in which the concern is the lead entity. For
contracting purposes, SBA will consider the joint venture to be the
Participant where the joint venture meets all applicable requirements
and is approved by SBA.
Paragraph (f) requiring all parties to the joint venture to sign
such documents as are necessary to obligate themselves to ensure
performance of the contract was deleted as unnecessary where the
contract is entered into in the joint venture's name. However, a
provision was added requiring the joint venture agreement to obligate
each party to the venture to complete performance of the contract even
if one of the members withdraws. (See Sec. 124.513(c)(7))
A number of commenters felt that the provision requiring the 8(a)
members of the joint venture to perform the applicable percentages of
work under the performance of work requirements (Sec. 124.510) would
undermine the benefits derived from the joint venture arrangement. SBA
considered this comment and agrees that many of the advantages of
performing a particular contract as a joint venture would be lost if
the 8(a) BD concern is required to perform as much of the contract as
it would have had to perform had it been awarded the contract directly.
Therefore SBA has amended paragraph (b)(1)(iv) of this section to
provide that the joint venture must perform the applicable percentage
of work. Paragraph (g) was also eliminated in light of this change.
SBA made a number of other technical changes to the joint venture
provisions (Sec. 124.513 in the final rule) as a result of the
comments. The term ``lead entity'' was changed to ``managing venturer''
to comport with current terminology. One commenter requested
clarification of the term ``very little'' in proposed Sec. 124.512(a)
which states that SBA will not approve a joint venture arrangement
where the 8(a) concern brings ``very little'' to the relationship. That
provision has been clarified to provide that SBA will not approve the
joint venture if the 8(a) concern brings very little in terms of
resources and expertise to the relationship. A more precise definition
would not leave SBA sufficient discretion to judge each case on its own
merits.
Proposed Sec. 124.514 (Sec. 124.515 in the final rule) set forth
the provisions requiring an 8(a) contract to be performed by the
Participant that was initially awarded it, and requiring the contract
to be terminated for convenience if there is a change in the ownership
or control of the concern. SBA received several comments regarding the
authority for a waiver where one Participant transfers ownership and
control to another eligible Participant. The commenters believed that a
bulk transfer of all or substantially all of one 8(a) concern's assets
to another 8(a) concern should satisfy the requirement this
requirement. SBA carefully considered the legal requirements of the
Small Business Act as it pertains to this provision. Upon further
deliberation, SBA agrees that a transfer of all a Participant's
operating assets to another Participant should be treated the same as a
transfer of stock or another ownership interest, provided the
Participant that transfers its assets to another eligible Participant
withdraws from the 8(a) BD program, and it ceases its business
operations, or presents a plan to SBA for its orderly dissolution. The
requirement that all ``operating assets'' be transferred excludes
accounts receivable and cash. SBA will require dissolution or a plan to
dissolve as a condition for the waiver because SBA does not believe
that it is appropriate for the transferor to remain a separate legal
entity that could restart operations and seek to obtain 8(a) contracts
after the transfer of all of its operating assets.
SBA received three comments on proposed Sec. 124.516 (Sec. 124.517
in the final rule) concerning protests of 8(a) contract awards. All
three commenters recommended extending this provision to permit
protests of the size of a concern in line for a sole source award. SBA
rejected this comment since it is difficult for other firms to find out
about sole source awards and only a few, if
[[Page 35736]]
any, firms would have standing to protest the award of a sole-source
contract under SBA's size regulations. SBA has historically verified
the size of each potential awardee of a sole-source contract since the
benefits of receiving a contract without having to compete are so
significant. Moreover, if any concern or individual believes a firm in
line for a sole-source award does not meet the size standard for the
SIC code for the contract, such firm may contact SBA and explain why it
believes that the firm is not small. SBA will consider such information
in verifying the size of that concern for the award provided the
information is specific and credible. While SBA makes no changes to
allow size protests and SIC code appeals in connection with sole source
8(a) contracts at this time, SBA will continue to examine this issue
and may make additional changes at a later date.
Proposed Sec. 124.518 (Sec. 124.519 in the final rule), authorized
Participants (other than firms owned by an Indian tribe or an ANC) to
receive any combination of 8(a) sole source and 8(a) competitive
contracts up to a specified dollar amount (excluding contracts of
$100,000 or less). Once that dollar amount of 8(a) contracts is
reached, the firm will not be eligible to receive any more 8(a) sole
source contracts, but will remain eligible for competitive 8(a) awards.
The proposed rule set the dollar limit above which a firm could not
receive sole source 8(a) awards at five times the size standard for the
firm's primary SIC code or $100,000,000, whichever was less. SBA
received comments on both sides of this issue. Several thought the cap
was set at too high a level, while others thought that it should be set
even higher. No commenters presented persuasive reasons for setting the
cap at a level other than that set forth in the proposed rule. As such,
the final rule continues the five times the size standard or
$100,000,000 language. If the size standard for a particular SIC code
increases over time, the corresponding cap amount will also increase.
One comment suggested that after a firm reaches the specified dollar
threshold amount, SBA should require it to use other 8(a) concerns that
have not received contracts as subcontractors in order to receive
additional sole source awards. SBA considered this comment, but decided
not to adopt it. It is important to remember that SBA will not restrict
all 8(a) contract support after a Participant receives total 8(a)
contract support equaling at least five times the size standard for its
primary SIC code or $100,000,000. A firm will be unable to receive only
sole source 8(a) contracts after reaching the cap amount. The
alternative suggested by the commenter seeks to have a Participant that
has exceeded the cap subcontract 8(a) sole source contracts to other
Participants that have not received an 8(a) contract. SBA believes that
enforcing the cap should enable more of those same firms (i.e., the
Participants that have not received an 8(a) contract) to receive 8(a)
contracts directly. While both would aid in distributing the
performance of 8(a) contracts to more Participants, from the
perspective of a Participant that has not received an 8(a) contract,
receiving a sole source contract directly is preferable to getting a
piece of an 8(a) contract as another Participant's subcontractor. In
addition, SBA believes that the alternative cap amounts are
sufficiently high so that a Participant that reaches the cap amount
should be able to compete effectively for 8(a) competitive contracts.
That, in turn, should assist such firms in reaching viability after
leaving the 8(a) program.
Upon further reflection, SBA also amended the date at which a
Participant's eligibility for a sole source contract is measured. The
proposed rule stated that such eligibility would be measured as of the
date of contract award, without taking into account whether the value
of that award would cause the limit to be exceeded. SBA believes that
such a requirement could cause an undue hardship for both 8(a)
Participants and procuring activities. As proposed, SBA could accept a
sole source requirement on behalf of a particular Participant (because
the Participant had not yet received contracts in excess of the cap
amount), the Participant and the procuring activity could enter into
protracted negotiations, and SBA could be required later to deny the
award of the contract because eligibility would be determined as of the
date of award and the Participant may have received one or more
competitive 8(a) contracts between the acceptance and award dates.
Thus, this final rule changes the date that a firm's eligibility for a
sole source award, in terms of whether the firm has exceeded the dollar
limit for 8(a) contracts, from the date of award to the date that the
requirement is accepted by SBA. This does not in any way imply that all
eligibility for an 8(a) sole source contract will now be measured at
the acceptance date. In other words, this final rule will continue to
require that a firm be a current Participant in the 8(a) program on the
date of contract award in order to receive an 8(a) sole source award.
See Sec. 124.508(c).
Finally, similar to the provision identified above when a
Participant fails to achieve its non-8(a) business activity targets,
the final rule adds a provision authorizing the SBA Administrator to
waive the requirement that a Participant cannot receive an 8(a) sole
source award in excess of the cap amount where the head of the
procuring activity requests that award be made for the best interests
of the Government.
Proposed Sec. 124.519 (Sec. 124.520 in the final rule) set forth
the standards for the mentor/protege program. Most of the commenters
were in favor of this new program, although several warned that the
potential existed for abuse. Numerous commenters requested greater
detail in this section. Some of the commenters felt that a section
explaining the purpose of the program would be helpful. In response to
those comments, SBA has amended paragraph (a) of this section to
clarify that the program is designed to encourage approved mentors to
provide various forms of assistance to eligible Participants, with
examples of the assistance contemplated.
SBA received varying views regarding the type of business that
should be able to act as a mentor. The comments ranged from
recommendations that any business, large or small, disadvantaged-owned
or not, should be able to be a mentor, to only small businesses, to
support for the proposed rule which limited mentors to former 8(a)
Participants and current 8(a) Participants in the transitional stage of
the program. Upon further deliberation, SBA believes that the focus
should not be on who the mentor is, but what the concern acting as a
mentor will provide to the protege. For that reason, the final rule
permits any business, large or small, to be a mentor if it can
demonstrate the commitment and ability to assist small, developing 8(a)
Participants. Under the final rule, a mentor generally will have no
more than one protege at a time. The AA/8(a)BD may, however, authorize
a concern to mentor more than one protege at a time where the concern
can demonstrate that the additional mentor/protege relationship will
not adversely affect the development of either protege firm. SBA does
not believe that it would be appropriate to authorize a concern to be a
mentor in a second mentor/protege relationship if that relationship
would harm or compete with the protege of the first mentor/protege
relationship approved by SBA.
Some of the commenters felt that the amount of a contract the
protege could perform should be limited. After considering this
comment, SBA has
[[Page 35737]]
decided not to adopt it at this time. SBA does not want to impose
additional requirements on mentor/protege joint ventures that do not
apply to joint ventures between 8(a) BD concerns and other entities.
Many of the commenters requested guidelines so that the mentor does
not take control of the contracts or the company. SBA will monitor the
mentor/protege arrangement on a regular basis to help ensure that this
does not occur.
Some commenters requested that the program be expanded to enable
companies which have never been in the 8(a) BD program to become
proteges. SBA has not adopted this recommendation. It must be
remembered that SBA's mentor/protege program is designed to be an
additional developmental tool for Participants in the 8(a) BD program.
Only firms that SBA has certified to participate in the 8(a) BD program
are statutorily eligible to receive any of the benefits of the program.
One commenter suggested that a provision be added clarifying that a
mentor and protege will not be determined to be affiliated based on the
mentor/protege agreement or assistance provided pursuant to the
agreement. SBA agrees with this comment and has amended paragraph (d)
of this section to add a new subparagraph (4) to this effect.
Several commenters suggested standards for SBA monitoring of the
relationship and the adoption of objective standards by which to
measure the success of a mentor/protege relationship. In response to
these comments, SBA has added a new paragraph (f) to impose specific
reporting requirements on the protege and to provide standards under
which SBA will review the mentor/protege relationship. The final rule
also amends paragraph (e) of this section (Sec. 124.519(d) in the
proposed rule) to provide that SBA will review the mentor/protege
relationship annually to determine whether to approve its continuation
for another year. As set forth in the rule, the mentor/protege program
is designed to assist the development of Participants in the
developmental stage of the program, Participants that have not received
an 8(a) contract, and Participants having a size that is less than half
the size standard corresponding to its primary SIC code. Where a
Participant leaves the developmental stage of the program, receives
several significant 8(a) contracts, or has a size that exceeds half the
size standard corresponding to its primary SIC code, the firm may no
longer need the assistance provided by the mentor/protege relationship,
and the AA/8(a)BD may decide not to authorize its continuation.
SBA received no comments to proposed Secs. 124.601 through 124.603
and Secs. 124.701 through 124.704. As such, this rule makes no changes
to those sections from the proposed rule.
Part 124, subpart B: Subpart B of the proposed rule defined a Small
Disadvantaged Business (SDB) and set forth the procedures by which a
firm can be recognized as an SDB. As noted above, SBA will discuss the
comments to subpart B and finalize its provisions in a later rulemaking
action.
Part 134: The proposed new Subpart D of Part 134 contained the
rules of procedure applying to appeals of denials of 8(a) BD program
admission based solely on the negative finding(s) of social
disadvantage, economic disadvantage, ownership or control pursuant to
Sec. 124.206; early graduation pursuant to Sec. 124.302 and 124.304;
termination pursuant to Sec. 124.303 and 124.304; and denials of
requests to issue a waiver of the performance of work/termination for
convenience requirements pursuant to Sec. 124.513.
The proposed rules transferred the rules of procedure governing the
8(a) program from Sec. 124.210 to Part 134 so that all procedures
related to appeals before OHA are contained in one part of SBA's
regulations.
SBA received one comment regarding the proposed revisions to Part
134. The majority of these comments dealt with streamlining the
regulations governing the appeals of denials of 8(a) BD program
admission and protecting appellant rights.
The proposed rule did not change Sec. 134.202 and Sec. 134.203 of
the former regulations. The commenter requested that SBA amend
Sec. 134.202 to require that the appeal petition include the SBA
determination. SBA agrees that the appeal petition should include the
SBA determination and modified Sec. 134.203, which specifies the
requirements of a petition, to include the submission of the SBA
determination. This provision will allow the Administrative Law Judge
to determine, without further delay, whether the appeal was timely
filed.
This rule does not finalize the proposed amendment to
Sec. 134.206(a) that would have changed the date on which the SBA's 45-
day period to file an answer would run. The proposed rule would have
changed that date from the date that an appeal is served on SBA to the
date that an appeal is filed at OHA. Upon further consideration, SBA
does not believe that this change is appropriate. The proposed rule was
concerned about SBA not having the allotted time to answer an appeal
where the appeal was incorrectly served on SBA's Office of General
Counsel. SBA has addressed this concern by clarifying the service
requirements for 8(a)-related appeals set forth in Sec. 134.403.
Proposed Sec. 134.401, which outlined the scope of the rules in
Subpart D, had no provision for appeals to OHA from suspensions
pursuant to Sec. 124.305. A commenter stated that the inclusion of
appeals related to suspension was necessary pursuant to Sec. 124.305(b)
which provides that notice of suspension includes a statement that a
request for hearing on the suspension will be considered by an
Administrative Law Judge at OHA and granted or denied as a matter of
discretion. SBA agreed with the comment and added Sec. 134.401(e) in
response to it.
A commenter noted that proposed Sec. 134.405, which deals with
jurisdiction, failed to include a provision for the jurisdiction of
suspension cases pursuant to Sec. 124.305. SBA added subsection (c) to
proposed Sec. 134.405 in response to this comment. Subsection (c)
provides that the jurisdiction of OHA in suspension cases is limited to
determining whether the protection of the Government's interest
requires suspension pending resolution of the termination action,
unless the Administrative Law Judge has consolidated the suspension
appeal with the corresponding termination appeal.
Proposed Sec. 134.406 dealt with review of the administrative
record and replaced Sec. 124.210. A commenter requested that an
appellant be permitted to object to the absence of a document in the
administrative record. Since Sec. 134.406(c) provides that the
administrative record need not contain all documents pertaining to the
appellant, SBA decided that Sec. 134.406(c) should be amended in
response to this request. Revised Sec. 134.406(c) allows an appellant
to object to the absence of a document he or she believes was
erroneously omitted from the administrative record, thereby helping to
ensure that the Administrative Law Judge has all of the information
needed to decide the case.
Proposed Sec. 134.406(e) limited remand to situations where ``due
to the absence in the written administrative record of the reasons upon
which the determination was based, the administrative record is
insufficiently complete to decide'' the case. A commenter requested
that remand be extended to include cases in which SBA made an erroneous
analysis of facts. SBA determined that SBA error is properly handled on
appeal under
[[Page 35738]]
proposed Sec. 134.408 and, therefore, did not adopt this comment.
Proposed Sec. 134.408, which dealt with decisions on appeal,
replaced Sec. 124.210. A commenter requested that the term ``re-
examine'' be changed to ``reconsider,'' and that a time limit be placed
on when the decision is final. SBA determined that for clarity purposes
the term ``re-examine'' should be changed to ``reconsider.'' SBA
further determined that, in response to the commenter's request for a
reasonable time period after which the decision is final, a period of
20 days should be inserted into the proposed regulation after which
time the decision is final.
Compliance With Executive Orders 12612, 12778, and 12866, the
Regulatory Flexibility Act (5 U.S.C. 601, et seq.), and the
Paperwork Reduction Act (44 U.S.C. Ch. 35)
SBA certifies that this rule is not a major rule within the meaning
of Executive Order 12866 and will not have a significant economic
impact on a substantial number of small entities within the meaning of
the Regulatory Flexibility Act, 5 U.S.C. 601, et seq.
The rule addresses changes in the SBA's 8(a) BD program. The
overall impact of the changes to the 8(a) BD program will be beneficial
to small businesses. The rule also makes several changes to SBA's size
regulations that will have an impact beyond that program, and should
result in more procurement opportunities for small business generally.
No definitive data exist that would allow SBA to conclude that the
proposed rule will have a substantial impact on a significant number of
small businesses.
Specifically, the rule improves and strengthens the 8(a) BD
program. It responds to the challenges posed by the findings in the
Adarand Constructors, Inc. v. Pena, 115 Sup. Ct. 2097 (1995) (Adarand),
and are designed to improve the success rates for firms after their
terms of participation in the 8(a) BD program end. The rule changes
fall within three major categories. They are: (1) measures designed to
more equitably distribute 8(a) contracts; (2) small business
affiliation rule revisions; and (3) a new mentor/protege program.
The changes that exclude certain joint venture and teaming
arrangements from SBA's affiliation rules and the 8(a) mentor/protege
program are designed to enable small businesses to effectively compete
for contracts that were previously too large for a single small
business to perform as a prime contractor. By allowing small businesses
to form joint venture and teaming relationships without regard to
affiliation, they can be considered responsible contractors for
``bundled'' and other large contracts which exceed the capability of
any of the individual small businesses to perform as prime contractors.
Likewise, 8(a) Participants will be able to submit offers for and be
considered responsible businesses for larger contracts than they would
be able to obtain individually without the newly established mentor/
protege program. Expanding the number and dollar amount of contracts
available for award through the 8(a) BD program may result in a shift
of dollars to small business.
In fiscal year (FY) 1996, the federal government spent $197.6
billion on the procurement of goods and services. Small businesses were
awarded $41.1 billion in prime contracts, representing about a 21
percent share of the total contract dollars. There are approximately
180,000 small firms registered on PRO-Net, SBA's database of small
businesses actively seeking federal government contracts. By
comparison, there are approximately 5,800 small firms certified as
eligible 8(a) Participants. In FY 1996, $6.4 billion or 3.2 percent of
the total government prime contracts were awarded to less than 2,000
8(a) certified small businesses. SBA believes that the changes set
forth in this rule will benefit small firms, but not increase the net
number of current 8(a) Participants by more than 500 to 800 businesses,
or less than 1 percent of the total universe of small firms seeking
federal government contracts.
Similarly, the changes regarding affiliation eligibility and the
mentor/protege program will benefit small business contractors, but
impact a relatively small number of businesses and dollars, when
compared to total government spending and the universe of small firms
seeking federal government contracts. Because of consolidation,
contracts are becoming larger and fewer in number. It has become
increasingly more difficult for small business to possess the
wherewithal to individually perform these larger contracts. The changes
in small business affiliation rules are designed to counter the growing
trend of contract consolidation and allow small firms to compete for
larger contracts.
For purposes of the Paperwork Reduction Act of 1995 (Public Law
104-13), SBA certifies that this final rule contains no new reporting
or recordkeeping requirements.
For purposes of Executive Order 12612, SBA certifies that this rule
has no federalism implications warranting the preparation of a
Federalism Assessment.
For purposes of Executive Order 12778, SBA certifies that this rule
is drafted, to the extent practicable, in accordance with the standards
set forth in Section 2 of that Order.
List of Subjects
13 CFR Part 121
Government procurement, Government property, Grant programs--
business, Individuals with disabilities, Loan programs--business, Small
businesses.
13 CFR Part 124
Government procurement, Hawaiian Natives, Minority businesses,
Reporting and recordkeeping requirements, Technical assistance,
Tribally-owned concerns.
13 CFR Part 134
Administrative practice and procedure, Organization and functions
(Government agencies).
Accordingly, for the reasons set forth above, SBA amends Title 13,
Code of Federal Regulations (CFR), as follows:
PART 121--[AMENDED]
1. The authority citation for 13 CFR part 121 continues to read as
follows:
Authority: Pub. L. 105-135 sec. 601 et seq., 111 Stat. 2592; 15
U.S.C. 632(a), 634(b)(6), 637(a) and 644(c); and Pub. L. 102-486,
106 Stat. 2776, 3133.
2. Section 121.103 is amended by redesignating paragraphs (f)(3)
and (f)(4) as paragraphs (f)(4) and (f)(5), respectively, by revising
paragraph (f)(2) and by adding a new paragraph (f)(3) to read as
follows:
Sec. 121.103 What is affiliation?
* * * * *
(f) * * *
(2) Except as provided in paragraph (f)(3) of this section,
concerns submitting offers on a particular procurement or property sale
as joint venturers are affiliated with each other with regard to the
performance of that contract.
(3) Exclusion from affiliation. (i) A joint venture or teaming
arrangement of two or more business concerns may submit an offer as a
small business for a non-8(a) Federal procurement without regard to
affiliation under paragraph (f) of this section so long as each concern
is small under the size standard corresponding to the SIC code assigned
to the contract, provided:
(A) For a procurement having a revenue-based size standard, the
procurement exceeds half the size standard corresponding to the SIC
code assigned to the contract; or
[[Page 35739]]
(B) For a procurement having an employee-based size standard, the
procurement exceeds $10 million.
(ii) A joint venture or teaming arrangement of at least one 8(a)
Participant and one or more other business concerns may submit an offer
for a competitive 8(a) procurement without regard to affiliation under
paragraph (f) of this section so long as the requirements of 13 CFR
124.513(b)(1) are met.
(iii) Two firms approved by SBA to be a mentor and protege under 13
CFR 124.520 may joint venture as a small business for any Federal
Government procurement, provided the protege qualifies as small for the
size standard corresponding to the SIC code assigned to the procurement
and, for purposes of 8(a) sole source requirements, has not reached the
dollar limit set forth in 13 CFR 124.519.
* * * * *
3. Section 121.1001 is amended by redesignating paragraphs (a)(2)
through (a)(6) as paragraphs (a)(3) through (a)(7), by adding the
following new paragraph (a)(2), and by revising paragraph (b)(2) to
read as follows:
Sec. 121.1001 Who may initiate a size protest or request a formal size
determination?
(a) * * *
(2) For competitive 8(a) contracts, the following entities may
protest:
(i) Any offeror;
(ii) The contracting officer; or
(iii) The SBA District Director, or designee, in either the
district office serving the geographical area in which the procuring
activity is located or the district office that services the apparent
successful offeror, or the Associate Administrator for 8(a) Business
Development.
* * * * *
(b) * * *
(2) For SBA's 8(a) BD program:
(i) Concerning initial or continued 8(a) BD eligibility, the
following entities may request a formal size determination:
(A) The 8(a) BD applicant concern or Participant; or
(B) The Assistant Administrator of the Division of Program
Certification and Eligibility or the Associate Administrator for
8(a)BD.
(ii) Concerning individual sole source 8(a) contract awards, the
following entities may request a formal size determination:
(A) The Participant nominated for award of the particular sole
source contract;
(B) The SBA program official with authority to execute the 8(a)
contract; or
(C) The SBA District Director in the district office that services
the Participant, or the Associate Administrator for 8(a)BD.
* * * * *
4. Section 121.1103 is amended by revising paragraph (a) to read as
follows:
Sec. 121.1103 What are the procedures for appealing a SIC code
designation?
(a) Generally, any interested party who has been adversely affected
by a SIC code designation may appeal the designation to OHA. However,
with respect to a particular sole source 8(a) contract, only the
Associate Administrator for 8(a)BD may appeal.
* * * * *
PART 124--[AMENDED]
5. The authority citation for part 124 continues to read as
follows:
Authority: 15 U.S.C. 634(b)(6), 636(j), 637(a), 637(d) and Pub.
L. 99-661, Pub. L. 100-656, sec. 1207, Pub. L. 101-37, Pub. L. 101-
574, and 42 U.S.C. 9815.
6. In part 124, subpart B consisting of Secs. 124.601 through
124.610 is redesignated as subpart B, Secs. 124.1001 through 124.1010,
and subpart A is revised to read as follows:
PART 124--8(A) BUSINESS DEVELOPMENT/SMALL DISADVANTAGED BUSINESS
STATUS DETERMINATIONS
Subpart A--8(a) Business Development
Provisions of General Applicability
124.1 What is the purpose of the 8(a) Business Development program?
124.2 What length of time may a business participate in the 8(a) BD
program?
124.3 What definitions are important in the 8(a) BD program?
Eligibility Requirements for Participation in the 8(a) Business
Development Program
124.101 What are the basic requirements a concern must meet for the
8(a) BD program?
124.102 What size business is eligible to participate in the 8(a)
BD program?
124.103 Who is socially disadvantaged?
124.104 Who is economically disadvantaged?
124.105 What does it mean to be unconditionally owned by one or
more disadvantaged individuals?
124.106 When do disadvantaged individuals control an applicant or
Participant?
124.107 What is potential for success?
124.108 What other eligibility requirements apply for individuals
or businesses?
124.109 Do Indian tribes and Alaska Native Corporations have any
special rules for applying to the 8(a) BD program?
124.110 Do Native Hawaiian Organizations have any special rules for
applying to the 8(a) BD program?
124.111 Do Community Development Corporations (CDCs) have any
special rules for applying to the 8(a) BD program?
124.112 What criteria must a business meet to remain eligible to
participate in the 8(a) BD program?
Applying to the 8(a) BD Program
124.201 May any business submit an application?
124.202 Where must an application be filed?
124.203 What must a concern submit to apply to the 8(a) BD program?
124.204 How does SBA process applications for 8(a) BD program
admission?
124.205 Can an applicant ask SBA to reconsider SBA's initial
decision to decline its application?
124.206 What appeal rights are available to an applicant that has
been denied admission?
124.207 Can an applicant reapply for admission to the 8(a) BD
program?
Exiting the 8(a) BD Program
124.301 What are the ways a business may leave the 8(a) BD program?
124.302 What is early graduation?
124.303 What is termination?
124.304 What are the procedures for early graduation and
termination?
124.305 What is suspension and how is a Participant suspended from
the 8(a) BD program?
Business Development
124.401 Which SBA field office services a Participant?
124.402 How does a Participant develop a business plan?
124.403 How is a business plan updated and modified?
124.404 What business development assistance is available to
Participants during the two stages of participation in the 8(a) BD
program?
124.405 How does a Participant obtain Federal Government surplus
property?
Contractual Assistance
124.501 What general provisions apply to the award of 8(a)
contracts?
124.502 How does an agency offer a procurement to SBA for award
through the 8(a) BD program?
124.503 How does SBA accept a procurement for award through the
8(a) BD program?
124.504 What circumstances limit SBA's ability to accept a
procurement for award as an 8(a) contract?
124.505 When will SBA appeal the terms and conditions of a
particular 8(a) contract or a procuring activity decision not to
reserve a procurement for the 8(a) BD program?
124.506 At what dollar threshold must an 8(a) procurement be
competed among eligible Participants?
124.507 What procedures apply to competitive 8(a) procurements?
124.508 How is an 8(a) contract executed?
124.509 What are non-8(a) business activity targets?
[[Page 35740]]
124.510 What percentage of work must a Participant perform on an
8(a) contract?
124.511 How is fair market price determined for an 8(a) contract?
124.512 Delegation of contract administration to procuring
agencies.
124.513 Under what circumstances can a joint venture be awarded an
8(a) contract?
124.514 Exercise of 8(a) options and modifications.
124.515 Can a Participant change its ownership or control and
continue to perform an 8(a) contract, and can it transfer
performance to another firm?
124.516 Who decides contract disputes arising between a Participant
and a procuring activity after the award of an 8(a) contract?
124.517 Can the eligibility or size of a Participant for award of
an 8(a) contract be questioned?
124.518 How can an 8(a) contract be terminated before performance
is completed?
124.519 Are there any dollar limits on the amount of 8(a) contracts
that a Participant may receive?
124.520 Mentor/Protege program.
Miscellaneous Reporting Requirements
124.601 What reports does SBA require concerning parties who assist
Participants in obtaining federal contracts?
124.602 What kind of annual financial statement must a Participant
submit to SBA?
124.603 What reports regarding the continued business operations of
former Participants does SBA require?
Management and Technical Assistance Program
124.701 What is the purpose of the 7(j) management and technical
assistance program?
124.702 What types of assistance are available through the 7(j)
program?
124.703 Who is eligible to receive 7(j) assistance?
124.704 What additional management and technical assistance is
reserved exclusively for concerns eligible to receive 8(a)
contracts?
Subpart A--8(a) Business Development
Provisions of General Applicability
Sec. 124.1 What is the purpose of the 8(a) Business Development
program?
Sections 8(a) and 7(j) of the Small Business Act authorize a
Minority Small Business and Capital Ownership Development program
(designated the 8(a) Business Development or ``8(a) BD'' program for
purposes of the regulations in this part). The purpose of the 8(a) BD
program is to assist eligible small disadvantaged business concerns
compete in the American economy through business development.
Sec. 124.2 What length of time may a business participate in the 8(a)
BD program?
A Participant receives a program term of nine years from the date
of SBA's approval letter certifying the concern's admission to the
program. The Participant must maintain its program eligibility during
its tenure in the program and must inform SBA of any changes that would
adversely affect its program eligibility. A firm that completes its
nine year term of participation in the 8(a) BD program is deemed to
graduate from the program. The nine year program term may be shortened
only by termination, early graduation or voluntary graduation as
provided for in this subpart.
Sec. 124.3 What definitions are important in the 8(a) BD Program?
Alaska Native means a citizen of the United States who is a person
of one-fourth degree or more Alaskan Indian (including Tsimshian
Indians not enrolled in the Metlaktla Indian Community), Eskimo, or
Aleut blood, or a combination of those bloodlines. The term includes,
in the absence of proof of a minimum blood quantum, any citizen whom a
Native village or Native group regards as an Alaska Native if their
father or mother is regarded as an Alaska Native.
Alaska Native Corporation or ANC means any Regional Corporation,
Village Corporation, Urban Corporation, or Group Corporation organized
under the laws of the State of Alaska in accordance with the Alaska
Native Claims Settlement Act, as amended (43 U.S.C. 1601, et seq.)
Bona fide place of business, for purposes of 8(a) construction
procurements, means a location where a Participant regularly maintains
an office which employs at least one full-time individual within the
appropriate geographical boundary. The term does not include
construction trailers or other temporary construction sites.
Community Development Corporation or CDC means a nonprofit
organization responsible to residents of the area it serves which has
received financial assistance under 42 U.S.C. 9805, et seq.
Concern is defined in part 121 of this title.
Days means calendar days unless otherwise specified.
Day-to-day operations of a firm means the marketing, production,
sales, and administrative functions of the firm.
Immediate family member means father, mother, husband, wife, son,
daughter, brother, sister, grandfather, grandmother, grandson,
granddaughter, father-in-law, and mother-in-law.
Indian tribe means any Indian tribe, band, nation, or other
organized group or community of Indians, including any ANC, which is
recognized as eligible for the special programs and services provided
by the United States to Indians because of their status as Indians, or
is recognized as such by the State in which the tribe, band, nation,
group, or community resides. See definition of ``tribally-owned
concern.''
Native Hawaiian means any individual whose ancestors were natives,
prior to 1778, of the area which now comprises the State of Hawaii.
Native Hawaiian Organization means any community service
organization serving Native Hawaiians in the State of Hawaii which is a
not-for-profit organization chartered by the State of Hawaii, is
controlled by Native Hawaiians, and whose business activities will
principally benefit such Native Hawaiians.
Negative control is defined in part 121 of this title.
Non-disadvantaged individual means any individual who does not
claim disadvantaged status, does not qualify as disadvantaged, or upon
whose disadvantaged status an applicant or Participant does not rely in
qualifying for 8(a) BD program participation.
Participant means a small business concern admitted to participate
in the 8(a) BD program.
Primary industry classification means the four digit Standard
Industrial Classification (SIC) code designation which best describes
the primary business activity of the 8(a) BD applicant or Participant.
The SIC code designations are described in the Standard Industrial
Classification Manual published by the U.S. Office of Management and
Budget.
Principal place of business means the business location where the
individuals who manage the concern's day-to-day operations spend most
working hours and where top management's business records are kept. If
the offices from which management is directed and where the business
records are kept are in different locations, SBA will determine the
principal place of business for program purposes.
Program year means a 12-month period of an 8(a) BD Participant's
program participation. The first program year begins on the date that
the concern is certified to participate in the 8(a) BD program and ends
one year later. Each subsequent program year begins on the
Participant's anniversary of program certification and runs for one 12-
month period.
Same or similar line of business means business activities within
the
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same two-digit ``Major Group'' of the SIC Manual as the primary
industry classification of the applicant or Participant. The phrase
``same business area'' is synonymous with this definition.
Self-marketing of a requirement occurs when a Participant
identifies a requirement that has not been committed to the 8(a) BD
program and, through its marketing efforts, causes the procuring
activity to offer that specific requirement to the 8(a) BD program on
the Participant's behalf. A firm which identifies and markets a
requirement which is subsequently offered to the 8(a) BD program as an
open requirement or on behalf of another Participant has not ``self-
marketed'' the requirement within the meaning of this part.
Tribally-owned concern means any concern at least 51 percent owned
by an Indian tribe as defined in this section.
Unconditional ownership means ownership that is not subject to
conditions precedent, conditions subsequent, executory agreements,
voting trusts, restrictions on or assignments of voting rights, or
other arrangements causing or potentially causing ownership benefits to
go to another (other than after death or incapacity). The pledge or
encumbrance of stock or other ownership interest as collateral,
including seller-financed transactions, does not affect the
unconditional nature of ownership if the terms follow normal commercial
practices and the owner retains control absent violations of the terms.
Eligibility Requirements for Participation in the 8(a) Business
Development Program
Sec. 124.101 What are the basic requirements a concern must meet for
the 8(a) BD program?
Generally, a concern meets the basic requirements for admission to
the 8(a) BD program if it is a small business which is unconditionally
owned and controlled by one or more socially and economically
disadvantaged individuals who are of good character and citizens of the
United States, and which demonstrates potential for success.
Sec. 124.102 What size business is eligible to participate in the 8(a)
BD program?
(a) An applicant concern must qualify as a small business concern
as defined in part 121 of this title. The applicable size standard is
the one for its primary industry classification. The rules for
calculating the size of a tribally-owned concern, a concern owned by an
Alaska Native Corporation, a concern owned by a Native Hawaiian
Organization, or a concern owned by a Community Development Corporation
are additionally affected by Secs. 124.109, 124.110, and 124.111,
respectively.
(b) If 8(a) BD program officials determine that a concern may not
qualify as small, they may deny an application for 8(a) BD program
admission or may request a formal size determination under part 121 of
this title.
(c) A concern whose application is denied due to size by 8(a) BD
program officials may request a formal size determination under part
121 of this title. A favorable determination will enable the firm to
immediately submit a new 8(a) BD application without waiting one year.
Sec. 124.103 Who is socially disadvantaged?
(a) General. Socially disadvantaged individuals are those who have
been subjected to racial or ethnic prejudice or cultural bias within
American society because of their identities as members of groups and
without regard to their individual qualities. The social disadvantage
must stem from circumstances beyond their control.
(b) Members of designated groups. (1) There is a rebuttable
presumption that the following individuals are socially disadvantaged:
Black Americans; Hispanic Americans; Native Americans (American
Indians, Eskimos, Aleuts, or Native Hawaiians); Asian Pacific Americans
(persons with origins from Burma, Thailand, Malaysia, Indonesia,
Singapore, Brunei, Japan, China (including Hong Kong), Taiwan, Laos,
Cambodia (Kampuchea), Vietnam, Korea, The Philippines, U.S. Trust
Territory of the Pacific Islands (Republic of Palau), Republic of the
Marshall Islands, Federated States of Micronesia, the Commonwealth of
the Northern Mariana Islands, Guam, Samoa, Macao, Fiji, Tonga,
Kiribati, Tuvalu, or Nauru); Subcontinent Asian Americans (persons with
origins from India, Pakistan, Bangladesh, Sri Lanka, Bhutan, the
Maldives Islands or Nepal); and members of other groups designated from
time to time by SBA according to procedures set forth at paragraph (d)
of this section. Being born in a country does not, by itself, suffice
to make the birth country an individual's country of origin for
purposes of being included within a designated group.
(2) An individual must demonstrate that he or she has held himself
or herself out, and is currently identified by others, as a member of a
designated group if SBA requires it.
(3) The presumption of social disadvantage may be overcome with
credible evidence to the contrary. Individuals possessing or knowing of
such evidence should submit the information in writing to the Associate
Administrator for 8(a) BD (AA/8(a)BD) for consideration.
(c) Individuals not members of designated groups. (1) An individual
who is not a member of one of the groups presumed to be socially
disadvantaged in paragraph (b)(1) of this section must establish
individual social disadvantage by a preponderance of the evidence.
(2) Evidence of individual social disadvantage must include the
following elements:
(i) At least one objective distinguishing feature that has
contributed to social disadvantage, such as race, ethnic origin,
gender, physical handicap, long-term residence in an environment
isolated from the mainstream of American society, or other similar
causes not common to individuals who are not socially disadvantaged;
(ii) Personal experiences of substantial and chronic social
disadvantage in American society, not in other countries; and
(iii) Negative impact on entry into or advancement in the business
world because of the disadvantage. SBA will consider any relevant
evidence in assessing this element. In every case, however, SBA will
consider education, employment and business history, where applicable,
to see if the totality of circumstances shows disadvantage in entering
into or advancing in the business world.
(A) Education. SBA considers such factors as denial of equal access
to institutions of higher education, exclusion from social and
professional association with students or teachers, denial of
educational honors rightfully earned, and social patterns or pressures
which discouraged the individual from pursuing a professional or
business education.
(B) Employment. SBA considers such factors as unequal treatment in
hiring, promotions and other aspects of professional advancement, pay
and fringe benefits, and other terms and conditions of employment;
retaliatory or discriminatory behavior by an employer; and social
patterns or pressures which have channelled the individual into
nonprofessional or non-business fields.
(C) Business history. SBA considers such factors as unequal access
to credit or capital, acquisition of credit or capital under
commercially unfavorable circumstances, unequal treatment in
opportunities for government contracts or other work, unequal treatment
by potential customers and business
[[Page 35742]]
associates, and exclusion from business or professional organizations.
(d) Socially disadvantaged group inclusion. (1) General.
Representatives of an identifiable group whose members believe that the
group has suffered chronic racial or ethnic prejudice or cultural bias
may petition SBA to be included as a presumptively socially
disadvantaged group under paragraph (b)(1) of this section. Upon
presentation of substantial evidence that members of the group have
been subjected to racial or ethnic prejudice or cultural bias because
of their identity as group members and without regard to their
individual qualities, SBA will publish a notice in the Federal Register
that it has received and is considering such a request, and that it
will consider public comments.
(2) Standards to be applied. In determining whether a group has
made an adequate showing that it has suffered chronic racial or ethnic
prejudice or cultural bias for the purposes of this section, SBA must
determine that:
(i) The group has suffered prejudice, bias, or discriminatory
practices;
(ii) Those conditions have resulted in economic deprivation for the
group of the type which Congress has found exists for the groups named
in the Small Business Act; and
(iii) Those conditions have produced impediments in the business
world for members of the group over which they have no control and
which are not common to small business owners generally.
(3) Procedure. The notice published under paragraph (d)(1) of this
section will authorize a specified period for the receipt of public
comments supporting or opposing the petition for socially disadvantaged
group status. If appropriate, SBA may hold hearings. SBA may also
conduct its own research relative to the group's petition.
(4) Decision. In making a final decision that a group should be
considered presumptively disadvantaged, SBA must find that a
preponderance of the evidence demonstrates that the group has met the
standards set forth in paragraph (d)(2) of this section based on SBA's
consideration of the group petition, the comments from the public, and
any independent research it performs. SBA will advise the petitioners
of its final decision in writing, and publish its conclusion as a
notice in the Federal Register. If appropriate, SBA will amend
paragraph (b)(1) of this section to include a new group.
Sec. 124.104 Who is economically disadvantaged?
(a) General. Economically disadvantaged individuals are socially
disadvantaged individuals whose ability to compete in the free
enterprise system has been impaired due to diminished capital and
credit opportunities as compared to others in the same or similar line
of business who are not socially disadvantaged.
(b) Submission of narrative and financial information. (1) Each
individual claiming economic disadvantage must describe it in a
narrative statement, and must submit personal financial information.
(2) When married, an individual claiming economic disadvantage also
must submit separate financial information for his or her spouse,
unless the individual and the spouse are legally separated.
(c) Factors to be considered. In considering diminished capital and
credit opportunities, SBA will examine factors relating to the personal
financial condition of any individual claiming disadvantaged status,
including personal income for the past two years (including bonuses and
the value of company stock given in lieu of cash), personal net worth,
and the fair market value of all assets, whether encumbered or not. SBA
will also consider the financial condition of the applicant compared to
the financial profiles of small businesses in the same primary industry
classification, or, if not available, in similar lines of business,
which are not owned and controlled by socially and economically
disadvantaged individuals in evaluating the individual's access to
credit and capital. The financial profiles that SBA compares include
total assets, net sales, pre tax profit, sales/working capital ratio,
and net worth.
(1) Transfers within two years. (i) Except as set forth in
paragraph (c)(1)(ii) of this section, SBA will attribute to an
individual claiming disadvantaged status any assets which that
individual has transferred to an immediate family member, or to a trust
a beneficiary of which is an immediate family member, for less than
fair market value, within two years prior to a concern's application
for participation in the 8(a) BD program or within two years of a
Participant's annual program review, unless the individual claiming
disadvantaged status can demonstrate that the transfer is to or on
behalf of an immediate family member for that individual's education,
medical expenses, or some other form of essential support.
(ii) SBA will not attribute to an individual claiming disadvantaged
status any assets transferred by that individual to an immediate family
member that are consistent with the customary recognition of special
occasions, such as birthdays, graduations, anniversaries, and
retirements.
(iii) In determining an individual's access to capital and credit,
SBA may consider any assets that the individual transferred within such
two-year period described by paragraph (c)(1)(i) of this section that
SBA does not consider in evaluating the individual's assets and net
worth (e.g., transfers to charities).
(2) Net worth. For initial 8(a) BD eligibility, the net worth of an
individual claiming disadvantage must be less than $250,000. For
continued 8(a) BD eligibility after admission to the program, net worth
must be less than $750,000. In determining such net worth, SBA will
exclude the ownership interest in the applicant or Participant and the
equity in the primary personal residence (except any portion of such
equity which is attributable to excessive withdrawals from the
applicant or Participant). Exclusions for net worth purposes are not
exclusions for asset valuation or access to capital and credit
purposes.
(i) A contingent liability does not reduce an individual's net
worth.
(ii) The personal net worth of an individual claiming to be an
Alaska Native will include assets and income from sources other than an
Alaska Native Corporation and exclude any of the following which the
individual receives from any Alaska Native Corporation: cash (including
cash dividends on stock received from an ANC) to the extent that it
does not, in the aggregate, exceed $2,000 per individual per annum;
stock (including stock issued or distributed by an ANC as a dividend or
distribution on stock); a partnership interest; land or an interest in
land (including land or an interest in land received from an ANC as a
dividend or distribution on stock); and an interest in a settlement
trust.
Sec. 124.105 What does it mean to be unconditionally owned by one or
more disadvantaged individuals?
An applicant or Participant must be at least 51 percent
unconditionally and directly owned by one or more socially and
economically disadvantaged individuals who are citizens of the United
States, except for concerns owned by Indian tribes, Alaska Native
Corporations, Native Hawaiian Organizations, or Community Development
Corporations (CDCs). See
[[Page 35743]]
Sec. 124.3 for definition of unconditional ownership; and
Secs. 124.109, 124.110, and 124.111, respectively, for special
ownership requirements for concerns owned by Indian tribes, ANCs,
Native Hawaiian Organizations, and CDCs.
(a) Ownership must be direct. Ownership by one or more
disadvantaged individuals must be direct ownership. An applicant or
Participant owned principally by another business entity or by a trust
(including employee stock ownership trusts) that is in turn owned and
controlled by one or more disadvantaged individuals does not meet this
requirement. However, ownership by a trust, such as a living trust, may
be treated as the functional equivalent of ownership by a disadvantaged
individual where the trust is revocable, and the disadvantaged
individual is the grantor, a trustee, and the sole current beneficiary
of the trust.
(b) Ownership of a partnership. In the case of a concern which is a
partnership, at least 51 percent of every class of partnership interest
must be unconditionally owned by one or more individuals determined by
SBA to be socially and economically disadvantaged. The ownership must
be reflected in the concern's partnership agreement.
(c) Ownership of a limited liability company. In the case of a
concern which is a limited liability company, at least 51 percent of
each class of member interest must be unconditionally owned by one or
more individuals determined by SBA to be socially and economically
disadvantaged.
(d) Ownership of a corporation. In the case of a concern which is a
corporation, at least 51 percent of each class of voting stock
outstanding and 51 percent of the aggregate of all stock outstanding
must be unconditionally owned by one or more individuals determined by
SBA to be socially and economically disadvantaged.
(e) Stock options' effect on ownership. In determining
unconditional ownership, SBA will disregard any unexercised stock
options or similar agreements held by disadvantaged individuals.
However, any unexercised stock options or similar agreements (including
rights to convert non-voting stock or debentures into voting stock)
held by non-disadvantaged individuals will be treated as exercised,
except for any ownership interests which are held by investment
companies licensed under the Small Business Investment Act of 1958.
(f) Dividends and distributions. One or more disadvantaged
individuals must be entitled to receive:
(1) At least 51 percent of the annual distribution of dividends
paid on the stock of a corporate applicant concern;
(2) 100 percent of the value of each share of stock owned by them
in the event that the stock is sold; and
(3) At least 51 percent of the retained earnings of the concern and
100 percent of the unencumbered value of each share of stock owned in
the event of dissolution of the corporation.
(g) Ownership of another Participant. The individuals determined to
be disadvantaged for purposes of one Participant, their immediate
family members, and the Participant itself, may not hold, in the
aggregate, more than a 20 percent equity ownership interest in any
other single Participant.
(h) Ownership restrictions for non-disadvantaged individuals and
concerns. (1) A non-disadvantaged individual (in the aggregate with all
immediate family members) or a non-Participant concern that is a
general partner or stockholder with at least a 10 percent ownership
interest in one Participant may not own more than a 10 percent interest
in another Participant that is in the developmental stage or more than
a 20 percent interest in another Participant in the transitional stage
of the program. This restriction does not apply to financial
institutions licensed or chartered by Federal, state or local
government, including investment companies which are licensed under the
Small Business Investment Act of 1958.
(2) A non-Participant concern in the same or similar line of
business may not own more than a 10 percent interest in a Participant
that is in the developmental stage or more than a 20 percent interest
in a Participant in a transitional stage of the program, except that a
former Participant or a principal of a former Participant (except those
that have been terminated from 8(a) BD program participation pursuant
to Secs. 124.303 and 124.304) may have an equity ownership interest of
up to 20 percent in a current Participant in the developmental stage of
the program or up to 30 percent in a transitional stage Participant, in
the same or similar line of business.
(i) Change of ownership. A Participant may change its ownership or
business structure so long as one or more disadvantaged individuals own
and control it after the change and SBA approves the transaction in
writing prior to the change. The decision to approve or deny a
Participant's request for a change in ownership or business structure
will be made and communicated to the firm by the AA/8(a)BD. The
decision of the AA/8(a)BD is the final decision of the Agency. The AA/
8(a)BD will issue a decision within 60 days from receipt of a request
containing all necessary documentation, or as soon thereafter as
possible. If 60 days lapse without a decision from SBA, the Participant
cannot presume that it can complete the change without written approval
from SBA. A decision to deny a request for change of ownership or
business structure may be grounds for program termination where the
change is made nevertheless.
(1) Any Participant that was awarded one or more 8(a) contracts may
substitute one disadvantaged individual for another disadvantaged
individual without requiring the termination of those contracts or a
request for waiver under Sec. 124.515, as long as it receives SBA's
approval prior to the change.
(2) Where the previous owner held less than a 10 percent interest
in the concern, or the transfer results from the death or incapacity
due to a serious, long-term illness or injury of a disadvantaged
principal, prior approval is not required, but the concern must notify
SBA within 60 days.
(3) Continued participation of the Participant with new ownership
and the award of any new 8(a) contracts requires SBA's determination
that all eligibility requirements are met by the concern and the new
owners.
(4) Where a Participant requests a change of ownership or business
structure, and proceeds with the change prior to receiving SBA approval
(or where a change of ownership results from the death or incapacity of
a disadvantaged individual for which a request prior to the change in
ownership could not occur), SBA will suspend the Participant from
program benefits pending resolution of the request. If the change is
approved, the length of the suspension will be restored to the
Participant's program term in the case of death or incapacity, or if
the firm requested prior approval and waited 60 days for SBA approval.
(5) A change in ownership does not provide the new owner(s) with a
new 8(a) BD program term. For example, if a concern has been in the
8(a) BD program for five years when a change in ownership occurs, the
new owner will have four years remaining until program graduation.
(j) Public offering. A Participant's request for SBA's approval for
the issuance of a public offering will be treated as a request for a
change of ownership. Such request will cause SBA to examine the
concern's continued need for access to the business
[[Page 35744]]
development resources of the 8(a) BD program.
(k) Community property laws given effect. In determining ownership
interests when an owner resides in any of the community property states
or territories of the United States (Arizona, California, Idaho,
Louisiana, Nevada, New Mexico, Puerto Rico, Texas, Washington and
Wisconsin), SBA considers applicable state community property laws. If
only one spouse claims disadvantaged status, that spouse's ownership
interest will be considered unconditionally held only to the extent it
is vested by the community property laws. A transfer or relinquishment
of interest by the non-disadvantaged spouse may be necessary in some
cases to establish eligibility.
Sec. 124.106 When do disadvantaged individuals control an applicant or
Participant?
Control is not the same as ownership, although both may reside in
the same person. SBA regards control as including both the strategic
policy setting exercised by boards of directors and the day-to-day
management and administration of business operations. An applicant or
Participant's management and daily business operations must be
conducted by one or more disadvantaged individuals, except for concerns
owned by Indian tribes, ANCs, Native Hawaiian Organizations, or
Community Development Corporations (CDCs). (See Secs. 124.109, 124.110,
and 124.111, respectively, for the requirements for concerns owned by
Indian tribes or ANCs, for concerns owned by Native Hawaiian
Organizations, and for CDC-owned concerns.) Disadvantaged individuals
managing the concern must have managerial experience of the extent and
complexity needed to run the concern. A disadvantaged individual need
not have the technical expertise or possess a required license to be
found to control an applicant or Participant if he or she can
demonstrate that he or she has ultimate managerial and supervisory
control over those who possess the required licenses or technical
expertise. However, where a critical license is held by a non-
disadvantaged individual having an equity interest in the applicant or
Participant firm, the non-disadvantaged individual may be found to
control the firm.
(a)(1) An applicant or Participant must be managed on a full-time
basis by one or more disadvantaged individuals who possess requisite
management capabilities.
(2) A disadvantaged full-time manager must hold the highest officer
position (usually President or Chief Executive Officer) in the
applicant or Participant.
(3) One or more disadvantaged individuals who manage the applicant
or Participant must devote full-time to the business during the normal
working hours of firms in the same or similar line of business. Work in
a wholly-owned subsidiary of the applicant or participant may be
considered to meet the requirement of full-time devotion. This applies
only to a subsidiary owned by the 8(a) firm, and not to firms in which
the disadvantaged individual has an ownership interest.
(4) Any disadvantaged manager who wishes to engage in outside
employment must notify SBA of the nature and anticipated duration of
the outside employment and obtain the prior written approval of SBA.
SBA will deny a request for outside employment which could conflict
with the management of the firm or could hinder it in achieving the
objectives of its business development plan.
(5) Except as provided in paragraph (d)(1) of this section, a
disadvantaged owner's unexercised right to cause a change in the
control or management of the applicant concern does not in itself
constitute disadvantaged control and management, regardless of how
quickly or easily the right could be exercised.
(b) In the case of a partnership, one or more disadvantaged
individuals must serve as general partners, with control over all
partnership decisions. A partnership in which no disadvantaged
individual is a general partner will be ineligible for participation.
(c) In the case of a limited liability company, one or more
disadvantaged individuals must serve as management members, with
control over all decisions of the limited liability company.
(d) One or more disadvantaged individuals must control the Board of
Directors of a corporate applicant or Participant.
(1) SBA will deem disadvantaged individuals to control the Board of
Directors where:
(i) A single disadvantaged individual owns 100% of all voting stock
of an applicant or Participant concern;
(ii) A single disadvantaged individual owns at least 51% of all
voting stock of an applicant or Participant concern, the individual is
on the Board of Directors and no super majority voting requirements
exist for shareholders to approve corporation actions. Where super
majority voting requirements are provided for in the concern's articles
of incorporation, its by-laws, or by state law, the disadvantaged
individual must own at least the percent of the voting stock needed to
overcome any such super majority voting requirements; or
(iii) More than one disadvantaged shareholder seeks to qualify the
concern (i.e., no one individual owns 51%), each such individual is on
the Board of Directors, together they own at least 51% of all voting
stock of the concern, no super majority voting requirements exist, and
the disadvantaged shareholders can demonstrate that they have made
enforceable arrangements to permit one of them to vote the stock of all
as a block without a shareholder meeting. Where the concern has super
majority voting requirements, the disadvantaged shareholders must own
at least that percentage of voting stock needed to overcome any such
super majority ownership requirements.
(2) Where an applicant or Participant does not meet the
requirements set forth in paragraph (d)(1) of this section, the
disadvantaged individual(s) upon whom eligibility is based must control
the Board of Directors through actual numbers of voting directors or,
where permitted by state law, through weighted voting (e.g., in a
concern having a two-person Board of Directors where one individual on
the Board is disadvantaged and one is not, the disadvantaged vote must
be weighted--worth more than one vote--in order for the concern to be
eligible for 8(a) participation). Where a concern seeks to comply with
this paragraph:
(i) Provisions for the establishment of a quorum cannot permit non-
disadvantaged Directors to control the Board of Directors, directly or
indirectly;
(ii) Any Executive Committee of Directors must be controlled by
disadvantaged directors unless the Executive Committee can only make
recommendations to and cannot independently exercise the authority of
the Board of Directors.
(3) An applicant must inform SBA of any super majority voting
requirements provided for in its articles of incorporation, its by-
laws, by state law, or otherwise. Similarly, after being admitted to
the program, a Participant must inform SBA of changes regarding super
majority voting requirements.
(4) Non-voting, advisory, or honorary Directors may be appointed
without affecting disadvantaged individuals' control of the Board of
Directors.
(5) Arrangements regarding the structure and voting rights of the
Board of Directors must comply with applicable state law.
(e) Non-disadvantaged individuals may be involved in the management
of an applicant or Participant, and may be stockholders, partners,
limited liability
[[Page 35745]]
members, officers, and/or directors of the applicant or Participant.
However, no such non-disadvantaged individual or immediate family
member may:
(1) Exercise actual control or have the power to control the
applicant or Participant;
(2) Be a former employer or a principal of a former employer of any
disadvantaged owner of the applicant or Participant, unless it is
determined by the AA/8(a)BD that the relationship between the former
employer or principal and the disadvantaged individual or applicant
concern does not give the former employer actual control or the
potential to control the applicant or Participant and such relationship
is in the best interests of the 8(a) BD firm; or
(3) Receive compensation from the applicant or Participant in any
form as directors, officers or employees, including dividends, that
exceeds the compensation to be received by the highest officer (usually
CEO or President). The highest ranking officer may elect to take a
lower salary than a non-disadvantaged individual only upon
demonstrating that it helps the applicant or Participant. In the case
of a Participant, the Participant must also obtain the prior written
consent of the AA/8(a)BD or designee before changing the compensation
paid to the highest ranking officer to be below that paid to a non-
disadvantaged individual.
(f) Non-disadvantaged individuals who transfer majority stock
ownership or control of the firm to an immediate family member within
two years prior to the application and remain involved in the firm as a
stockholder, officer, director, or key employee of the firm are
presumed to control the firm. The presumption may be rebutted by
showing that the transferee has independent management experience
necessary to control the operation of the firm.
(g) Non-disadvantaged individuals or entities may be found to
control or have the power to control in any of the following
circumstances, which are illustrative only and not all inclusive:
(1) In circumstances where an applicant or Participant seeks to
establish disadvantaged control of the Board of Directors through
paragraph (d)(2) of this section, non-disadvantaged individuals control
the Board of Directors of the applicant or Participant, either directly
through majority voting membership, or indirectly, where the by-laws
allow non-disadvantaged individuals effectively to prevent a quorum or
block actions proposed by the disadvantaged individuals.
(2) A non-disadvantaged individual or entity, having an equity
interest in the applicant or participant, provides critical financial
or bonding support or a critical license to the applicant or
Participant which directly or indirectly allows the non-disadvantaged
individual significantly to influence business decisions of the
Participant.
(3) A non-disadvantaged individual or entity controls the applicant
or Participant or an individual disadvantaged owner through loan
arrangements. Providing a loan guaranty on commercially reasonable
terms does not, by itself, give a non-disadvantaged individual or
entity the power to control a firm.
(4) Business relationships exist with non-disadvantaged individuals
or entities which cause such dependence that the applicant or
Participant cannot exercise independent business judgment without great
economic risk.
Sec. 124.107 What is potential for success?
The applicant concern must possess reasonable prospects for success
in competing in the private sector if admitted to the 8(a) BD program.
To do so, it must be in business in its primary industry classification
for at least two full years immediately prior to the date of its 8(a)
BD application, unless a waiver for this requirement is granted
pursuant to paragraph (b) of this section.
(a) Income tax returns for each of the two previous tax years must
show operating revenues in the primary industry in which the applicant
is seeking 8(a) BD certification.
(b)(1) SBA may waive the two years in business requirement if each
of the following five conditions are met:
(i) The individual or individuals upon whom eligibility is based
have substantial business management experience;
(ii) The applicant has demonstrated technical experience to carry
out its business plan with a substantial likelihood for success if
admitted to the 8(a) BD program;
(iii) The applicant has adequate capital to sustain its operations
and carry out its business plan as a Participant;
(iv) The applicant has a record of successful performance on
contracts from governmental or nongovernmental sources in its primary
industry category; and
(v) The applicant has, or can demonstrate its ability to timely
obtain, the personnel, facilities, equipment, and any other
requirements needed to perform contracts as a Participant.
(2) The concern seeking a waiver under paragraph (b) must provide
information on governmental and nongovernmental contracts in progress
and completed (including letters of reference) in order to establish
successful contract performance, and must demonstrate how it otherwise
meets the five conditions for waiver. SBA considers an applicant's
performance on both government and private sector contracts in
determining whether the firm has an overall successful performance
record. If, however, the applicant has performed only government
contracts or only private sector contracts, SBA will review its
performance on those contracts alone to determine whether the applicant
possesses a record of successful performance.
(c) In assessing potential for success, SBA considers the concern's
access to credit and capital, including, but not limited to, access to
long-term financing, access to working capital financing, equipment
trade credit, access to raw materials and supplier trade credit, and
bonding capability.
(d) In assessing potential for success, SBA will also consider the
technical and managerial experience of the applicant concern's
managers, the operating history of the concern, the concern's record of
performance on previous Federal and private sector contracts in the
primary industry in which the concern is seeking 8(a) BD certification,
and its financial capacity. The applicant concern as a whole must
demonstrate both technical knowledge in its primary industry category
and management experience sufficient to run its day-to-day operations.
(e) The Participant or individuals employed by the Participant must
hold all requisite licenses if the concern is engaged in an industry
requiring professional licensing (e.g., public accountancy, law,
professional engineering).
(f) An applicant will not be denied admission into the 8(a) BD
program due solely to a determination that potential 8(a) contract
opportunities are unavailable to assist in the development of the
concern unless:
(1) The Government has not previously procured and is unlikely to
procure the types of products or services offered by the concern; or
(2) The purchase of such products or services by the Federal
Government will not be in quantities sufficient to support the
developmental needs of the applicant and other Participants providing
the same or similar items or services.
[[Page 35746]]
Sec. 124.108 What other eligibility requirements apply for individuals
or businesses?
(a) Good character. The applicant or Participant and all its
principals must have good character.
(1) If, during the processing of an application, adverse
information is obtained from the applicant or a credible source
regarding possible criminal conduct by the applicant or any of its
principals, no further action will be taken on the application until
SBA's Inspector General has collected relevant information and has
advised the AA/8(a)BD of his or her findings. The AA/8(a)BD will
consider those findings when evaluating the application.
(2) Violations of any of SBA's regulations may result in denial of
participation in the 8(a) BD program. The AA/8(a)BD will consider the
nature and severity of the violation in making an eligibility
determination.
(3) Debarred or suspended concerns or concerns owned by debarred or
suspended persons are ineligible for admission to the 8(a) BD program.
(4) An applicant is ineligible for admission to the 8(a) BD program
if the applicant concern or a proprietor, partner, limited liability
member, director, officer, or holder of at least 10 percent of its
stock, or another person (including key employees) with significant
authority over the concern:
(i) Lacks business integrity as demonstrated by information related
to an indictment or guilty plea, conviction, civil judgment, or
settlement; or
(ii) Is currently incarcerated, or on parole or probation pursuant
to a pre-trial diversion or following conviction for a felony or any
crime involving business integrity.
(5) If, during the processing of an application, SBA determines
that an applicant has knowingly submitted false information, regardless
of whether correct information would cause SBA to deny the application,
and regardless of whether correct information was given to SBA in
accompanying documents, SBA will deny the application. If, after
admission to the program, SBA discovers that false information has been
knowingly submitted by a firm, SBA will initiate termination
proceedings and suspend the firm under Secs. 124.304 and 124.305.
Whenever SBA determines that the applicant submitted false information,
the matter will be referred to SBA's Office of Inspector General for
review.
(b) One-time eligibility. Once a concern or disadvantaged
individual upon whom eligibility was based has participated in the 8(a)
BD program, neither the concern nor that individual will be eligible
again.
(1) An individual who claims disadvantage and completes the
appropriate SBA forms to qualify an applicant has participated in the
8(a) BD program if SBA approves the application.
(2) Use of eligibility will take effect on the date of the
concern's approval for admission into the program.
(3) An individual who uses his or her one-time eligibility to
qualify a concern for the 8(a) BD program will be considered a non-
disadvantaged individual for ownership or control purposes of another
applicant or Participant. The criteria restricting participation by
non-disadvantaged individuals will apply to such an individual. See
Secs. 124.105 and 124.106.
(4) When at least 50% of the assets of a concern are the same as
those of a former Participant, the concern will not be eligible for
entry into the program.
(5) Participants which change their form of business organization
and transfer their assets and liabilities to the new organization may
do so without affecting the eligibility of the new organization
provided the previous business is dissolved and all other eligibility
criteria are met. In such a case, the new organization may complete the
remaining program term of the previous organization. A request for a
change in business form will be treated as a change of ownership under
Sec. 124.105(i).
(c) Wholesalers. An applicant concern seeking admission to the 8(a)
BD program as a wholesaler need not demonstrate that it is capable of
meeting the requirements of the nonmanufacturer rule for its primary
industry classification.
(d) Brokers. Brokers are ineligible to participate in the 8(a) BD
program. A broker is a concern that adds no material value to an item
being supplied to a procuring activity or which does not take ownership
or possession of or handle the item being procured with its own
equipment or facilities.
(e) Federal financial obligations. Neither a firm nor any of its
principals that fails to pay significant financial obligations owed to
the Federal Government, including unresolved tax liens and defaults on
Federal loans or other Federally assisted financing, is eligible for
admission to or participation in the 8(a) BD program.
Sec. 124.109 Do Indian tribes and Alaska Native Corporations have any
special rules for applying to the 8(a) BD program?
(a) Special rules for ANCs. Small business concerns owned and
controlled by ANCs are eligible for participation in the 8(a) program
and must meet the eligibility criteria set forth in Sec. 124.112 to the
extent the criteria are not inconsistent with this section. ANC-owned
concerns are subject to the same conditions that apply to tribally-
owned concerns, as described in paragraphs (b) and (c) of this section,
except that the following provisions and exceptions apply only to ANC-
owned concerns:
(1) Alaska Natives and descendants of Natives must own a majority
of both the total equity of the ANC and the total voting powers to
elect directors of the ANC through their holdings of settlement common
stock. Settlement common stock means stock of an ANC issued pursuant to
43 U.S.C. 1606(g)(1), which is subject to the rights and restrictions
listed in 43 U.S.C. 1606(h)(1).
(2) An ANC that meets the requirements set forth in paragraph
(a)(1) of this section is deemed economically disadvantaged under 43
U.S.C. 1626(e), and need not establish economic disadvantage as
required by paragraph (b)(2) of this section.
(3) Even though an ANC can be either for profit or non-profit, a
small business concern owned and controlled by an ANC must be for
profit to be eligible for the 8(a) program. The concern will be deemed
owned and controlled by the ANC where both the majority of stock or
other ownership interest and total voting power are held by the ANC and
holders of its settlement common stock.
(4) The Alaska Native Claims Settlement Act provides that a concern
which is majority owned by an ANC shall be deemed to be both owned and
controlled by Alaska Natives and an economically disadvantaged
business. Therefore, an individual responsible for control and
management of an ANC-owned applicant or Participant need not establish
personal social and economic disadvantage.
(5) Paragraphs (b)(3)(i), (ii) and (iv) of this section are not
applicable to an ANC, provided its status as an ANC is clearly shown in
its articles of incorporation.
(6) Paragraph (c)(1) of this section is not applicable to an ANC-
owned concern to the extent it requires an express waiver of sovereign
immunity or a ``sue and be sued'' clause.
(b) Tribal eligibility. In order to qualify a concern which it owns
and controls for participation in the 8(a) BD program, an Indian tribe
must establish its own economic disadvantaged status under paragraph
(b)(2) of this section. Thereafter, it need not reestablish such status
in order to have other businesses
[[Page 35747]]
that it owns certified for 8(a) BD program participation, unless
specifically required to do so by the AA/8(a)BD or designee. Each
tribally-owned concern seeking to be certified for 8(a) BD
participation must comply with the provisions of paragraph (c) of this
section.
(1) Social disadvantage. An Indian tribe as defined in Sec. 124.3
is considered to be socially disadvantaged.
(2) Economic disadvantage. In order to be eligible to participate
in the 8(a) BD program, the Indian tribe must demonstrate to SBA that
the tribe itself is economically disadvantaged. This must involve the
consideration of available data showing the tribe's economic condition,
including but not limited to, the following information:
(i) The number of tribal members.
(ii) The present tribal unemployment rate.
(iii) The per capita income of tribal members, excluding judgment
awards.
(iv) The percentage of the local Indian population below the
poverty level.
(v) The tribe's access to capital.
(vi) The tribal assets as disclosed in a current tribal financial
statement. The statement must list all assets including those which are
encumbered or held in trust, but the status of those encumbered or in
trust must be clearly delineated.
(vii) A list of all wholly or partially owned tribal enterprises or
affiliates and the primary industry classification of each. The list
must also specify the members of the tribe who manage or control such
enterprises by serving as officers or directors.
(3) Forms and documents required to be submitted. Except as
otherwise provided in this section, the Indian tribe generally must
submit the forms and documents required of 8(a) BD applicants as well
as the following material:
(i) A copy of all governing documents such as the tribe's
constitution or business charter.
(ii) Evidence of its recognition as a tribe eligible for the
special programs and services provided by the United States or by its
state of residence.
(iii) Copies of its articles of incorporation and bylaws as filed
with the organizing or chartering authority, or similar documents
needed to establish and govern a non-corporate legal entity.
(iv) Documents or materials needed to show the tribe's economically
disadvantaged status as described in paragraph (b)(2) of this section.
(c) Business eligibility. In order to be eligible to participate in
the 8(a) BD program, a concern which is owned by an eligible Indian
tribe (or wholly owned business entities of such tribe) must meet the
conditions set forth in paragraphs (c)(1) through (c)(7) of this
section.
(1) Legal business entity organized for profit and susceptible to
suit. The applicant or participating concern must be a separate and
distinct legal entity organized or chartered by the tribe, or Federal
or state authorities. The concern's articles of incorporation,
partnership agreement or limited liability company articles of
organization must contain express sovereign immunity waiver language,
or a ``sue and be sued'' clause which designates United States Federal
Courts to be among the courts of competent jurisdiction for all matters
relating to SBA's programs including, but not limited to, 8(a) BD
program participation, loans, and contract performance. Also, the
concern must be organized for profit, and the tribe must possess
economic development powers in the tribe's governing documents.
(2) Size. (i) A tribally-owned applicant concern must qualify as a
small business concern as defined for purposes of Federal Government
procurement in part 121 of this title. The particular size standard to
be applied is based on the primary industry classification of the
applicant concern.
(ii) A tribally-owned Participant must certify to SBA that it is a
small business pursuant to the provisions of part 121 of this title for
the purpose of performing each individual contract which it is awarded.
(iii) In determining the size of a small business concern owned by
a socially and economically disadvantaged Indian tribe (or a wholly
owned business entity of such tribe) for either 8(a) BD program entry
or contract award, the firm's size shall be determined independently
without regard to its affiliation with the tribe, any entity of the
tribal government, or any other business enterprise owned by the tribe,
unless the Administrator determines that one or more such tribally-
owned business concerns have obtained, or are likely to obtain, a
substantial unfair competitive advantage within an industry category.
(3) Ownership. (i) For corporate entities, a tribe must own at
least 51 percent of the voting stock and at least 51 percent of the
aggregate of all classes of stock. For non-corporate entities, a tribe
must own at least a 51 percent interest.
(ii) A tribe cannot own 51% or more of another firm which, either
at the time of application or within the previous two years, has been
operating in the 8(a) program under the same primary SIC code as the
applicant. A tribe may, however, own a Participant or an applicant that
conducts or will conduct secondary business in the 8(a) BD program
under the same SIC code that a current Participant owned by the tribe
operates in the 8(a) BD program as its primary SIC code.
(iii) The restrictions of Sec. 124.105(h) do not apply to tribes;
they do, however, apply to non disadvantaged individuals or other
business concerns that are partial owners of a tribally-owned concern.
(4) Control and management. (i) The management and daily business
operations of a tribally-owned concern must be controlled by the tribe,
through one or more disadvantaged individual members who possess
sufficient management experience of an extent and complexity needed to
run the concern, or through management as follows:
(A) Management may be provided by committees, teams, or Boards of
Directors which are controlled by one or more members of an
economically disadvantaged tribe, or
(B) Management may be provided by non-tribal members if SBA
determines that such management is required to assist the concern's
development, that the tribe will retain control of all management
decisions common to boards of directors, including strategic planning,
budget approval, and the employment and compensation of officers, and
that a written management development plan exists which shows how
disadvantaged tribal members will develop managerial skills sufficient
to manage the concern or similar tribally-owned concerns in the future.
(ii) Members of the management team, business committee members,
officers, and directors are precluded from engaging in any outside
employment or other business interests which conflict with the
management of the concern or prevent the concern from achieving the
objectives set forth in its business development plan. This is not
intended to preclude participation in tribal or other activities which
do not interfere with such individual's responsibilities in the
operation of the applicant concern.
(5) Individual eligibility limitation. SBA does not deem an
individual involved in the management or daily business operations of a
tribally-owned concern to have used his or her individual eligibility
within the meaning of Sec. 124.108(b).
(6) Potential for success. (i) A tribally-owned applicant concern
must be in business for at least two years, as evidenced by income tax
returns for
[[Page 35748]]
each of the two previous tax years showing operating revenues in the
primary industry in which the applicant is seeking 8(a) BD
certification, or demonstrate potential for success as set forth in
paragraph (c)(6)(ii) of this section.
(ii) In determining whether a tribally-owned concern has the
potential for success, SBA will look at a number of factors including,
but not limited to:
(A) The technical and managerial experience and competency of the
individual(s) who will manage and control the daily operation of the
concern;
(B) The financial capacity of the concern; and
(C) The concern's record of performance on any previous Federal or
private sector contracts in the primary industry in which the concern
is seeking 8(a) certification.
(7) Other eligibility criteria. (i) As with other 8(a) applicants,
a tribally-owned applicant concern shall not be denied admission into
the 8(a) program due solely to a determination that specific contract
opportunities are unavailable to assist the development of the concern
unless:
(A) The Government has not previously procured and is unlikely to
procure the types of products or services offered by the concern; or
(B) The purchase of such products or services by the Federal
Government will not be in quantities sufficient to support the
developmental needs of the applicant and other program participants
providing the same or similar items or services.
(ii) Except for the tribe itself, the concern's officers,
directors, and all shareholders owning an interest of 20% or more must
demonstrate good character. See Sec. 124.108(a).
Sec. 124.110 Do Native Hawaiian Organizations have any special rules
for applying to the 8(a) BD program?
(a) Concerns owned by economically disadvantaged Native Hawaiian
Organizations, as defined in Sec. 124.3, are eligible for participation
in the 8(a) program and other federal programs requiring SBA to
determine social and economic disadvantage as a condition of
eligibility. Such concerns must meet all eligibility criteria set forth
in Secs. 124.101 through 124.108 and Sec. 124.112 to the extent that
they are not inconsistent with this section.
(b) A concern owned by a Native Hawaiian Organization must qualify
as a small business concern as defined in part 121 of this title. The
size standard corresponding to the primary industry classification of
the applicant concern applies for determining size. SBA will determine
the concern's size independently, without regard to its affiliation
with the Native Hawaiian Organization or any other business enterprise
owned by the Native Hawaiian Organization, unless the Administrator
determines that one or more such concerns owned by the Native Hawaiian
Organization have obtained, or are likely to obtain, a substantial
unfair competitive advantage within an industry category.
(c) A Native Hawaiian Organization cannot own 51% or more of
another firm which, either at the time of application or within the
previous two years, has been operating in the 8(a) program under the
same primary SIC code as the applicant. A Native Hawaiian Organization
may, however, own a Participant or an applicant that conducts or will
conduct secondary business in the 8(a) BD program under the same SIC
code that a current Participant owned by the Native Hawaiian
Organization operates in the 8(a) BD program as its primary SIC code.
(d) SBA does not deem an individual involved in the management or
daily business operations of a Participant owned by a Native Hawaiian
Organization to have used his or her individual eligibility within the
meaning of Sec. 124.108(b).
(e)(1) An applicant concern owned by a Native Hawaiian Organization
must be in business for at least two years, as evidenced by income tax
returns for each of the two previous tax years showing operating
revenues in the primary industry in which the applicant is seeking 8(a)
BD certification, or demonstrate potential for success as set forth in
paragraph (e)(2) of this section.
(2) In determining whether a concern owned by a Native Hawaiian
Organization has the potential for success, SBA will look at a number
of factors including, but not limited to:
(i) The technical and managerial experience and competence of the
individual(s) who will manage and control the daily operation of the
concern.
(ii) The financial capacity of the concern; and
(iii) The concern's record of performance on any previous Federal
or private sector contracts in the primary industry in which the
concern is seeking 8(a) certification.
Sec. 124.111 Do Community Development Corporations (CDCs) have any
special rules for applying to the 8(a) BD program?
(a) Concerns owned at least 51 percent by CDCs (or a wholly owned
business entity of a CDC) are eligible for participation in the 8(a) BD
program and other federal programs requiring SBA to determine social
and economic disadvantage as a condition of eligibility. These concerns
must meet all eligibility criteria set forth in Sec. 124.101 through
Sec. 124.108 and Sec. 124.112 to the extent that they are not
inconsistent with this section.
(b) A concern that is at least 51 percent owned by a CDC (or a
wholly owned business entity of a CDC) is considered to be controlled
by such CDC and eligible for participation in the 8(a) BD program,
provided it meets all eligibility criteria set forth or referred to in
this section and its management and daily business operations are
conducted by one or more individuals determined to have managerial
experience of an extent and complexity needed to run the concern.
(c) A concern that is at least 51 percent owned by a CDC (or a
wholly owned business entity of a CDC) must qualify as a small business
concern as defined in part 121 of this title. The size standard
corresponding to the primary industry classification of the applicant
concern applies for determining size. SBA will determine the concern's
size independently, without regard to its affiliation with the CDC or
any other business enterprise owned by the CDC, unless the
Administrator determines that one or more such concerns owned by the
CDC have obtained, or are likely to obtain, a substantial unfair
competitive advantage within an industry category.
(d) A CDC cannot own 51% or more of another firm which, either at
the time of application or within the previous two years, has been
operating in the 8(a) program under the same primary SIC code as the
applicant. A CDC may, however, own a Participant or an applicant that
conducts or will conduct secondary business in the 8(a) BD program
under the same SIC code that a current Participant owned by the CDC
operates in the 8(a) BD program as its primary SIC code.
(e) SBA does not deem an individual involved in the management or
daily business operations of a CDC-owned concern to have used his or
her individual eligibility within the meaning of Sec. 124.108(b).
(f)(1) A CDC-owned applicant concern must be in business for at
least two years, as evidenced by income tax returns for each of the two
previous tax years showing operating revenues in the primary industry
in which the applicant is seeking 8(a) BD certification, or demonstrate
potential for success as set forth in paragraph (e)(2) of this section.
[[Page 35749]]
(2) In determining whether a CDC-owned concern has the potential
for success, SBA will look at a number of factors including, but not
limited to:
(i) The technical and managerial experience and competence of the
individual(s) who will manage and control the daily operation of the
concern;
(ii) The financial capacity of the concern; and
(iii) The concern's record of performance on any previous Federal
or private sector contracts in the primary industry in which the
concern is seeking 8(a) certification.
(g) A CDC-owned applicant and all of its principals must have good
character as set forth in Sec. 124.108(a).
Sec. 124.112 What criteria must a business meet to remain eligible to
participate in the 8(a) BD program?
(a) Standards. In order for a concern (except those owned by Indian
tribes, ANCs, Native Hawaiian Organizations or CDCs) to remain eligible
for 8(a) BD program participation, it must continue to meet all
eligibility criteria contained in Sec. 124.101 through Sec. 124.108.
For concerns owned by Indian tribes, ANCs, Native Hawaiian
Organizations or CDCs to remain eligible, they must meet the criteria
set forth in this Sec. 124.112 to the extent that they are not
inconsistent with Sec. 124.109, Sec. 124.110 and Sec. 124.111,
respectively. The concern must inform SBA in writing of any changes in
circumstances which would adversely affect its program eligibility,
especially economic disadvantage and ownership and control. Any concern
that fails to meet the eligibility requirements after being admitted to
the program will be subject to termination or early graduation under
Secs. 124.302 through 124.304, as appropriate.
(b) Submissions supporting continued eligibility. As part of an
annual review, each Participant must annually submit to the servicing
district office the following:
(1) A certification that it meets the 8(a) BD program eligibility
requirements as set forth in Sec. 124.101 through Sec. 124.108 and
paragraph (a) of this section;
(2) A certification that there have been no changed circumstances
which could adversely affect the Participant's program eligibility. If
the Participant is unable to provide such certification, the
Participant must inform SBA of any changes and provide relevant
supporting documentation.
(3) Personal financial information for each disadvantaged owner;
(4) A record from each individual claiming disadvantaged status
regarding the transfer of assets for less than fair market value to any
immediate family member, or to a trust any beneficiary of which is an
immediate family member, within two years of the date of the annual
review. The record must provide the name of the recipient(s) and family
relationship, and the difference between the fair market value of the
asset transferred and the value received by the disadvantaged
individual.
(5) A record of all payments, compensation, and distributions
(including loans, advances, salaries and dividends) made by the
Participant to each of its owners, officers or directors, or to any
person or entity affiliated with such individuals;
(6) If it is an approved protege, a narrative report detailing the
contacts it has had with its mentor and benefits it has received from
the mentor/protege relationship. See Sec. 124.520(b)(4) for additional
annual requirements;
(7) IRS Form 4506, Request for Copy or Transcript of Tax Form; and
(8) Such other information as SBA may deem necessary. For other
required annual submissions, see Secs. 124.601 through 124.603.
(c) Eligibility reviews. (1) Upon receipt of specific and credible
information alleging that a Participant no longer meets the eligibility
requirements for continued program eligibility, SBA will review the
concern's eligibility for continued participation in the program.
(2) Sufficient reasons for SBA to conclude that a socially
disadvantaged individual is no longer economically disadvantaged
include, but are not limited to, excessive withdrawals of funds or
other assets withdrawn from the concern by its owners, or substantial
personal assets, income or net worth of any disadvantaged owner. SBA
may also consider access by the Participant firm to a significant new
source of capital or loans since the financial condition of the
Participant is considered in evaluating the disadvantaged individual's
economic status.
(d) Excessive withdrawals. (1) The term withdrawal includes, but is
not limited to, the following: officer's salary; cash dividends;
distributions in excess of amounts needed to pay S Corporation taxes;
cash and property withdrawals; bonuses; loans; advances; payments to
immediate family members; investments on behalf of an owner, officer,
or key employee; acquisition of a business not merged with the 8(a)
Participant; charitable contributions; and speculative ventures.
(2) If SBA determines that excessive funds or other assets have
been withdrawn from the Participant, SBA may:
(i) Initiate termination proceedings under Secs. 124.303 and
124.304 where the withdrawals detrimentally affect the achievement of
the Participant's targets, objectives and goals set forth in its
business plan, or its overall business development;
(ii) Initiate early graduation proceedings under Secs. 124.302 and
124.303 where the withdrawals do not adversely affect the Participant's
business development; or
(iii) Require an appropriate reinvestment of funds or other assets,
as well as any other actions SBA deems necessary to counteract the
detrimental effects of the withdrawals, as a condition of the
Participant maintaining program eligibility.
(3) Withdrawals are excessive if during any fiscal year of the
Participant they exceed (i) $150,000 for firms with sales up to
$1,000,000; (ii) $200,000 for firms with sales between $1,000,000 and
$2,000,000; and (iii) $300,000 for firms with sales over $2,000,000.
(4) The fact that a concern's net worth has increased despite
withdrawals that are deemed excessive will not preclude SBA from
determining that such withdrawals were detrimental to the attainment of
the concern's business objectives or to its overall business
development.
Applying to the 8(a) BD Program
Sec. 124.201 May any business submit an application?
Any concern or any individual on behalf of a business has the right
to apply for 8(a) BD program participation whether or not there is an
appearance of eligibility.
Sec. 124.202 Where must an application be filed?
An application for 8(a) BD program admission must be filed in the
SBA Division of Program Certification and Eligibility (DPCE) field
office serving the territory in which the principal place of business
is located. The SBA district office will provide an applicant concern
with information regarding the 8(a) BD program and with all required
application forms.
Sec. 124.203 What must a concern submit to apply to the 8(a) BD
program?
Each 8(a) BD applicant concern must submit those forms and
attachments required by SBA when applying for admission to the 8(a) BD
program. These forms and attachments will include, but not be limited
to, financial statements, Federal personal and business tax returns,
and personal history statements. An applicant must also submit IRS Form
4506, Request for Copy
[[Page 35750]]
or Transcript of Tax Form, to SBA. The application package may be in
the form of an electronic application.
Sec. 124.204 How does SBA process applications for 8(a) BD program
admission?
(a) The AA/8(a)BD is authorized to approve or decline applications
for admission to the 8(a) BD program. The appropriate DPCE field office
will receive, review and evaluate all 8(a) BD applications except those
from ANC-owned applicants. SBA's Anchorage District Office will receive
all applications from ANC-owned applicants and review them for
completeness before sending them to the AA/8(a)BD for further
processing. The appropriate field office will advise each program
applicant within 15 days after the receipt of an application whether
the application is complete and suitable for evaluation and, if not,
what additional information or clarification is required to complete
the application. SBA will process an application for 8(a) BD program
participation within 90 days of receipt of a complete application
package by the DPCE field office. Incomplete application packages will
not be processed.
(b) SBA, in its sole discretion, may request clarification of
information contained in the application at any time in the application
process. SBA will take into account any clarifications made by an
applicant in response to a request for such by SBA.
(c) An applicant concern's eligibility will be based on
circumstances existing on the date of application, except where
clarification is made pursuant to paragraph (b) of this section or as
provided in paragraph (d) of this section.
(d) Changed circumstances for an applicant concern occurring
subsequent to its application and which adversely affect eligibility
will be considered and may constitute grounds for decline. The
applicant must inform SBA of any changed circumstances that could
adversely affect its eligibility for the program (particularly economic
disadvantage and ownership and control) during its application review.
Failure to inform SBA of any such changed circumstances constitutes
good cause for which SBA may terminate the Participant if non-
compliance is discovered after admittance.
(e) The decision of the AA/8(a)BD to approve or deny an application
will be in writing. A decision to deny admission will state the
specific reasons for denial, and will inform the applicant of any
appeal rights.
(f) If the AA/8(a)BD approves the application, the date of the
approval letter is the date of program certification for purposes of
determining the concern's program term.
Sec. 124.205 Can an applicant ask SBA to reconsider SBA's initial
decision to decline its application?
(a) An applicant may request the AA/8(a)BD to reconsider his or her
initial decline decision by filing a request for reconsideration with
the SBA field office that originally processed its application. Filing
means submission by personal delivery, first-class mail, express mail,
fascimile transmission followed by first-class mail, or commercial
delivery service. The applicant must submit its request for
reconsideration within 45 days of receiving notice that its application
was declined. The applicant must provide any additional information and
documentation pertinent to overcoming the reason(s) for the initial
decline.
(b) The AA/8(a)BD will issue a written decision within 45 days of
the regional DPCE's receipt of the applicant's request. The AA/8(a)BD
may either approve the application, deny it on the same grounds as the
original decision, or deny it on other grounds. If denied, the AA/
8(a)BD will explain why the applicant is not eligible for admission to
the 8(a) BD program and give specific reasons for the decline.
(c) If the AA/8(a)BD declines the application solely on issues not
raised in the initial decline, the applicant can ask for
reconsideration as if it were an initial decline.
Sec. 124.206 What appeal rights are available to an applicant that has
been denied admission?
(a) An applicant may appeal a denial of program admission to SBA's
Office of Hearings and Appeals (OHA), if it is based solely on a
negative finding of social disadvantage, economic disadvantage,
ownership, control, or any combination of these four criteria. A denial
decision that is based at least in part on the failure to meet any
other eligibility criterion is not appealable and is the final decision
of SBA.
(b) The applicant may appeal an initial decision of the AA/8(a)BD
without requesting reconsideration, or may appeal the decision of the
AA/8(a)BD on reconsideration.
(c) The applicant may initiate an appeal by filing a petition in
accordance with part 134 of this title with OHA within 45 days of the
date of service (as defined in Sec. 134.204) of the Agency decision.
(d) If an appeal is filed with OHA, the written decision of the
Administrative Law Judge is the final Agency decision. If an appealable
decision is not appealed, the decision of the AA/8(a)BD is the final
Agency decision.
Sec. 124.207 Can an applicant reapply for admission to the 8(a) BD
program?
A concern which has been declined for 8(a) BD program admission may
submit a new application for admission to the program 12 months after
the date of the final Agency decision to decline.
Exiting the 8(a) BD Program
Sec. 124.301 What are the ways a business may leave the 8(a) BD
program?
A concern participating in the 8(a) BD program may leave the
program by any of the following means:
(a) Graduation upon the expiration of the program term established
pursuant to Sec. 124.2;
(b) Voluntary early graduation;
(c) Early graduation pursuant to the provisions of Secs. 124.302
and 124.304; or
(d) Termination pursuant to the provisions of Secs. 124.303 and
124.304.
Sec. 124.302 What is early graduation?
(a) General. SBA may graduate a firm from the 8(a) BD program prior
to the expiration of its Program Term where SBA determines that:
(1) The concern has successfully completed the 8(a) BD program by
substantially achieving the targets, objectives, and goals set forth in
its business plan prior to the expiration of its program term, and has
demonstrated the ability to compete in the marketplace without
assistance under the 8(a) BD program; or
(2) One or more of the disadvantaged owners upon whom the
Participant's eligibility is based are no longer economically
disadvantaged.
(b) Criteria for determining whether a Participant has met its
goals and objectives. In determining whether a Participant has
substantially achieved the targets, objectives and goals of its
business plan and in assessing the overall competitive strength and
viability of a Participant, SBA considers the totality of
circumstances, including the following factors:
(1) Degree of sustained profitability;
(2) Sales trends, including improved ratio of non-8(a) sales to
8(a) sales since program entry;
(3) Business net worth, financial ratios, working capital,
capitalization, and access to credit and capital;
(4) Current ability to obtain bonding;
(5) A comparison of the Participant's business and financial
profiles with profiles of non-8(a) BD businesses having the same
primary four-digit SIC code as the Participant;
[[Page 35751]]
(6) Strength of management experience, capability, and expertise;
and
(7) Ability to operate successfully without 8(a) contracts.
(c) Excessive withdrawals. SBA may graduate a Participant prior to
the expiration of its program term where excessive funds or other
assets have been withdrawn from the Participant (see
Sec. 124.112(d)(3)), causing SBA to determine that the Participant has
demonstrated the ability to compete in the marketplace without
assistance under the 8(a) BD program.
Sec. 124.303 What is termination?
(a) SBA may terminate the participation of a concern in the 8(a) BD
program prior to the expiration of the concern's Program Term for good
cause. Examples of good cause include, but are not limited to, the
following:
(1) Submission of false information in the concern's 8(a) BD
application, regardless of whether correct information would have
caused the concern to be denied admission to the program, and
regardless of whether correct information was given to SBA in
accompanying documents or by other means.
(2) Failure by the concern to maintain its eligibility for program
participation.
(3) Failure by the concern for any reason, including the death of
an individual upon whom eligibility was based, to maintain ownership,
full-time day-to-day management, and control by disadvantaged
individuals.
(4) Failure by the concern to obtain prior written approval from
SBA for any changes in ownership or business structure, management or
control pursuant to Secs. 124.105 and 124.106.
(5) Failure by the concern to disclose to SBA the extent to which
non-disadvantaged persons or firms participate in the management of the
Participant business concern.
(6) Failure by the concern or one or more of the concern's
principals to maintain good character.
(7) A pattern of failure to make required submissions or responses
to SBA in a timely manner, including a failure to provide required
financial statements, requested tax returns, reports, updated business
plans, information requested by SBA's Office of Inspector General, or
other requested information or data within 30 days of the date of
request.
(8) Cessation of business operations by the concern.
(9) Failure by the concern to pursue competitive and commercial
business in accordance with its business plan, or failure in other ways
to make reasonable efforts to develop and achieve competitive
viability.
(10) A pattern of inadequate performance by the concern of awarded
section 8(a) contracts.
(11) Failure by the concern to pay or repay significant financial
obligations owed to the Federal Government.
(12) Failure by the concern to obtain and keep current any and all
required permits, licenses, and charters, including suspension or
revocation of any professional license required to operate the
business.
(13) Excessive withdrawals, including transfers of funds or other
business assets, from the concern for the personal benefit of any of
its owners or any person or entity affiliated with the owners that
hinder the development of the concern (see Sec. 124.112(d).
(14) Unauthorized use of SBA direct or guaranteed loan proceeds or
violation of an SBA loan agreement.
(15) Submission by or on behalf of a Participant of false
information to SBA, including false certification of compliance with
non-8(a) business activity targets under Sec. 124.507 or failure to
report changes that adversely affect the program eligibility of an
applicant or program participant under Sec. 124.204 and Sec. 124.112,
where responsible officials of the 8(a) BD Participant knew or should
have known the submission to be false.
(16) Debarment, suspension, voluntary exclusion, or ineligibility
of the concern or its principals pursuant to part 145 of this title or
FAR subpart 9.4 (48 CFR part 9, subpart 9.4).
(17) Conduct by the concern, or any of its principals, indicating a
lack of business integrity. Such conduct may be demonstrated by
information related to a criminal indictment or guilty plea, a criminal
conviction, or a judgment or settlement in a civil case.
(18) Willful failure by the Participant business concern to comply
with applicable labor standards and obligations.
(19) Material breach of any terms and conditions of the 8(a) BD
Program Participation Agreement.
(20) Willful violation by a concern, or any of its principals, of
any SBA regulation pertaining to material issues.
(b) The examples of good cause listed in paragraph (a) of this
section are intended to be illustrative only. Other grounds for
terminating a Participant from the 8(a) BD program for cause may exist
and may be used by SBA.
Sec. 124.304 What are the procedures for early graduation and
termination?
(a) General. The same procedures apply to both early graduation and
termination of Participants from the 8(a) BD program.
(b) Letter of Intent to Terminate or Graduate Early. When SBA
believes that a Participant should be terminated or graduated prior to
the expiration of its program term, SBA will notify the concern in
writing. The Letter of Intent to Terminate or Graduate Early will set
forth the specific facts and reasons for SBA's findings, and will
notify the concern that it has 30 days from the date of service (as
defined in Sec. 134.204 of this title) of the letter to submit a
written response to SBA explaining why the proposed ground(s) should
not justify termination or early graduation. Service is defined in
Sec. 134.204.
(c) Recommendation and decision. Following the 30-day response
period, the Assistant Administrator for DPCE (AA/DPCE) or designee will
consider the proposed early graduation or termination and any
information submitted in response by the concern. Upon determining that
early graduation or termination is not warranted, the AA/DPCE or
designee will notify the Participant in writing. If early graduation or
termination appears warranted, the AA/DPCE will make such a
recommendation to the AA/8(a)BD, who will then make a decision whether
to early graduate or terminate the concern. SBA will act in a timely
manner in processing early graduation and termination actions.
(d) Notice requirements. Upon deciding that early graduation or
termination is warranted, the AA/8(a)BD will issue a Notice of Early
Graduation or Termination. The Notice will set forth the specific facts
and reasons for the decision, and will advise the concern that it may
appeal the decision in accordance with the provisions of part 134 of
this title.
(e) Appeal to OHA. Procedures governing appeals of early graduation
or termination to SBA's OHA are set forth in part 134. If a Participant
does not appeal a Notification of Early Graduation or Termination
within 45 days of the date of service (as defined in Sec. 134.204), the
decision of the AA/8(a)BD is the final agency decision effective on the
date the appeal right expired.
(f) Effect of early graduation or termination. After the effective
date of early graduation or termination, a Participant is no longer
eligible to receive any 8(a) BD program assistance. However, such
concern is obligated to complete previously awarded 8(a) contracts,
including any priced options which may be exercised.
[[Page 35752]]
Sec. 124.305 What is suspension and how is a Participant suspended
from the 8(a) BD program?
(a) At any time after SBA issues a Letter of Intent to Terminate
pursuant to Sec. 124.304, the AA/8(a)BD may suspend 8(a) contract
support and all other forms of 8(a) BD program assistance to that
concern until the issue of the concern's termination from the program
is finally decided. The AA/8(a)BD may suspend a Participant when he or
she determines that suspension is needed to protect the interests of
the Federal Government, such as where information showing a clear lack
of program eligibility or conduct indicating a lack of business
integrity exists, including where the concern or one of its principals
submitted false statements to the Federal Government. SBA will suspend
a Participant where SBA determines that the Participant submitted false
information in its 8(a) BD application.
(b) SBA will issue a Notice of Suspension to the Participant's last
known address by certified mail, return receipt requested. Suspension
is effective as of the date of the issuance of the Notice. The Notice
will provide the following information:
(1) The basis for the suspension;
(2) A statement that the suspension will continue pending the
completion of further investigation, a final program termination
determination, or some other specified period of time;
(3) A statement that awards of competitive and non-competitive 8(a)
contracts, including those which have been ``self-marketed'' by a
Participant, will not be made during the pendency of the suspension
unless it is determined by the head of the relevant procuring agency or
an authorized representative to be in the best interest of the
Government to do so, and SBA adopts that determination;
(4) A statement that the concern is obligated to complete
previously awarded section 8(a) contracts;
(5) A statement that the suspension is effective nationally
throughout SBA;
(6) A statement that a request for a hearing on the suspension will
be considered by an Administrative Law Judge at OHA, and granted or
denied as a matter of discretion.
(7) A statement that the firm's participation in the program is
suspended effective on the date the Notice is served, and that the
program term will resume only if the suspension is lifted or the firm
is not terminated.
(c) The applicant concern may appeal a Notice of Suspension by
filing a petition in accordance with part 134 of this title with OHA
within 45 days of the date of service (as defined in Sec. 134.204) of a
Notice of Suspension pursuant to paragraph (b) of this section. It is
contemplated that in most cases a hearing on the issue of the
suspension will be afforded if the Participant requests one, but
authority to grant a hearing is within the discretion of the
Administrative Law Judge in OHA. A suspension remains in effect pending
the result of its appeal.
(d) SBA has the burden of showing that adequate evidence exists
that protection of the Federal Government's interest requires
suspension before OHA or the AA/8(a)BD makes a final determination
regarding the termination action.
(1) The term ``adequate evidence'' means information contained in
the record before the AA/8(a)BD at the time of his or her suspension
decision that is sufficient to support the reasonable belief that the
Government's interests need to be protected.
(2) SBA need not demonstrate that an act or omission actually
occurred in order for OHA to uphold a suspension. SBA's burden in a
suspension proceeding is limited to demonstrating that it had a
reasonable belief that a particular act or omission occurred, and that
that act or omission requires suspension to protect the interests of
the Government.
(3) Unless the Administrative Law Judge consolidates the suspension
and termination proceedings, OHA's review is limited to determining
whether the Government's interests need to be protected, and will not
consider the merits of the termination action.
(e) If there is a timely appeal, the decision of the Administrative
Law Judge is the final SBA decision. If there is not a timely appeal,
the decision of the AA/8(a)BD is the final Agency decision.
(f) Upon the request of SBA, OHA may consolidate suspension and
termination proceedings when the issues presented are identical.
(g) Any program suspension which occurs under this section is
effective until such time as SBA lifts the suspension or the
Participant's participation in the program is fully terminated. If the
concern is ultimately not terminated from the 8(a) BD program, the
suspension will be lifted and the length of the suspension will be
added to the concern's program term.
(h) SBA may suspend a Participant from program benefits where a
change of ownership or business structure has been requested if
ownership or control of the participant changed prior to SBA's approval
pending resolution of the request to change its ownership or control.
If the change of ownership is approved, the length of the suspension
will be added to the firm's program term where the change in ownership
results from the death or incapacity of a disadvantaged individual or
where the firm requested prior approval and waited 60 days for SBA
approval before making the change. The suspension will be commenced by
the issuance of a notice similar to that required for termination-
related suspensions under paragraph (b) of this section, except that a
change of ownership suspension is not appealable.
(i) SBA does not recognize the concept of de facto suspension.
Adding time to the end of a Participant's program term equal to the
length of a suspension will occur only where a concern's program
participation has been formally suspended in accordance with the
procedures set forth in this section.
(j) A suspension from 8(a) BD participation under this section has
no effect on a concern's eligibility for non-8(a) Federal Government
contracts. However, a debarment or suspension under the Federal
Acquisition Regulation (48 CFR, chapter 1) will disqualify a concern
from receiving all Federal Government contracts, including 8(a)
contracts.
Business Development
Sec. 124.401 Which SBA field office services a Participant?
The SBA district office which serves the geographical territory
where a Participant's principal place of business is located normally
will service the concern during its participation in the 8(a) BD
program.
Sec. 124.402 How does a Participant develop a business plan?
(a) General. In order to assist the SBA servicing office in
determining the business development needs of its portfolio
Participants, each Participant must develop a comprehensive business
plan setting forth its business targets, objectives, and goals.
(b) Submission of initial business plan. Each Participant must
submit a business plan to its SBA servicing office as soon as possible
after program admission. The Participant will not be eligible for 8(a)
BD program benefits, including 8(a) contracts, until SBA approves its
business plan.
(c) Contents of business plan. The business plan must contain at
least the following:
(1) A detailed description of any products currently being produced
and any services currently being performed by the concern, as well as
any future
[[Page 35753]]
plans to enter into one or more new markets;
(2) The applicant's designation of its primary industry
classification, as defined in Sec. 124.3;
(3) An analysis of market potential, competitive environment, and
the concern's prospects for profitable operations during and after its
participation in the 8(a) BD program;
(4) An analysis of the concern's strengths and weaknesses, with
particular attention on ways to correct any financial, managerial,
technical, or work force conditions which could impede the concern from
receiving and performing non-8(a) contracts;
(5) Specific targets, objectives, and goals for the business
development of the concern during the next two years;
(6) Estimates of both 8(a) and non-8(a) contract awards that will
be needed to meet its targets, objectives and goals; and
(7) Such other information as SBA may require.
Sec. 124.403 How is a business plan updated and modified?
(a) Annual review. Each Participant must annually review its
business plan with its assigned Business Opportunity Specialist (BOS),
and modify the plan as appropriate. The Participant must submit a
modified plan and updated information to its BOS within thirty (30)
days after the close of each program year. It also must submit a
capability statement describing its current contract performance
capabilities as part of its updated business plan.
(b) Contract forecast. As part of the annual review of its business
plan, each Participant must annually forecast in writing its needs for
contract awards for the next program year. The forecast must include:
(1) The aggregate dollar value of 8(a) contracts to be sought,
broken down by sole source and competitive opportunities where
possible;
(2) The aggregate dollar value of non-8(a) contracts to be sought;
(3) The types of contract opportunities to be sought, identified by
product or service; and
(4) Such other information as SBA may request to aid in providing
effective business development assistance to the Participant.
(c) Transition management strategy. Beginning in the first year of
the transitional stage of program participation, each Participant must
annually submit a transition management strategy to be incorporated
into its business plan. The transition management strategy must
describe:
(1) How the Participant intends to meet the applicable non-8(a)
business activity target imposed by Sec. 124.507 during the
transitional stage of participation; and
(2) The specific steps the Participant intends to take to continue
its business growth and promote profitable business operations after
the expiration of its program term.
Sec. 124.404 What business development assistance is available to
Participants during the two stages of participation in the 8(a) BD
program?
(a) General. Participation in the 8(a) BD program is divided into
two stages, a developmental stage and a transitional stage. The
developmental stage will last four years, and the transitional stage
will last five years, unless the concern has exited the program by one
of the means set forth in Sec. 124.301 prior to the expiration of its
program term.
(b) Developmental stage of program participation. A Participant, if
otherwise eligible, may receive the following assistance during the
developmental stage of program participation:
(1) Sole source and competitive 8(a) contract support;
(2) Financial assistance pursuant to Sec. 120.375 of this title;
(3) The transfer of technology or surplus property owned by the
United States pursuant to Sec. 124.405; and
(4) Training to aid in developing business principles and
strategies to enhance their ability to compete successfully for both
8(a) and non-8(a) contracts.
(c) Transitional stage of program participation. A Participant, if
otherwise eligible, may receive the following assistance during the
transitional stage of program participation:
(1) The same assistance as that provided to Participants in the
developmental stage;
(2) Assistance from procuring agencies (in cooperation with SBA) in
forming joint ventures, leader-follower arrangements, and teaming
agreements between the concern and other Participants or other business
concerns with respect to contracting opportunities outside the 8(a) BD
program for research, development, or full scale engineering or
production of major systems (these arrangements must comply with all
relevant statutes and regulations, including applicable size standard
requirements); and
(3) Training and technical assistance in transitional business
planning.
Sec. 124.405 How does a Participant obtain Federal Government surplus
property?
(a) General. (1) Pursuant to 15 U.S.C. 636(j)(13)(F), eligible
Participants may receive surplus Federal Government property from State
Agencies for Surplus Property (SASPs). The procedures set forth in 41
CFR Part 101-44 and this section will be used to transfer surplus
property to eligible Participants.
(2) The property which may be transferred to SASPs for further
transfer to eligible Participants includes all personal property which
has been determined to be ``donable'' as defined in 41 CFR 101-44.001-
3.
(b) Eligibility to receive Federal surplus property. To be eligible
to receive Federal surplus property, on the date of transfer a concern
must:
(1) Be in the 8(a) BD program;
(2) Be in compliance with all program requirements, including any
reporting requirements;
(3) Not be debarred, suspended, or declared ineligible under part
9, subpart 9.4 of the Federal Acquisition Regulations, Title 48 of the
Code of Federal Regulations;
(4) Not be under a pending 8(a) BD program suspension, termination
or early graduation proceeding; and
(5) Be engaged or expect to be engaged in business activities
making the item useful to it.
(c) Use of acquired surplus property. (1) Eligible Participants may
acquire surplus Federal property from any SASP located in any state,
provided the concern represents and agrees in writing:
(i) As to what the intended use of the surplus property is to be
and that this use is consistent with the objectives of the concern's
8(a) business plan;
(ii) That it will use the property to be acquired in the normal
conduct of its business activities or be liable for the fair rental
value from the date of its receipt;
(iii) That it will not sell or transfer the property to be acquired
to any party other than the Federal Government during its term of
participation in the 8(a) program and for one year after it leaves the
program;
(iv) That, at its own expense, it will return the property to a
SASP or transfer it to another Participant if directed to do so by SBA
because it has not used the property as intended within one year of
receipt;
(v) That, should it breach its agreement not to sell or transfer
the property, it will be liable to the Government for the established
fair market value or the sale price, whichever is greater, of the
property sold or transferred; and
(vi) That it will give SBA access to inspect the property and all
records pertaining to it.
[[Page 35754]]
(2) A firm receiving surplus property pursuant to this section
assumes all liability associated with or stemming from the use of the
property.
(3) If the property is not placed in use for the purposes for which
it was intended within one year of its receipt, SBA may direct the
concern to deliver the property to another Participant or to the SASP
from which it was acquired.
(4) Failure to comply with any of the commitments made under
paragraph (c)(1) of this section constitutes a basis for termination
from the 8(a) program.
(d) Procedures for acquiring Federal Government surplus property.
(1) Participants may participate in the surplus property distribution
program administered by the SASPs to the same extent, but with no
special priority over, other authorized transferees. See 41 CFR subpart
101-44.2.
(2) Each Participant seeking to acquire Federal Government surplus
property from a SASP must:
(i) Certify in writing to the SASP that it is eligible to receive
the property pursuant to paragraph (b) of this section;
(ii) Make the written representations and agreement required by
paragraph (c)(1) of this section; and
(iii) Identify to the SASP its servicing SBA field office.
(3) Upon receipt of the required certification, representations,
agreement, and information set forth in paragraph (d)(2) of this
section, the SASP must contact the appropriate SBA field office and
obtain SBA's verification that the concern seeking to acquire the
surplus property is eligible, and that the identified use of the
property is consistent with the concern's business activities. SASPs
may not release property to a Participant without this verification.
(4) The SASP and the Participant must agree on and record the fair
market value of the surplus property at the time of the transfer to the
Participant. The SASP must provide to SBA a written record, including
the agreed upon fair market value, of each transaction to a Participant
when any property has been transferred.
(e) Costs. Participants acquiring surplus property from a SASP must
pay a service fee to the SASP which is equal to the SASP's direct costs
of locating, inspecting, and transporting the surplus property. If a
Participant elects to incur the responsibility and the expense for
transporting the acquired property, the concern may do so and no
transportation costs will be charged by the SASP. In addition, the SASP
may charge a reasonable fee to cover its costs of administering the
program. In no instance will any SASP charge a Participant more for any
service than their established fees charged to other transferees.
(f) Title. The title to surplus property acquired from a SASP will
pass to the Participant when the Participant executes the applicable
SASP distribution documents and takes possession of the property.
(g) Compliance. (1) SBA will periodically review whether
Participants that have received surplus property have used and
maintained the property as agreed. This review may include site visits
to visually inspect the property to ensure that it is being used in a
manner consistent with the terms of its transfer.
(2) Participants must provide SBA with access to all relevant
records upon request.
(3) Where SBA receives credible information that transferred
surplus property may have been disposed of or otherwise used in a
manner that is not consistent with the terms of the transfer, SBA may
investigate such claim to determine its validity.
(4) SBA may take any action to correct any noncompliance involving
the use of transferred property still in possession of the Participant
or to enforce any terms, conditions, reservations, or restrictions
imposed on the property by the distribution document. Actions to
enforce compliance, or which may be taken as a result of noncompliance,
include the following:
(i) Requiring that the property be placed in proper use within a
specified time;
(ii) Requiring that the property be transferred to another
Participant having a need and use for the property, returned to the
SASP serving the area where the property is located for distribution to
another eligible transferee or to another SASP, or transferred through
GSA to another Federal agency;
(iii) Recovery of the fair rental value of the property from the
date of its receipt by the Participant; and
(iv) Initiation of proceedings to terminate the Participant from
the 8(a) BD program.
(5) Where SBA finds that a recipient has sold or otherwise disposed
of the acquired surplus property in violation of the agreement covering
sale and disposal, the Participant is liable for the agreed upon fair
market value of the property at the time of the transfer, or the sale
price, whichever is greater. However, a Participant need not repay any
amount where it can demonstrate to SBA's satisfaction that the property
is no longer useful for the purpose for which it was transferred and
receives SBA's prior written consent to transfer the property. For
example, if a piece of equipment breaks down beyond repair, it may be
disposed of without being subject to the repayment provision, so long
as the concern receives SBA's prior consent.
(6) Any funds received by SBA in enforcement of this section will
be remitted promptly to the Treasury of the United States as
miscellaneous receipts.
Contractual Assistance
Sec. 124.501 What general provisions apply to the award of 8(a)
contracts?
(a) Pursuant to section 8(a) of the Small Business Act, SBA is
authorized to enter into all types of contracts with other Federal
agencies, including contracts to furnish equipment, supplies, services,
leased real property, or materials to them or to perform construction
work for them, and to contract the performance of these contracts to
qualified Participants. Where practicable, simplified acquisition
procedures should be used for 8(a) contracts at or below the simplified
acquisition threshold. Where appropriate, SBA will delegate the
contract execution function to procuring activities. In order to
receive and retain a delegation of SBA's contract execution and review
functions, a procuring activity must report all 8(a) contract awards,
modifications, and options to SBA.
(b) 8(a) contracts may either be sole source awards or awards won
through competition with other Participants.
(c) Admission into the 8(a) BD program does not guarantee that a
Participant will receive 8(a) contracts.
(d) A requirement for possible award may be identified by SBA, a
particular Participant or the procuring activity itself. SBA will
submit the capability statements provided to SBA annually under
Sec. 124.403 to appropriate procuring activities for the purpose of
matching requirements with Participants.
(e) Participants should market their capabilities to appropriate
procuring activities to increase their prospects of receiving sole
source 8(a) contracts.
(f) An 8(a) participant that identifies a requirement that appears
suitable for award through the 8(a) BD program may request SBA to
contact the procuring activity to request that the requirement be
offered to the 8(a) BD program.
(g) A concern must be a current Participant in the 8(a) BD program
at the time of award, except as provided in Sec. 124.507(d).
(h) A Participant must certify that it is a small business under
the size
[[Page 35755]]
standard corresponding to the SIC code assigned to each 8(a) contract.
8(a) BD program personnel will verify size prior to award of an 8(a)
contract. If the Participant is not verified as small, it may request a
formal size determination from the appropriate General Contracting Area
Office under part 121 of this title.
(i) Any person or entity that misrepresents its status as a ``small
business concern owned and controlled by socially and economically
disadvantaged individuals'' in order to obtain any 8(a) contracting
opportunity will be subject to possible criminal, civil and
administrative penalties, including those imposed by section 16(d) of
the Small Business Act, 15 U.S.C. 645(d).
Sec. 124.502 How does an agency offer a procurement to SBA for award
through the 8(a) BD program?
(a) A procuring activity contracting officer indicates his or her
formal intent to award a procurement requirement as an 8(a) contract by
submitting a written offering letter to SBA. The procuring activity may
transmit the offering letter to SBA by electronic mail, if available,
or by facsimile transmission, as well as by mail or commercial delivery
service.
(b) Contracting officers must submit offering letters to the
following locations:
(1) For competitive 8(a) requirements and those sole source
requirements for which no specific Participant is nominated (i.e., open
requirements) other than construction requirements, to the SBA district
office serving the geographical area in which the procuring activity is
located;
(2) For competitive and open construction requirements, to the SBA
district office serving the geographical area in which the work is to
be performed or, in the case of such contracts to be performed
overseas, to the Office of 8(a) BD located in SBA Headquarters;
(3) For sole source requirements offered on behalf of a specific
Participant, to the SBA district office servicing that concern.
(c) An offering letter must contain the following information:
(1) A description of the work to be performed;
(2) The estimated period of performance;
(3) The SIC code that applies to the principal nature of the
acquisition;
(4) The anticipated dollar value of the requirement, including
options, if any;
(5) Any special restrictions or geographical limitations on the
requirement;
(6) The location of the work to be performed for construction
procurements;
(7) Any special capabilities or disciplines needed for contract
performance;
(8) The type of contract to be awarded, such as firm fixed price,
cost reimbursement, or time and materials;
(9) The acquisition history, if any, of the requirement;
(10) The names and addresses of any small business contractors
which have performed on this requirement during the previous 24 months;
(11) A statement that prior to the offering no solicitation for the
specific acquisition has been issued as a small business set-aside, or
as a small disadvantaged business set-aside if applicable, and that no
other public communication (such as a notice in the Commerce Business
Daily) has been made showing the procuring activity's clear intent to
use any of these means of procurement;
(12) Identification of any specific Participant that the procuring
activity contracting officer nominates for award of a sole source 8(a)
contract, if appropriate, including a brief justification for the
nomination, such as one of the following:
(i) The Participant, through its own efforts, marketed the
requirement and caused it to be reserved for the 8(a) BD program; or
(ii) The acquisition is a follow-on or renewal contract and the
nominated concern is the incumbent;
(13) Bonding requirements, if applicable;
(14) Identification of all Participants which have expressed an
interest in being considered for the acquisition;
(15) Identification of all SBA field offices which have requested
that the requirement be awarded through the 8(a) BD program;
(16) A request, if appropriate, that a requirement whose estimated
contract value is under the applicable competitive threshold be awarded
as an 8(a) competitive contract; and
(17) Any other information that the procuring activity deems
relevant or which SBA requests.
Sec. 124.503 How does SBA accept a procurement for award through the
8(a) BD program?
(a) Acceptance of the requirement. Upon receipt of the procuring
activity's offer of a procurement requirement, SBA will determine
whether it will accept the requirement for the 8(a) BD program. SBA's
decision whether to accept the requirement will be sent to the
procuring activity in writing within 10 working days of receipt of the
written offering letter if the contract is valued at more than the
simplified acquisition threshold, and within two days of receipt of the
offering letter if the contract is valued at or below the simplified
acquisition threshold, unless SBA requests, and the procuring activity
grants, an extension. SBA is not required to accept any particular
procurement offered to the 8(a) BD program.
(1) Where SBA decides to accept an offering of a sole source 8(a)
procurement, SBA will accept the offer both on behalf of the 8(a) BD
program and in support of a specific Participant.
(2) Where SBA decides to accept an offering of a competitive 8(a)
procurement, SBA will accept the offer on behalf of the 8(a) BD
program.
(3) Where SBA has delegated its contract execution functions to a
procuring activity, the procuring activity may assume that SBA accepts
its offer for the 8(a) program if the procuring activity does not
receive a reply to its offer within five days.
(4) In the case of procurement requirements valued at or below the
Simplified Acquisition Procedures threshold:
(i) Where a procuring activity makes an offer to the 8(a) program
on behalf of a specific Program Participant and does not receive a
reply to its offer within two days, the procuring activity may assume
the offer is accepted and proceed with award of an 8(a) contract;
(ii) Where SBA has delegated its 8(a) contract execution functions
to an agency, SBA may authorize the procuring activity to award an 8(a)
contract without requiring an offer and acceptance of the requirement
for the 8(a) program. In such a case, the procuring activity must
notify SBA of all 8(a) awards made under this authority.
(5) Where SBA does not respond to an offering letter within the
normal 10-day time period, the procuring activity may seek SBA's
acceptance through the AA/8(a)BD. The procuring activity may assume
that SBA accepts its offer for the 8(a) program if it does not receive
a reply from the AA/8(a)BD within 5 days of his or her receipt of the
procuring activity request.
(b) Verification of SIC code. As part of the acceptance process,
SBA will verify the appropriateness of the SIC code designation
assigned to the requirement by the procuring activity contracting
officer.
(1) SBA will accept the SIC code assigned to the requirement by the
procuring activity contracting officer as
[[Page 35756]]
long as it is reasonable, even though other SIC codes may also be
reasonable.
(2) If SBA and the procuring activity are unable to agree as to the
proper SIC code designation for the requirement, SBA may either refuse
to accept the requirement for the 8(a) BD program, appeal the
contracting officer's determination to the head of the agency pursuant
to Sec. 124.505, or appeal the SIC code designation to OHA under part
134 of this title.
(c) Sole source award where procuring activity nominates a specific
Participant. SBA will determine whether an appropriate match exists
where the procuring activity identifies a particular Participant for a
sole source award.
(1) Once SBA determines that a procurement is suitable to be
accepted as an 8(a) sole source contract, SBA will normally accept it
on behalf of the Participant recommended by the procuring activity,
provided that:
(i) The procurement is consistent with the Participant's business
plan;
(ii) The Participant complies with its applicable non-8(a) business
activity target imposed by Sec. 124.509(d);
(iii) The Participant is small for the size standard corresponding
to the SIC code assigned to the requirement by the procuring activity
contracting officer; and
(iv) The Participant has submitted required financial statements to
SBA.
(2) If an appropriate match exists, SBA will advise the procuring
activity whether SBA will participate in contract negotiations or
whether SBA will authorize the procuring activity to negotiate directly
with the identified Participant. Where SBA has delegated its contract
execution functions to a procuring activity, SBA will also identify
that delegation in its acceptance letter.
(3) If an appropriate match does not exist, SBA will notify the
Participant and the procuring activity, and may then nominate an
alternate Participant.
(d) Open requirements. When a procuring activity does not nominate
a particular concern for performance of a sole source 8(a) contract
(open requirement), the following additional procedures will apply:
(1) If the procurement is a construction requirement, SBA will
examine the portfolio of Participants that have a bona fide place of
business within the geographical boundaries served by the SBA district
office where the work is to be performed to select a qualified
Participant. If none is found to be qualified or a match for a concern
in that district is determined to be impossible or inappropriate, SBA
may nominate a Participant with a bona fide place of business within
the geographical boundaries served by another district office within
the same state, or may nominate a Participant having a bona fide place
of business out of state but within a reasonable proximity to the work
site. SBA's decision will ensure that the nominated Participant is
close enough to the work site to keep costs of performance reasonable.
(2) If the procurement is not a construction requirement, SBA may
select any eligible, responsible Participant nationally to perform the
contract.
(3) In cases in which SBA selects a Participant for possible award
from among two or more eligible and qualified Participants, the
selection will be based upon relevant factors, including business
development needs, compliance with competitive business mix
requirements (if applicable), financial condition, management ability,
technical capability, and whether award will promote the equitable
distribution of 8(a) contracts.
(e) Formal technical evaluations. Except for requirements for
architectural and engineering services, SBA will not authorize formal
technical evaluations for sole source 8(a) requirements. A procuring
activity:
(1) Must request that a procurement be a competitive 8(a) award if
it requires formal technical evaluations of more than one Participant
for a requirement below the applicable competitive threshold amount;
and
(2) May conduct informal assessments of several Participants'
capabilities to perform a specific requirement, so long as the
statement of work for the requirement is not released to any of the
Participants being assessed.
(f) Repetitive acquisitions. A procuring activity contracting
officer must submit a new offering letter to SBA where he or she
intends to award a follow-on or repetitive contract as an 8(a) award.
This enables SBA to determine:
(1) Whether the requirement should be a competitive 8(a) award;
(2) A nominated firm's eligibility, whether or not it is the same
firm that performed the previous contract;
(3) The affect that contract award would have on the equitable
distribution of 8(a) contracts; and
(4) Whether the requirement should continue under the 8(a) BD
program.
(g) Basic Ordering Agreements (BOAs). A Basic Ordering Agreement
(BOA) is not a contract under the FAR. See 48 CFR 16.703(a). Each order
to be issued under the BOA is an individual contract. As such, the
procuring activity must offer, and SBA must accept, each task order
under a BOA in addition to offering and accepting the BOA itself.
(1) SBA will not accept for award on a sole source basis any task
order under a BOA that would cause the total dollar amount of task
orders issued to exceed the applicable competitive threshold amount set
forth in Sec. 124.506(a).
(2) Where a procuring activity believes that task orders to be
issued under a proposed BOA will exceed the applicable competitive
threshold amount set forth in Sec. 124.506(a), the procuring activity
must offer the requirement to the program to be competed among eligible
Participants.
(3) Once a concern's program term expires, the concern otherwise
exits the 8(a) BD program, or becomes other than small for the SIC code
assigned under the BOA, new orders will not be accepted for the
concern.
(h) Multiple Award and Federal Supply Schedule Contracts. Unlike
Basic Ordering Agreements, Multiple Award and Federal Supply Schedule
contracts are contracts. Orders issued under these contracts are not
considered separate contracts. As such, SBA's acceptance of the
original Multiple Award or Federal Supply Schedule contract is valid
for the duration of the contract. Separate offers and acceptances will
not be made for individual task orders under these contracts.
(1) Task orders are not required to be competed where the value of
the task order will exceed the competitive threshold as long as the
original contract was competed.
(2) A concern may continue to accept new orders under a Multiple
Award or Federal Supply Schedule contract even where a concern's
program term expires, the concern otherwise exits the 8(a) BD program,
or the concern becomes other than small for the SIC code assigned under
the contract subsequent to award of the contract.
(i) Requirements where SBA has delegated contract execution
authority. Except as provided in paragraph (a)(4)(i) of this section,
where SBA has delegated its 8(a) contract execution authority to the
procuring activity, the procuring activity must still offer and SBA
must still accept all requirements intended to be awarded as 8(a)
contracts.
Sec. 124.504 What circumstances limit SBA's ability to accept a
procurement for award as an 8(a) contract?
SBA will not accept a procurement for award as an 8(a) contract if
the circumstances identified in paragraphs (a) through (d) of this
section exist.
[[Page 35757]]
(a) Reservation as small business or SDB set-aside. The procuring
activity issued a solicitation for or otherwise expressed publicly a
clear intent to reserve the procurement as a small business or small
disadvantaged business (SDB) set-aside prior to offering the
requirement to SBA for award as an 8(a) contract. The AA/8(a)BD may
permit the acceptance of the requirement, however, under extraordinary
circumstances.
Example to paragraph (a). SBA may accept a requirement where a
procuring activity made a decision to offer the requirement to the
8(a) BD program before the solicitation was sent out and the
procuring activity acknowledges and documents that the solicitation
was in error.
(b) Competition prior to offer and acceptance. The procuring
activity competed a requirement among Participants prior to offering
the requirement to SBA and receiving SBA's formal acceptance of the
requirement.
(1) Any competition conducted without first obtaining SBA's formal
acceptance of the procurement for the 8(a) BD program will not be
considered an 8(a) competitive requirement.
(2) SBA may accept the requirement for the 8(a) BD program as a
competitive 8(a) requirement, but only if the procuring activity agrees
to resolicit the requirement using appropriate competitive 8(a)
procedures.
(c) Adverse impact. SBA has made a written determination that
acceptance of the procurement for 8(a) award would have an adverse
impact on an individual small business, a group of small businesses
located in a specific geographical location, or other small business
programs. The adverse impact concept is designed to protect small
business concerns which are performing Government contracts awarded
outside the 8(a) BD program, and does not apply to follow-on or renewal
8(a) acquisitions. SBA will not consider adverse impact with respect to
any requirement offered to the 8(a) program under Simplified
Acquisition Procedures.
(1) In determining whether the acceptance of a requirement would
have an adverse impact on an individual small business, SBA will
consider all relevant factors.
(i) In connection with a specific small business, SBA presumes
adverse impact to exist where:
(A) The small business concern has performed the specific
requirement for at least 24 months;
(B) The small business is performing the requirement at the time it
is offered to the 8(a) BD program, or its performance of the
requirement ended within 30 days of the procuring activity's offer of
the requirement to the 8(a) BD program; and
(C) The dollar value of the requirement that the small business is
or was performing is 25 percent or more of its most recent annual gross
sales (including those of its affiliates). For a multi-year
requirement, the dollar value of the last 12 months of the requirement
will be used to determine whether a small business would be adversely
affected by SBA's acceptance.
(ii) Except as provided in paragraph (c)(2) of this section,
adverse impact does not apply to ``new'' requirements. A new
requirement is one which has not been previously procured by the
relevant procuring activity.
(A) Where a requirement is new, no small business could have
previously performed the requirement and, thus, SBA's acceptance of the
requirement for the 8(a) BD program will not adversely impact any small
business.
(B) Construction contracts, by their very nature (e.g., the
building of a specific structure), are deemed new requirements.
(C) The expansion or modification of an existing requirement will
be considered a new requirement where the magnitude of change is
significant enough to cause a price adjustment of at least 25 percent
(adjusted for inflation) or to require significant additional or
different types of capabilities or work.
(D) SBA need not perform an impact determination where a new
requirement is offered to the 8(a) BD program.
(2) In determining whether the acceptance of a requirement would
have an adverse impact on a group of small businesses, SBA will
consider the effects of combining or consolidating various requirements
being performed by two or more small business concerns into a single
contract which would be considered a ``new'' requirement as compared to
any of the previous smaller requirements. SBA may find adverse impact
to exist if one of the existing small business contractors meets the
presumption set forth in paragraph (c)(1)(i) of this section.
(3) In determining whether the acceptance of a requirement would
have an adverse impact on other small business programs, SBA will
consider all relevant factors, including but not limited to, the number
and value of contracts in the subject industry reserved for the 8(a) BD
program as compared with other small business programs.
(d) Release for non-8(a) competition. In limited instances, SBA may
decline to accept the offer of a follow-on or renewal 8(a) acquisition
to give a concern previously awarded the contract that is leaving or
has left the 8(a) BD program the opportunity to compete for the
requirement outside the 8(a) BD program.
(1) SBA will consider release only where:
(i) The procurement awarded through the 8(a) BD program is being or
was performed by either a Participant whose program term will expire
prior to contract completion, or, by a former Participant whose program
term expired within one year of the date of the offering letter;
(ii) The concern requests in writing that SBA decline to accept the
offer prior to SBA's acceptance of the requirement for award as an 8(a)
contract; and
(iii) The concern qualifies as a small business for the requirement
now offered to the 8(a) BD program.
(2) In considering release, SBA will balance the importance of the
requirement to the concern's business development needs against the
business development needs of other Participants that are qualified to
perform the requirement. This determination will include consideration
of whether rejection of the requirement would seriously reduce the pool
of similar types of contracts available for award as 8(a) contracts.
SBA will seek the views of the procuring activity.
(3) If SBA declines to accept the offer and releases the
requirement, it will recommend to the procuring activity that the
requirement be procured as a small business or, if authorized, an SDB
set-aside.
Sec. 124.505 When will SBA appeal the terms or conditions of a
particular 8(a) contract or a procuring activity decision not to
reserve a requirement for the 8(a) BD program?
(a) What SBA may appeal. The Administrator of SBA may appeal the
following matters to the head of the procuring agency:
(1) A contracting officer's decision not to make a particular
procurement available for award as an 8(a) contract;
(2) A contracting officer's decision to reject a specific
Participant for award of an 8(a) contract after SBA's acceptance of the
requirement for the 8(a) BD program; and
(3) The terms and conditions of a proposed 8(a) contract, including
the procuring activity's SIC code designation and estimate of the fair
market price.
(b) Procedures for appeal. (1) SBA must notify the contracting
officer of the SBA Administrator's intent to appeal an adverse decision
within 5 working days of SBA's receipt of the decision.
[[Page 35758]]
(2) Upon receipt of the notice of intent to appeal, the procuring
activity must suspend further action regarding the procurement until
the head of the procuring agency issues a written decision on the
appeal, unless the head of the procuring agency makes a written
determination that urgent and compelling circumstances which
significantly affect interests of the United States will not permit
waiting for a consideration of the appeal.
(3) The SBA Administrator must send a written appeal of the adverse
decision to the head of the procuring agency within 15 working days of
SBA's notification of intent to appeal or the appeal may be considered
withdrawn.
(4) By statute (15 U.S.C. 637(a)(1)(A)), the procuring agency head
must specify in writing the reasons for a denial of an appeal brought
by the Administrator under this section.
Sec. 124.506 At what dollar threshold must an 8(a) procurement be
competed among eligible Participants?
(a) Competitive thresholds. (1) A procurement offered and accepted
for the 8(a) BD program must be competed among eligible Participants
if:
(i) There is a reasonable expectation that at least two eligible
Participants will submit offers at a fair market price;
(ii) The anticipated award price of the contract, including
options, will exceed $5,000,000 for contracts assigned manufacturing
SIC codes and $3,000,000 for all other contracts; and
(iii) The requirement has not been accepted by SBA for award as a
sole source 8(a) procurement on behalf of a tribally-owned or ANC-owned
concern.
(2) For all types of contracts, the applicable competitive
threshold amounts will be applied to the procuring activity estimate of
the total value of the contract, including all options. For indefinite
delivery or indefinite quantity type contracts, the thresholds are
applied to the maximum order amount authorized.
(3) Where the estimate of the total value of a proposed 8(a)
contract is less than the applicable competitive threshold amount and
the requirement is accepted as a sole source requirement on that basis,
award may be made even though the contract price arrived at through
negotiations exceeds the competitive threshold, provided that the
contract price is not more than ten percent greater than the
competitive threshold amount.
Example to paragraph (a)(3). If the anticipated award price for
a professional services requirement is determined to be $2.7 million
and it is accepted as a sole source 8(a) requirement on that basis,
a sole source award will be valid even if the contract price arrived
at after negotiation is $3.1 million.
(4) A proposed 8(a) requirement with an estimated value exceeding
the applicable competitive threshold amount may not be divided into
several separate procurement actions for lesser amounts in order to use
8(a) sole source procedures to award to a single contractor.
(b) Exemption from competitive thresholds for Participants owned by
Indian tribes. SBA may award a sole source 8(a) contract to a
Participant concern owned and controlled by an Indian tribe or an ANC
where the anticipated value of the procurement exceeds the applicable
competitive threshold if SBA has not accepted the requirement into the
8(a) BD program as a competitive procurement. There is no requirement
that a procurement must be competed whenever possible before it can be
accepted on a sole source basis for a tribally-owned or ANC-owned
concern, but a procurement may not be removed from competition to award
it to a tribally-owned or ANC-owned concern on a sole source basis.
(c) Competition below thresholds. The AA/8(a)BD, on a nondelegable
basis, may approve a request from a procuring activity to compete a
requirement that is below the applicable competitive threshold amount
among eligible Participants.
(1) This authority will be used primarily when technical
competitions are appropriate or when a large number of potential
awardees exist.
(2) The AA/8(a)BD may consider whether the procuring activity has
made and will continue to make available a significant number of its
contracts to the 8(a) BD program on a noncompetitive basis.
(3) The AA/8(a)BD may deny a request if the procuring activity
previously offered the requirement to the 8(a) BD program on a
noncompetitive basis and the request is made following the inability of
the procuring activity and the potential sole source awardee to reach
an agreement on price or some other material term or condition.
(d) Sole source above thresholds. Where a contract opportunity
exceeds the applicable threshold amount and there is not a reasonable
expectation that at least two eligible 8(a) Participants will submit
offers at a fair price, the AA/8(a)BD may accept the requirement for a
sole source 8(a) award if he or she determines that an eligible
Participant in the 8(a) portfolio is capable of performing the
requirement at a fair price.
Sec. 124.507 What procedures apply to competitive 8(a) procurements?
(a) FAR procedures. Procuring activities will conduct competitions
among and evaluate offers received from Participants in accordance with
the Federal Acquisition Regulation (48 CFR, chapter 1).
(b) Eligibility determination by SBA. In either a negotiated or
sealed bid competitive 8(a) acquisition, the procuring activity will
request that the SBA district office servicing the apparent successful
offeror determine that firm's eligibility for award.
(1) Within 5 working days after receipt of a procuring activity's
request for an eligibility determination, SBA will determine whether
the firm identified by the procuring activity is eligible for award.
(2) Eligibility is based on 8(a) BD program criteria, including
whether the Participant is:
(i) A small business under the SIC code assigned to the
requirement;
(ii) In compliance with any applicable competitive business mix
target established or remedial measure imposed by Sec. 124.509 that
does not include the denial of future 8(a) contracts;
(iii) In the developmental stage of program participation if the
solicitation restricts offerors to the developmental stage of
participation; and
(iv) A concern with a bona fide place of business in the applicable
geographic area if the procurement is for construction.
(3) If SBA determines that the apparent successful offeror is
ineligible, SBA will notify the procuring activity. The procuring
activity will then send to SBA the identity of the next highest
evaluated firm for an eligibility determination. The process is
repeated until SBA determines that an identified offeror is eligible
for award.
(4) Except to the extent set forth in paragraph (d) of this
section, SBA determines whether a Participant is eligible for a
specific 8(a) competitive requirement as of the date that the
Participant submitted its initial offer which includes price.
(5) If the procuring activity contracting officer believes that the
apparent successful offeror is not responsible to perform the contract,
he or she must refer the concern to SBA for a possible Certificate of
Competency in accord with Sec. 125.5 of this title.
(c) Restricted competition. (1) Competition within stages of
program participation. SBA may accept a competitive 8(a) requirement
that is limited to Participants in the developmental stage of program
[[Page 35759]]
participation, or may accept a requirement to be competed among firms
both in the developmental and transitional stages of program
participation.
(2) Construction competitions. Based on its knowledge of the 8(a)
BD portfolio, SBA will determine whether a competitive 8(a)
construction requirement should be competed among only those
Participants having a bona fide place of business within the
geographical boundaries of one or more SBA district offices, within a
state, or within the state and nearby areas. Only those Participants
with bona fide places of business within the appropriate geographical
boundaries are eligible to submit offers.
(3) Competition for all non-construction requirements. Except for
construction requirements, all eligible Participants regardless of
location may submit offers in response to competitive 8(a)
solicitations. The only geographic restrictions pertaining to 8(a)
competitive requirements, other than those for construction
requirements, are any imposed by the solicitations themselves.
(d) Award to firms whose program terms have expired. A concern that
has completed its term of participation in the 8(a) BD program may be
awarded a competitive 8(a) contract if it was a Participant eligible
for award of the contract on the initial date specified for receipt of
offers contained in the contract solicitation, and if it continues to
meet all other applicable eligibility criteria.
(1) Amendments to the solicitation extending the date for
submissions of offers will be disregarded.
(2) For a negotiated procurement, a Participant may submit revised
offers, including a best and final offer, and be awarded a competitive
8(a) contract if it was eligible as of the initial date specified for
the receipt of offers in the solicitation, even though its program term
may expire after that date.
Sec. 124.508 How is an 8(a) contract executed?
(a) An 8(a) contract can be awarded in the following ways:
(1) As a tripartite agreement in which the procuring activity, SBA
and the Participant all sign the appropriate contract documents. There
may be separate prime and subcontract documents (i.e., a prime contract
between the procuring activity and SBA and a subcontract between SBA
and the selected 8(a) concern) or a combined contract document
representing both the prime and subcontract relationships; or
(2) Where SBA has delegated contract execution authority to the
procuring activity, directly by the procuring activity through a
contract between the procuring activity and the Participant.
(b) Where SBA receives a contract for signature valued at or below
the simplified acquisition threshold, it will sign the contract and
return it to the procuring activity within three (3) days of receipt.
(c) In order to be eligible to receive a sole source 8(a) contract,
a firm must be a current Participant on the date of award. (See
Sec. 124.507(d) for competitive 8(a) awards.)
Sec. 124.509 What are non-8(a) business activity targets?
(a) General. (1) To ensure that Participants do not develop an
unreasonable reliance on 8(a) awards, and to ease their transition into
the competitive marketplace after graduating from the 8(a) BD program,
Participants must make maximum efforts to obtain business outside the
8(a) BD program.
(2) During both the developmental and transitional stages of the
8(a) BD program, a Participant must make substantial and sustained
efforts, including following a reasonable marketing strategy, to attain
the targeted dollar levels of non-8(a) revenue established in its
business plan. It must attempt to use the 8(a) BD program as a resource
to strengthen the firm for economic viability when program benefits are
no longer available.
(b) Required non-8(a) business activity targets during transitional
stage. (1) General. During the transitional stage of the 8(a) BD
program, a Participant must achieve certain targets of non-8(a)
contract revenue (i.e., revenue from other than sole source or
competitive 8(a) contracts). These targets are called non-8(a) business
activity targets and are expressed as a percentage of total revenue.
The targets call for an increase in non-8(a) revenue over time.
(2) Non-8(a) business activity targets. During their transitional
stage of program participation, Participants must meet the following
non-8(a) business activity targets each year:
------------------------------------------------------------------------
Non-8(a) business
activity targets
(required minimum
Participant's year in the transitional stage non-8(a) revenue
as a percentage
of total revenue)
------------------------------------------------------------------------
1.................................................... 15
2.................................................... 25
3.................................................... 35
4.................................................... 45
5.................................................... 55
------------------------------------------------------------------------
(3) Compliance with non-8(a) business activity targets. SBA will
measure the Participant's compliance with the applicable non-8(a)
business activity target at the end of each program year in the
transitional stage based on the Participant's latest fiscal year-end
total revenue. Thus, at the end of the first year in the transitional
stage of program participation, SBA will compare the Participant's non-
8(a) revenue to its total revenue during that first year. If
appropriate, SBA will require remedial measures during the subsequent
program year. Thus, for example, non-compliance with the required non-
8(a) business activity target in year one of the transitional stage
would cause SBA to initiate remedial measures under paragraph (d) of
this section for year two in the transitional stage.
(4) Certification of compliance. A Participant must certify as part
of its offer that it complies with the applicable non-8(a) business
activity target or with the measures imposed by SBA under paragraph (d)
of this section before it can receive any 8(a) contract during the
transitional stage of the 8(a) BD program.
(c) Reporting and verification of business activity. (1) Once
admitted to the 8(a) BD program, a Participant must provide to SBA as
part of its annual review:
(i) Annual financial statements with a breakdown of 8(a) and non-
8(a) revenue in accord with Sec. 124.602; and
(ii) An annual report within 30 days from the end of the program
year of all non-8(a) contracts, options, and modifications affecting
price executed during the program year.
(2) At the end of each year of participation in the transitional
stage, the BOS assigned to work with the Participant will review the
Participant's total revenues to determine whether the non-8(a) revenues
have met the applicable target. In determining compliance, SBA will
compare all 8(a) revenues received during the year, including those
from options and modifications, to all non-8(a) revenues received
during the year.
(d) Consequences of not meeting competitive business mix targets.
(1) Except as set forth in paragraph (e) of this section, beginning at
the end of the first year in the transitional stage (the fifth year of
participation in the 8(a) BD program), any firm that does not meet its
applicable competitive business mix target for the just completed
program year will be ineligible for sole source 8(a) contracts in the
current program year, unless and until the Participant corrects the
situation as described in paragraph (d)(2) of this section.
[[Page 35760]]
(2) If SBA determines that an 8(a) Participant has failed to meet
its applicable competitive business mix target during any program year
in the transitional stage of program participation, SBA may increase
its monitoring of the Participant's contracting activity during the
ensuing program year. SBA will also notify the Participant in writing
that the Participant will not be eligible for further 8(a) sole source
contract awards until it has demonstrated to SBA that it has complied
with its non-8(a) business activity requirements as described in
paragraphs (d)(2)(i) and (d)(2)(ii) of this section. In order for a
Participant to come into compliance with the non-8(a) business activity
target and be eligible for further 8(a) sole source contracts, it may:
(i) Wait until the end of the current program year and demonstrate
to SBA as part of the normal annual review process that it has met the
revised non-8(a) business activity target; or
(ii) At its option, submit information regarding its non-8(a)
revenue to SBA quarterly throughout the current program year in an
attempt to come into compliance before the end of the current program
year. If the Participant satisfies the requirements of paragraphs
(d)(2)(ii)(A) or (d)(2)(ii)(B) of this section, SBA will reinstate the
Participant's ability to get sole source 8(a) contracts prior to its
annual review.
(A) To qualify for reinstatement during the first six months of the
current program year (i.e., at either the first or second quarterly
review), the Participant must demonstrate that it has received non-8(a)
revenue and new non-8(a) contract awards that are equal to or greater
than the dollar amount by which it failed to meet its non-8(a) business
activity target for the just completed program year. For this purpose,
SBA will not count options on existing non-8(a) contracts in
determining whether a Participant has received new non-8(a) contract
awards.
(B) To qualify for reinstatement during the last six months of the
current program year (i.e., at either the nine-month or one year
review), the Participant must demonstrate that it has achieved its non-
8(a) business activity target as of that point in the current program
year.
Example 1 to paragraph (d)(2). Firm A had $10 million in total
revenue during year 2 in the transitional stage (year 6 in the
program), but failed to meet the minimum non-8(a) business activity
target of 25 percent. It had 8(a) revenues of $8.5 million and non-
8(a) revenues of $1.5 million (15 percent). Based on total revenues
of $10 million, Firm A should have had at least $2.5 million in non-
8(a) revenues. Thus, Firm A missed its target by $1 million (its
target ($2.5 million) minus its actual non-8(a) revenues ($1.5
million)). Because Firm A did not achieve its non-8(a) business
activity target, it cannot receive 8(a) sole source awards until
correcting that situation. The firm may wait until the next annual
review to establish that it has met the revised target, or it can
choose to report contract awards and other non-8(a) revenue to SBA
quarterly. Firm A elects to submit information to SBA quarterly in
year 3 of the transitional stage (year 7 in the program). In order
to be eligible for sole source 8(a) contracts after either its 3
month or 6 month review, Firm A must show that it has received non-
8(a) revenue and/or been awarded new non-8(a) contracts totaling $1
million (the amount by which it missed its target in year 2 of the
transitional stage).
Example 2 to paragraph (d)(2). Firm B had $10 million in total
revenue during year 2 in the transitional stage (year 6 in the
program), of which $8.5 million were 8(a) revenues and $1.5 million
were non-8(a) revenues. At its first two quarterly reviews during
year 3 of the transitional stage (year 7 in the program), Firm B
could not demonstrate that it had received at least $1 million in
non-8(a) revenue and new non-8(a) awards. In order to be eligible
for sole source 8(a) contracts after its 9 month or 1 year review,
Firm B must show that at least 35% (the non-8(a) business activity
target for year 3 in the transitional stage) of all revenues
received during year 3 in the transitional stage as of that point
are from non-8(a) sources.
(3) In determining whether a Participant has achieved its required
non-8(a) business activity target at the end of any program year in the
transitional stage, or whether a Participant that failed to meet the
target for the previous program year has achieved the required level of
non-8(a) business at its nine-month review, SBA will measure 8(a)
support by adding the base year value of all 8(a) contracts awarded
during the applicable program year to the value of all options and
modifications executed during that year.
(4) As a condition of eligibility for new 8(a) contracts, SBA may
also impose other requirements on a Participant that fails to achieve
the non-8(a) business activity targets. These include requiring the
Participant to obtain management assistance, technical assistance, and/
or counseling, and/or attend seminars relating to management
assistance, business development, financing, marketing, accounting, or
proposal preparation.
(5) SBA may initiate proceedings to terminate a Participant from
the 8(a) BD program where the firm makes no good faith efforts to
obtain non-8(a) revenues.
(e) Waiver of sole source prohibition. (1) The AA/8(a)BD, or his or
her designee, may waive the requirement prohibiting a Participant from
receiving further sole source 8(a) contracts when a Participant does
not meet its non-8(a) business activity target where a denial of a sole
source contract would cause severe economic hardship on the Participant
so that the Participant's survival may be jeopardized, or where
extenuating circumstances beyond the Participant's control caused the
Participant not to meet its non-8(a) business activity target. The
decision to grant or deny a request for a waiver is at SBA's
discretion, and no appeal may be taken with respect to that decision.
(2) The SBA Administrator on a non-delegable basis may waive the
requirement prohibiting a Participant from receiving further sole
source 8(a) contracts when the Participant does not meet its non-8(a)
business activity target where the head of a procuring activity
represents to the SBA Administrator that award of a sole source 8(a)
contract to the Participant is needed to achieve significant interests
of the Government.
Sec. 124.510 What percentage of work must a Participant perform on an
8(a) contract?
(a) To assist the business development of Participants in the 8(a)
BD program, an 8(a) contractor must perform certain percentages of work
with its own employees. These percentages and the requirements relating
to them are the same as those established for small business set-aside
prime contractors, and are set forth in Sec. 125.6 of this title.
(b) A Participant must certify in its offer that it will meet the
applicable percentage of work requirement. SBA will determine whether
the firm will be in compliance as of the date of award of the contract
for both sealed bid and negotiated procurements.
(c) Indefinite quantity contracts. (1) In order to ensure that the
required percentage of costs on an indefinite quantity 8(a) award is
performed by the Participant, the Participant must demonstrate
semiannually that it has performed the required percentage to that
date. For a service or supply contract, this does not mean that the
Participant must perform 50 percent of the applicable costs for each
task order with its own force, or that a Participant must have
performed 50 percent of the applicable costs at any point in time
during the contract's life. Rather, the Participant must perform 50
percent of the applicable costs for the combined total of all task
orders issued to date at six month intervals.
Example to paragraph (c)(1). Two task orders are issued under an
8(a) indefinite quantity service contract during the first six
months of the contract. If $100,000 in personnel costs are incurred
on the first task order, 90% of those costs ($90,000) are incurred
for performance by the Participant's
[[Page 35761]]
own work force, and the second task order also requires $100,000 in
personnel costs, the Participant would have to perform only 10
percent of the personnel costs on the second task order because it
would still have performed 50% of the total personnel costs at the
end of the six-month period ($100,000 out of $200,000).
(2) Where there is a guaranteed minimum condition in an indefinite
quantity 8(a) award, the required performance of work percentage need
not be met on task orders issued during the first six months of the
contract. In such a case, however, the percentage of work that a
Participant may further contract to other concerns during the first six
months of the contract may not exceed 50 percent of the total
guaranteed minimum dollar value to be provided by the contract. Once
the guaranteed minimum amount is met, the general rule for indefinite
quantity contracts set forth in paragraph (c)(1) of this section
applies.
Example to paragraph (c)(2). Where a contract guarantees a
minimum of $100,000 in professional services and the first task
order is for $60,000 in such services, the Participant may perform
as little as $10,000 of the personnel costs for that order. In such
a case, however, the Participant must perform all of the next task
order(s) up to $40,000 to ensure that it performs 50% of the
$100,000 guaranteed minimum ($10,000 + $40,000 = $50,000 or 50% of
the $100,000).
(3) The applicable SBA District Director may waive the provisions
in paragraphs (c)(1) and (c)(2) of this section requiring a Participant
to meet the applicable performance of work requirement at the end of
any six-month period where he or she makes a written determination that
larger amounts of subcontracting are essential during certain stages of
performance, provided that there are written assurances from both the
Participant and the procuring activity that the contract will
ultimately comply with the requirements of this section. Where SBA
authorizes a Participant to exceed the subcontracting limitations and
the Participant does not ultimately comply with the performance of work
requirements by the end of the contract, SBA will not grant future
waivers for the Participant.
Sec. 124.511 How is fair market price determined for an 8(a) contract?
(a) The procuring activity determines what constitutes a ``fair
market price'' for an 8(a) contract.
(1) The procuring activity must derive the estimate of a current
fair market price for a new requirement, or a requirement that does not
have a satisfactory procurement history, from a price or cost analysis.
This analysis may take into account prevailing market conditions,
commercial prices for similar products or services, or data obtained
from any other agency. The analysis must also consider any cost or
pricing data that is timely submitted by SBA.
(2) The procuring activity must base the estimate of a current fair
market price for a requirement that has a satisfactory procurement
history on recent award prices adjusted to ensure comparability.
Adjustments will take into account differences in quantities,
performance, times, plans, specifications, transportation costs,
packaging and packing costs, labor and material costs, overhead costs,
and any other additional costs which may be appropriate.
(b) Upon the request of SBA, a procuring activity will provide to
SBA a written statement detailing the method it has used to estimate
the current fair market price for the 8(a) requirement. This statement
must be submitted within 10 working days of SBA's request. The
procuring activity must identify the information, studies, analyses,
and other data it used in making its estimate.
(c) The procuring activity's estimate of fair market price and any
supporting data may not be disclosed by SBA to any Participant or
potential contractor.
(d) The concern selected to perform an 8(a) contract may request
SBA to protest the procuring activity's estimate of current fair market
price to the Secretary of the Department or head of the agency in
accordance with Sec. 124.505.
Sec. 124.512 Delegation of contract administration to procuring
agencies.
(a) SBA may delegate, by the use of special clauses in the 8(a)
contract documents or by a separate agreement with the procuring
activity, all responsibilities for administering an 8(a) contract to
the procuring activity except the approval of novation agreements under
48 CFR 42.302(a)(25).
(b) This delegation of contract administration authorizes a
contracting officer to execute any priced option or in scope
modification without SBA's concurrence. The contracting officer must,
however, notify SBA of all modifications and options exercised.
Sec. 124.513 Under what circumstances can a joint venture be awarded
an 8(a) contract?
(a) General. (1) If approved by SBA, a Participant may enter into a
joint venture agreement with one or more other small business concerns,
whether or not 8(a) Participants, for the purpose of performing a
specific 8(a) contract.
(2) A joint venture agreement is permissible only where an 8(a)
concern lacks the necessary capacity to perform the contract on its
own, and the agreement is fair and equitable and will be of substantial
benefit to the 8(a) concern. However, where SBA concludes that an 8(a)
concern brings very little to the joint venture relationship in terms
of resources and expertise other than its 8(a) status, SBA will not
approve the joint venture arrangement.
(b) Size of concerns to an 8(a) joint venture. (1) A joint venture
of at least one 8(a) Participant and one or more other business
concerns may submit an offer as a small business for a competitive 8(a)
procurement so long as each concern is small under the size standard
corresponding to the SIC code assigned to the contract, provided:
(i) The size of at least one 8(a) Participant to the joint venture
is less than one half the size standard corresponding to the SIC code
assigned to the contract; and
(ii)(A) For a procurement having a revenue-based size standard, the
procurement exceeds half the size standard corresponding to the SIC
code assigned to the contract; or
(B) For a procurement having an employee-based size standard, the
procurement exceeds $10 million;
(2) For sole source and competitive 8(a) procurements that do not
exceed the dollar levels identified in paragraph (b)(1) of this
section, an 8(a) Participant entering into a joint venture agreement
with another concern is considered to be affiliated for size purposes
with the other concern with respect to performance of the 8(a)
contract. The combined annual receipts or employees of the concerns
entering into the joint venture must meet the size standard for the SIC
code assigned to the 8(a) contract.
(3) Notwithstanding the provisions of paragraphs (b)(1) and (b)(2)
of this section, a joint venture between a protege firm and its
approved mentor (see Sec. 124.520) will be deemed small provided the
protege qualifies as small for the size standard corresponding to the
SIC code assigned to the procurement and has not reached the dollar
limit set forth in Sec. 124.519.
(c) Contents of joint venture agreement. Every joint venture
agreement to perform an 8(a) contract, including those between mentors
and proteges authorized by Sec. 124.520, must contain a provision:
(1) Setting forth the purpose of the joint venture;
(2) Designating an 8(a) Participant as the managing venturer of the
joint venture, and an employee of the managing venturer as the project
[[Page 35762]]
manager responsible for performance of the 8(a) contract;
(3) Stating that not less than 51 percent of the net profits earned
by the joint venture will be distributed to the 8(a) Participant(s);
(4) Providing for the establishment and administration of a special
bank account in the name of the joint venture. This account must
require the signature of all parties to the joint venture or designees
for withdrawal purposes. All payments due the joint venture for
performance on an 8(a) contract will be deposited in the special
account; all expenses incurred under the contract will be paid from the
account as well;
(5) Itemizing all major equipment, facilities, and other resources
to be furnished by each party to the joint venture, with a detailed
schedule of cost or value of each;
(6) Specifying the responsibilities of the parties with regard to
contract performance, source of labor and negotiation of the 8(a)
contract;
(7) Obligating all parties to the joint venture to ensure
performance of the 8(a) contract and to complete performance despite
the withdrawal of any member;
(8) Designating that accounting and other administrative records
relating to the joint venture be kept in the office of the managing
venturer, unless approval to keep them elsewhere is granted by the
District Director or his/her designee upon written request;
(9) Requiring the final original records be retained by the
managing venturer upon completion of the 8(a) contract performed by the
joint venture;
(10) Stating that quarterly financial statements showing cumulative
contract receipts and expenditures (including salaries of the joint
venture's principals) must be submitted to SBA not later than 45 days
after each operating quarter of the joint venture; and
(11) Stating that a project-end profit and loss statement,
including a statement of final profit distribution, must be submitted
to SBA no later than 90 days after completion of the contract.
(d) Performance of work. For any 8(a) contract, including those
between mentors and proteges authorized by Sec. 124.520, the joint
venture must perform the applicable percentage of work required by
Sec. 124.510, and the 8(a) partner(s) to the joint venture must perform
a significant portion of the contract.
(e) Prior approval by SBA. SBA must approve a joint venture
agreement prior to the award of an 8(a) contract on behalf of the joint
venture.
(f) Contract execution. Where SBA has approved a joint venture, the
procuring activity will execute an 8(a) contract in the name of the
joint venture entity.
(g) Amendments to joint venture agreement. All amendments to the
joint venture agreement must be approved by SBA.
(h) Inspection of records. SBA may inspect the records of the joint
venture without notice at any time deemed necessary.
Sec. 124.514 Exercise of 8(a) options and modifications.
(a) Unpriced options. The exercise of an unpriced option is
considered to be a new contracting action.
(1) If a concern has graduated or been terminated from the 8(a) BD
program or is no longer small under the size standard corresponding to
the SIC code for the requirement, negotiations to price the option
cannot be entered into and the option cannot be exercised.
(2) If the concern is still a Participant and otherwise eligible
for the requirement on a sole source basis, the procuring activity
contracting officer may negotiate price and exercise the option
provided the option, considered a new contracting action, meets all
regulatory requirements, including the procuring activity's offering
and SBA's acceptance of the requirement for the 8(a) BD program.
(3) If the estimated fair market price of the option exceeds the
applicable threshold amount set forth in Sec. 124.506, the requirement
must be competed as a new contract among eligible Participants.
(b) Priced options. The procuring activity contracting officer may
exercise a priced option to an 8(a) contract whether the concern that
received the award has graduated or been terminated from the 8(a) BD
program or is no longer eligible if to do so is in the best interests
of the Government.
(c) Modifications beyond the scope. A modification beyond the scope
of the initial 8(a) contract award is considered to be a new
contracting action. It will be treated the same as an unpriced option
as described in paragraph (a) of this section.
(d) Modifications within the scope. The procuring activity
contracting officer may exercise a modification within the scope of the
initial 8(a) contract whether the concern that received the award has
graduated or been terminated from the 8(a) BD program or is no longer
eligible if to do so is in the best interests of the Government.
Sec. 124.515 Can a Participant change its ownership or control and
continue to perform an 8(a) contract, and can it transfer performance
to another firm?
(a) An 8(a) contract must be performed by the Participant that
initially received it unless a waiver is granted under paragraph (b) of
this section.
(1) An 8(a) contract, whether in the base or an option year, must
be terminated for the convenience of the Government if:
(i) One or more of the individuals upon whom eligibility for the
8(a) BD program was based relinquishes or enters into any agreement to
relinquish ownership or control of the Participant such that the
Participant would no longer be controlled or at least 51% owned by
disadvantaged individuals; or
(ii) The contract is transferred or novated for any reason to
another firm.
(2) The procuring activity may not assess repurchase costs or other
damages against the Participant due solely to the provisions of this
section.
(b) The SBA Administrator may waive the requirements of paragraph
(a)(1) of this section if requested to do so by the 8(a) contractor
when:
(1) It is necessary for the owners of the concern to surrender
partial control of such concern on a temporary basis in order to obtain
equity financing;
(2) Ownership and control of the concern that is performing the
8(a) contract will pass to another Participant, but only if the
acquiring firm would otherwise be eligible to receive the award
directly as an 8(a) contract;
(3) Any individual upon whom eligibility was based is no longer
able to exercise control of the concern due to physical or mental
incapacity or death;
(4) The head of the procuring agency, or an official with delegated
authority from the agency head, certifies that termination of the
contract would severely impair attainment of the agency's program
objectives or missions; or
(5) It is necessary for the disadvantaged owners of the initial
8(a) awardee to relinquish ownership of a majority of the voting stock
of the concern in order to raise equity capital, but only if--
(i) The concern has graduated from the 8(a) BD program;
(ii) The disadvantaged owners will maintain ownership of the
largest single outstanding block of voting stock (including stock held
by affiliated parties); and
(iii) The disadvantaged owners will maintain control of the daily
business operations of the concern.
(c) The 8(a) contractor must request a waiver in writing prior to
the change of
[[Page 35763]]
ownership and control except in the case of death or incapacity. A
request for waiver due to incapacity or death must be submitted within
60 days after such occurrence. The Participant seeking to change
ownership or control must specify the grounds upon which it requests a
waiver, and must demonstrate that the proposed transaction would meet
such grounds.
(d) SBA determines the eligibility of an acquiring Participant
under paragraph (b)(2) of this section by referring to the items
identified in Sec. 124.507(b)(2) and deciding whether at the time of
the request for waiver (and prior to the transaction) the acquiring
Participant is a responsible and eligible concern with respect to each
contract for which a waiver is sought. As part of the waiver request,
the acquiring firm must certify that it is a small business for the
size standard corresponding to the SIC code assigned to each contract
for which a waiver is sought.
(e) Anyone other than a procuring agency head who submits a
certification regarding the impairment of the agency's objectives under
paragraph (b)(4) of this section, must also certify delegated authority
to make the certification.
(f) In processing a request for a waiver under paragraph (b)(2) of
this section, SBA will treat a transfer of all a Participant's
operating assets to another Participant the same as the transfer of an
ownership interest, provided the Participant that transfers its assets
to another eligible Participant:
(1) Voluntarily graduates from the 8(a) BD program; and
(2) Ceases its business operations, or presents a plan to SBA for
its orderly dissolution.
(g) A concern performing an 8(a) contract must notify SBA in
writing immediately upon entering into an agreement or agreement in
principle (either oral or written) to transfer all or part of its stock
or other ownership interest or assets to any other party. Such an
agreement could include an oral agreement to enter into a transaction
to transfer interests in the future.
(h) The Administrator has discretion to decline a request for
waiver even though legal authority exists to grant the waiver.
(i) The 8(a) contractor may appeal SBA's denial of a waiver request
by filing a petition with OHA pursuant to part 134 of this title within
45 days of the date of service (as defined in Sec. 134.204) of the
Administrator's decision.
Sec. 124.516 Who decides contract disputes arising between a
Participant and a procuring activity after the award of an 8(a)
contract?
For purposes of the Disputes Clause of a specific 8(a) contract,
the contracting officer is that of the procuring activity. A dispute
arising between an 8(a) contractor and the procuring activity
contracting officer will be decided by the procuring activity, and
appeals may be taken by the 8(a) contractor without SBA involvement.
Sec. 124.517 Can the eligibility or size of a Participant for award of
an 8(a) contract be questioned?
(a) The eligibility of a Participant for a sole source or
competitive 8(a) requirement may not be challenged by another
Participant or any other party, either to SBA or any administrative
forum as part of a bid or other contract protest.
(b) The size status of the apparent successful offeror for a
competitive 8(a) procurement may be protested pursuant to
Sec. 121.1001(a)(2) of this chapter. The size status of a nominated
Participant for a sole source 8(a) procurement may not be protested by
another Participant or any other party.
(c) A Participant cannot appeal SBA's determination not to award it
a specific 8(a) contract because the concern lacks an element of
responsibility or is ineligible for the contract, other than the right
set forth in Sec. 124.501(h) to request a formal size determination
where SBA cannot verify it to be small.
(d)(1) The SIC code assigned to a sole source 8(a) requirement may
not be challenged by another Participant or any other party either to
SBA or any administrative forum as part of a bid or contract protest.
Only the AA/8(a)BD may appeal a SIC code designation with respect to a
sole source 8(a) requirement.
(2) In connection with a competitive 8(a) procurement, any
interested party who has been adversely affected by a SIC code
designation may appeal the designation to SBA's OHA pursuant to
Sec. 121.1103 of this title.
(e) Anyone with information questioning the eligibility of a
Participant to continue participation in the 8(a) BD program or for
purposes of a specific 8(a) contract may submit such information to SBA
under Sec. 124.112(c).
Sec. 124.518 How can an 8(a) contract be terminated before performance
is completed?
(a) Termination for default. A decision to terminate a specific
8(a) contract for default can be made by the procuring activity
contracting officer after consulting with SBA. The contracting officer
must advise SBA of any intent to terminate an 8(a) contract for default
in writing before doing so. SBA may provide to the Participant any
program benefits reasonably available in order to assist it in avoiding
termination for default. SBA will advise the contracting officer of
this effort. Any procuring activity contracting officer who believes
grounds for termination continue to exist may terminate the 8(a)
contract for default, in accordance with the Federal Acquisition
Regulations (48 CFR chapter 1). SBA will have no liability for
termination costs or reprocurement costs.
(b) Termination for convenience. After consulting with SBA, the
procuring activity contracting officer may terminate an 8(a) contract
for convenience when it is in the best interests of the Government to
do so. A termination for convenience is appropriate if any
disadvantaged owner of the Participant performing the contract
relinquishes ownership or control of such concern, or enters into any
agreement to relinquish such ownership or control, unless a waiver is
granted pursuant to Sec. 124.515.
(c) Substitution of one 8(a) contractor for another. Where a
procuring activity contracting officer demonstrates to SBA that an 8(a)
contract will otherwise be terminated for default, SBA may authorize
another Participant to complete performance and, in conjunction with
the procuring activity, permit novation of the contract without
invoking the termination for convenience or waiver provisions of
Sec. 124.515.
Sec. 124.519 Are there any dollar limits on the amount of 8(a)
contracts that a Participant may receive?
(a) A Participant (other than one owned by an Indian tribe or an
ANC) may not receive sole source 8(a) contract awards where it has
received a combined total of competitive and sole source 8(a) contracts
in excess of the dollar amount set forth in this section during its
participation in the 8(a) BD program.
(1) For a firm having a revenue-based primary SIC code at time of
program entry, the limit above which it can no longer receive sole
source 8(a) contracts is five times the size standard corresponding to
that SIC code as of the date of SBA's acceptance of the requirement for
the 8(a) BD program or $100,000,000, whichever is less.
(2) For a firm having an employee-based primary SIC code at time of
program entry, the limit above which it can no longer receive sole
source 8(a) contracts is $100,000,000.
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(3) SBA will not consider 8(a) contracts awarded under $100,000 in
determining whether a Participant has reached the limit identified in
paragraphs (a)(1) and (a)(2) of this section.
(b) Once the limit is reached, a firm may not receive any more 8(a)
sole source contracts, but may remain eligible for competitive 8(a)
awards.
(c) The limitation set forth in paragraph (a) of this section will
not apply for firms that are current Participants in the 8(a) BD
program as of December 31, 1997.
(d) SBA includes the dollar value of 8(a) options and modifications
in determining whether a Participant has reached the limit identified
in paragraph (a) of this section. If an option is not exercised or the
contract value is reduced by modification, SBA will deduct those
values.
(e) A Participant's eligibility for a sole source award in terms of
whether it has exceeded the dollar limit for 8(a) contracts is measured
as of the date that the requirement is accepted for the 8(a) program
without taking into account whether the value of that award will cause
the limit to be exceeded.
(f) The SBA Administrator on a non-delegable basis may waive the
requirement prohibiting a Participant from receiving sole source 8(a)
contracts in excess of the dollar amount set forth in this section
where the head of a procuring activity represents to the SBA
Administrator that award of a sole source 8(a) contract to the
Participant is needed to achieve significant interests of the
Government.
Sec. 124.520 Mentor/protege program.
(a) General. The mentor/protege program is designed to encourage
approved mentors to provide various forms of assistance to eligible
Participants. This assistance may include technical and/or management
assistance; financial assistance in the form of equity investments and/
or loans; subcontracts; and/or assistance in performing prime contracts
with the Government in the form of joint venture arrangements. The
purpose of the mentor/protege relationship is to enhance the
capabilities of the protege and to improve its ability to successfully
compete for contracts.
(b) Mentors. Any concern that demonstrates a commitment and the
ability to assist developing 8(a) Participants may act as a mentor and
receive benefits as set forth in this section. This includes businesses
that have graduated from the 8(a) BD program, firms that are in the
transitional stage of program participation, other small businesses,
and large businesses.
(1) In order to qualify as a mentor, a concern must demonstrate
that it:
(i) Possesses favorable financial health, including profitability
for at least the last two years;
(ii) Possesses good character;
(iii) Does not appear on the federal list of debarred or suspended
contractors; and
(iv) Can impart value to a protege firm due to lessons learned and
practical experience gained because of the 8(a) BD program, or through
its general knowledge of government contracting.
(2) Generally, a mentor will have no more than one protege at a
time. However, the AA/8(a)BD may authorize a concern to mentor more
than one protege at a time where the concern can demonstrate that the
additional mentor/protege relationship will not adversely affect the
development of either protege firm (e.g., the second firm cannot be a
competitor of the first firm).
(3) In order to demonstrate its favorable financial health, a firm
seeking to be a mentor must submit its federal tax returns for the last
two years to SBA for review.
(4) Once approved, a mentor must annually certify that it continues
to possess good character and a favorable financial position.
(c) Proteges. (1) In order to initially qualify as a protege firm,
a Participant must:
(i) Be in the developmental stage of program participation;
(ii) Have never received an 8(a) contract; or
(ii) Have a size that is less than half the size standard
corresponding to its primary SIC code.
(2) Only firms that are in good standing in the 8(a) BD program
(e.g., firms that do not have termination or suspension proceedings
against them, and are up to date with all reporting requirements) may
qualify as a protege.
(3) A protege firm may have only one mentor at a time.
(d) Benefits. (1) A mentor and protege may joint venture as a small
business for any government procurement, including procurements less
than half the size standard corresponding to the assigned SIC code and
8(a) sole source contracts, provided both the mentor and the protege
qualify as small for the procurement and, for purposes of 8(a) sole
source requirements, the protege has not reached the dollar limit set
forth in Sec. 124.519.
(2) Notwithstanding the requirements set forth in Secs. 124.105(g)
and (h), in order to raise capital for the protege firm, the mentor may
own an equity interest of up to 40% in the protege firm.
(3) Notwithstanding the mentor/protege relationship, a protege firm
may qualify for other assistance as a small business, including SBA
financial assistance.
(4) No determination of affiliation or control may be found between
a protege firm and its mentor based on the mentor/protege agreement or
any assistance provided pursuant to the agreement.
(e) Written agreement. (1) The mentor and protege firms must enter
a written agreement setting forth an assessment of the protege's needs
and describing the assistance the mentor commits to provide to address
those needs (e.g., management and/or technical assistance, loans and/or
equity investments, cooperation on joint venture projects, or
subcontracts under prime contracts being performed by the mentor). The
agreement must also provide that the mentor will provide such
assistance to the protege firm for at least one year.
(2) The written agreement must be approved by the AA/8(a)BD. The
agreement will not be approved if SBA determines that the assistance to
be provided is not sufficient to promote any real developmental gains
to the protege, or if SBA determines that the agreement is merely a
vehicle to enable a non-8(a) participant to receive 8(a) contracts.
(3) The agreement must provide that either the protege or the
mentor may terminate the agreement with 30 days advance notice to the
other party to the mentor/protege relationship and to SBA.
(4) SBA will review the mentor/protege relationship annually to
determine whether to approve its continuation for another year.
(5) SBA must approve all changes to a mentor/protege agreement in
advance.
(f) Evaluating the mentor/protege relationship. (1) In its annual
business plan update required by Sec. 124.403(a,) the protege must
report to SBA for the protege's preceding program year:
(i) All technical and/or management assistance provided by the
mentor to the protege;
(ii) All loans to and/or equity investments made by the mentor in
the protege;
(iii) All subcontracts awarded to the protege by the mentor, and
the value of each subcontract;
(iv) All federal contracts awarded to the mentor/protege
relationship as a joint venture (designating each as an 8(a), small
business set aside, or unrestricted procurement), the value of each
contract, and the percentage of the
[[Page 35765]]
contract performed and the percentage of revenue accruing to each party
to the joint venture; and
(v) A narrative describing the success such assistance has had in
addressing the developmental needs of the protege and addressing any
problems encountered.
(2) The protege must annually certify to SBA whether there has been
any change in the terms of the agreement.
(3) SBA will review the protege's report on the mentor/protege
relationship as part of its annual review of the firm's business plan
pursuant to Sec. 124.403. SBA may decide not to approve continuation of
the agreement if it finds that the mentor has not provided the
assistance set forth in the mentor/protege agreement or that the
assistance has not resulted in any material benefits or developmental
gains to the protege.
Miscellaneous Reporting Requirements
Sec. 124.601 What reports does SBA require concerning parties who
assist Participants in obtaining federal contracts?
(a) Each Participant must submit annually a written report to its
assigned BOS that includes a listing of any agents, representatives,
attorneys, accountants, consultants and other parties (other than
employees) receiving fees, commissions, or compensation of any kind to
assist such participant in obtaining a Federal contract. The listing
must indicate the amount of compensation paid and a description of the
activities performed for such compensation.
(b) Failure to submit the report is good cause for the initiation
of a termination proceeding pursuant to Secs. 124.303 and 124.304.
Sec. 124.602 What kind of annual financial statement must a
Participant submit to SBA?
(a) Participants with gross annual receipts of more than $5,000,000
must submit to SBA audited annual financial statements prepared by a
licensed independent public accountant within 120 days after the close
of the concern's fiscal year.
(1) The servicing SBA District Director may waive the requirement
for audited financial statements for good cause shown by the
Participant.
(2) Circumstances where waivers of audited financial statements may
be granted include, but are not limited to, the following:
(i) The concern has an unexpected increase in sales towards the end
of its fiscal year that creates an unforeseen requirement for audited
statements;
(ii) The concern unexpectedly experiences severe financial
difficulties which would make the cost of audited financial statements
a particular burden; and
(iii) The concern has been a Participant less than 12 months.
(b) Participants with gross annual receipts between $1,000,000 and
$5,000,000 must submit to SBA reviewed annual financial statements
prepared by a licensed independent public accountant within 90 days
after the close of the concern's fiscal year.
(c) Participants with gross annual receipts of less than $1,000,000
must submit to SBA an annual statement prepared in-house or a
compilation statement prepared by a licensed independent public
accountant, verified as to accuracy by an authorized officer, partner,
limited liability member, or sole proprietor of the Participant,
including signature and date, within 90 days after the close of the
concern's fiscal year.
(d) Any audited or reviewed financial statements submitted to SBA
pursuant to paragraphs (a) or (b) of this section must be prepared in
accordance with Generally Accepted Accounting Principles.
(e) While financial statements need not be submitted until 90 or
120 days after the close of a Participant's fiscal year, depending on
the receipts of the concern, a Participant seeking to be awarded an
8(a) contract between the close of its fiscal year and such 90 or 120-
day time period must submit a final sales report signed by the CEO or
President to SBA in order for SBA to determine the concern's
eligibility for the 8(a) contract. This report must show a breakdown of
8(a) and non-8(a) sales.
(f) Notwithstanding the amount of a Participant's gross annual
receipts, SBA may require audited or reviewed statements whenever they
are needed to obtain more complete information as to a concern's
assets, liabilities, income or expenses, such as when the concern's
capacity to perform a specific 8(a) contract must be determined, or
when they are needed to determine continued program eligibility.
Sec. 124.603 What reports regarding the continued business operations
of former Participants does SBA require?
Former Participants must provide such information as SBA may
request concerning the former Participant's continued business
operations, contracts, and financial condition for a period of three
years following the date on which the concern graduates or is
terminated from the program. Failure to provide such information when
requested will constitute a violation of the regulations set forth in
this part, and may result in the nonexercise of options on or
termination of contracts awarded through the 8(a) BD program,
debarment, or other legal recourse.
Management and Technical Assistance Program
Sec. 124.701 What is the purpose of the 7(j) management and technical
assistance program?
Section 7(j)(1) of the Small Business Act, 15 U.S.C. 636(j)(1),
authorizes SBA to enter into grants, cooperative agreements, or
contracts with public or private organizations to pay all or part of
the cost of technical or management assistance for individuals or
concerns eligible for assistance under sections 7(a)(11), 7(j)(10), or
8(a) of the Small Business Act.
Sec. 124.702 What types of assistance are available through the 7(j)
program?
Through its private sector service providers, SBA may provide a
wide variety of management and technical assistance to eligible
individuals or concerns to meet their specific needs, including:
(a) Counseling and training in the areas of financing, management,
accounting, bookkeeping, marketing, and operation of small business
concerns; and
(b) The identification and development of new business
opportunities.
Sec. 124.703 Who is eligible to receive 7(j) assistance?
The following businesses are eligible to receive assistance from
SBA through its service providers:
(a) Businesses which qualify as small under part 121 of this title,
and which are located in urban or rural areas with a high proportion of
unemployed or low-income individuals, or which are owned by such low-
income individuals; and
(b) Businesses eligible to receive 8(a) contracts.
Sec. 124.704 What additional management and technical assistance is
reserved exclusively for concerns eligible to receive 8(a) contracts?
In addition to the management and technical assistance available
under Sec. 124.702, Section 7(j)(10) of the Small Business Act
authorizes SBA to provide additional management and technical
assistance through its service providers exclusively to small business
concerns eligible to receive 8(a) contracts, including:
(a) Assistance to develop comprehensive business plans with
[[Page 35766]]
specific business targets, objectives, and goals;
(b) Other nonfinancial services necessary for a Participant's
growth and development, including loan packaging; and
(c) Assistance in obtaining equity and debt financing.
PART 134--[AMENDED]
7. The authority citation for 13 CFR part 134 continues to read as
follows:
Authority: 5 U.S.C. 504; 15 U.S.C. 632, 634(b)(6) and 637(a).
7a. Section 134.201 is amended by revising the second and third
sentences to read as follows:
Sec. 134.201 Scope of the rules in this subpart B.
* * * Specific procedural rules pertaining to 8(a) program appeals
and to proceedings under the Program Fraud Civil Remedies Act are set
forth, respectively in subpart D of this part and part 142 of this
chapter. In the case of a conflict between a particular rule in this
subpart and a rule of procedure pertaining to OHA appearing in another
subpart of this part or another part of this chapter, the latter rule
shall govern.
8. Section 134.202 is amended in paragraph (c) by removing the
reference to ``subpart D of this part'' and inserting in its place the
phrase ``subpart E of this part,'' and in paragraph (d) by removing the
phrase ``Sec. 124.211'' and inserting in its place the phrase
``Sec. 134.305.''
9. Section 134.203 is amended by redesignating paragraphs (a)(2)
through (4) as paragraphs (a)(3) through (5) and adding the following
new paragraph (a)(2):
Sec. 134.203 The petition.
(a) * * *
(2) The SBA determination being appealed.
* * * * *
10. Section 134.211 is amended by adding the following new
paragraph (d):
Sec. 134.211 Motions.
* * * * *
(d) Stay. A motion to dismiss stays the time to answer. The Judge
will establish the time for serving and filing an answer in the order
determining the motion to dismiss.
Sec. 134.213 [Amended]
11. Section 134.213(a) is amended by removing the second sentence.
Sec. 134.222 [Amended]
12. Section 134.222 is amended by removing the ``;'' and the word
``or'' at the end of paragraph (a)(2), by inserting a ``.'' at the end
of paragraph (a)(2), and by removing paragraph (a)(3).
13. Subpart D is redesignated as Subpart E, Secs. 134.401 through
134.418 are redesignated as Secs. 134.501 through 134.518, and the
following new Subpart D is added:
Subpart D--Rules of Practice for Appeals Under the 8(a) Program
134.401 Scope of the rules in this subpart D.
134.402 Appeal petition.
134.403 Service of appeal petition.
134.404 Decision by Administrative Law Judge.
134.405 Jurisdiction.
134.406 Review of administrative record.
134.407 Evidence beyond the record and discovery.
134.408 Decision on appeal.
Subpart D--Rules of Practice for Appeals Under the 8(a) Program
Sec. 134.401 Scope of the rules in this subpart D.
The rules of practice in this subpart D apply to all appeals to OHA
from:
(a) Denials of 8(a) BD program admission based solely on a negative
finding(s) of social disadvantage, economic disadvantage, ownership or
control pursuant to Sec. 124.206 of this title;
(b) Early graduation pursuant to Secs. 124.302 and 124.304;
(c) Termination pursuant to Secs. 124.303 and 124.304;
(d) Denials of requests to issue a waiver pursuant to Sec. 124.515;
and
(e) Suspensions pursuant to Sec. 124.305(a).
Sec. 134.402 Appeal petition.
In addition to the requirements of Sec. 134.203, an appeal petition
must state, with specific reference to the determination and the record
supporting such determination, the reasons why the determination is
alleged to be arbitrary, capricious or contrary to law.
Sec. 134.403 Service of appeal petition.
(a) Concurrent with its filing with OHA, a concern must also serve
SBA's AA/8(a)BD and the appropriate Associate General Counsel in SBA's
Office of General Counsel with a copy of the petition, including
attachments.
(1) For appeals relating to denials of program admission pursuant
to Sec. 124.206 of this title, suspensions of program assistance
pursuant to Sec. 124.305, or denials of requests for waivers pursuant
to Sec. 124.515, a petitioner must serve the SBA's Associate General
Counsel for General Law.
(2) For appeals relating to early graduation pursuant to
Secs. 124.302 and 124.304 or termination pursuant to Secs. 124.303 and
124.304, a petitioner must serve the SBA's Associate General Counsel
for Litigation.
(3) Service on SBA's Office of General Counsel generally or the SBA
General Counsel do not meet the service requirements of this section.
(b) Service should be addressed to the AA/8(a)BD and the applicable
Associate General Counsel at the Small Business Administration, 409 3rd
Street, SW, Washington, DC 20416.
Sec. 134.404 Decision by Administrative Law Judge.
Appeal proceedings brought under this subpart will be conducted by
an Administrative Law Judge.
Sec. 134.405 Jurisdiction.
(a) The Administrative Law Judge selected to preside over an appeal
shall decline to accept jurisdiction over any matter if:
(1) The appeal does not, on its face, allege facts that, if proven
to be true, would warrant reversal or modification of the
determination, including appeals of denials of 8(a) BD program
admission based in whole or in part on grounds other than a negative
finding of social disadvantage, economic disadvantage, ownership or
control;
(2) The appeal is untimely filed under Sec. 134.202 or is not
otherwise filed in accordance with the requirements of this subpart or
the requirements in subparts A and B of this part; or
(3) The matter has been decided or is the subject of an
adjudication before a court of competent jurisdiction over such
matters.
(b) Once the Administrative Law Judge accepts jurisdiction over an
appeal, subsequent initiation of an adjudication of the matter by a
court of competent jurisdiction will not preclude the Administrative
Law Judge from rendering a final decision on the matter.
(c) Jurisdiction of the Administrative Law Judge in a suspension
case is limited to the issue of whether the protection of the
Government's interest requires suspension pending resolution of the
termination action, unless the Administrative Law Judge has
consolidated the suspension appeal with the corresponding termination
appeal.
Sec. 134.406 Review of the administrative record.
(a) Except as provided in Sec. 134.407, any proceeding conducted
under this subpart shall be decided solely on a review of the written
administrative record.
(b) The Administrative Law Judge's review is limited to determining
[[Page 35767]]
whether the Agency's determination is arbitrary, capricious, or
contrary to law. As long as the Agency's determination is reasonable,
the Administrative Law Judge must uphold it on appeal.
(c) The administrative record must contain all documents that are
relevant to the determination on appeal before the Administrative Law
Judge and upon which the SBA decision-maker relied. The administrative
record, however, need not contain all documents pertaining to the
petitioner. For example, the administrative record in a termination
proceeding need not include the Participant's entire business plan
file, documents pertaining to specific 8(a) contracts, or the firm's
application for participation in the 8(a) BD program if they are
unrelated to the termination action. The petitioner may object to the
absence of a document, previously submitted to or sent by SBA, which
the petitioner believes was erroneously omitted from the administrative
record.
(d) Where the Agency files its answer to the appeal petition after
the date specified in Sec. 134.206, the Administrative Law Judge may
decline to consider the answer and base his or her decision solely on a
review of the administrative record.
(e) The Administrative Law Judge may remand a case to the AA/8(a)BD
(or, in the case of a denial of a request for waiver under Sec. 124.515
of this title, to the Administrator) for further consideration if he or
she determines that, due to the absence in the written administrative
record of the reasons upon which the determination was based, the
administrative record is insufficiently complete to decide whether the
determination is arbitrary, capricious or contrary to law, or where it
is clearly apparent from the record that SBA made an erroneous factual
finding (e.g., SBA double counted an asset of an individual claiming
disadvantaged status) or a mistake of law (e.g., SBA applied the wrong
regulatory provision in evaluating the case). Such a remand will be for
a period of 10 working days.
Sec. 134.407 Evidence beyond the record and discovery.
(a) The Administrative Law Judge may not admit evidence beyond the
written administrative record nor permit any form of discovery unless
he or she first determines that the petitioner, upon written
submission, has made a substantial showing, based on credible evidence
and not mere allegation, that the Agency determination in question may
have resulted from bad faith or improper behavior.
(1) Prior to any such determination, the Administrative Law Judge
must permit SBA to respond in writing to any allegations of bad faith
or improper behavior.
(2) Upon a determination by the Administrative Law Judge that the
petitioner has made such a substantial showing, the Administrative Law
Judge may permit appropriate discovery, and accept relevant evidence
beyond the written administrative record, which is specifically limited
to the alleged bad faith or improper behavior.
(b) A determination by the Administrative Law Judge that the
required showing set forth in paragraph (a) of this section has been
made does not shift the burden of proof, which continues to rest with
the petitioner.
Sec. 134.408 Decision on appeal.
(a) A decision of the Administrative Law Judge under this subpart
is the final agency decision, and is binding on the parties.
(b) The Administrative Law Judge shall issue a decision, insofar as
practicable, within 90 days after an appeal petition is filed. If the
Administrative Law Judge does not issue a decision within 90 days after
an appeal petition is filed, he or she must indicate the reason that
the 90-day time limit has not been met in the decision, when issued.
(c) The Administrative Law Judge may reconsider an appeal decision
within 20 days of the decision if there is a clear showing of an error
of fact or law material to the decision.
Dated: February 13, 1998.
Aida Alvarez,
Administrator.
[FR Doc. 98-17196 Filed 6-26-98; 8:45 am]
BILLING CODE 8025-01-P