[Federal Register Volume 63, Number 63 (Thursday, April 2, 1998)]
[Proposed Rules]
[Pages 16148-16163]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-8585]
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SMALL BUSINESS ADMINISTRATION
13 CFR Parts 121, 125, and 126
HUBZone Empowerment Contracting Program
AGENCY: Small Business Administration.
ACTION: Proposed rule.
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SUMMARY: The U.S. Small Business Administration (SBA) is proposing to
add to its regulations a new Part 126 to implement a new program
entitled the ``HUBZone Empowerment Contracting Program'' (``hereinafter
the HUBZone Program''). This program was created by the HUBZone Act of
1997, which is contained in Title VI of Public Law 105-135, enacted on
December 2, 1997 (111 Stat. 2592). The proposed rule would set forth
the program requirements for qualification as a HUBZone small business
concern (HUBZone SBC), the federal contracting assistance available to
qualified HUBZone SBCs, and other aspects of this program.
DATES: SBA must receive comments by no later than May 4, 1998.
ADDRESSES: You may submit your comments by first class mail to Michael
McHale, U.S. Small Business Administration, 409 Third Street, SW,
Washington, DC 20416.
FOR FURTHER INFORMATION CONTACT: Michael McHale, Assistant
Administrator, Office of Procurement Policy and Liaison, (202) 205-
6731.
SUPPLEMENTARY INFORMATION: Title VI of the Small Business
Reauthorization Act of 1997, Public Law 105-135, December 2, 1997,
creates a new program called the ``HUBZone Program''. The purpose of
the HUBZone program is to provide federal contracting opportunities for
certain qualified small business concerns (SBCs) located in distressed
communities in an effort to promote private-sector investment and
employment opportunities in these communities. Fostering the growth of
federal contractors in these areas and ensuring that these contractors
remain viable businesses for the long-term will help to empower these
areas while not adversely affecting recent efforts to streamline and
improve the federal procurement process.
The legislative history contains many strong indications that
Congress wanted the SBA to implement the program in a manner that
builds on the President's proposed Empowerment Contracting program
(launched by Executive Order, May 21, 1996) and is consistent with the
Federal government's other existing community empowerment programs-most
notably the Empowerment Zone program. The legislative history also
[[Page 16149]]
contains many indications that Congress wanted SBA to implement the
HUBZone program without harming SBA's existing 8(a) program.
Furthermore, by increasing the small business contracting goal in this
title, Congress sent a strong signal to SBA that it also should avoid
harm to other Congressionally recognized programs which benefit small
business. SBA is sensitive to these indications of Congressional intent
and believes that this proposal reflects a balanced approach to HUBZone
implementation.
The HUBZone Act directs the Administrator of SBA to promulgate
regulations to ``carry out this title and the amendments made by this
title.'' (Pub.L. 105-135, Sec. 605(a)). This proposed rule would add a
new part to Title 13 of the Code of Federal Regulations to include the
regulations for the HUBZone program. The regulations set out the
general principles and definitions applicable to the program; the
departments and agencies affected by the program; the qualification
requirements for HUBZone concerns; the certification procedures of the
program; the verification processes which SBA will use for this
program; the contractual assistance provided by the program; the
applicable subcontracting percentage requirements; the protest and
appeal procedures; and various applicable penalties.
The proposed rule would also provide conforming amendments
necessary to integrate the HUBZone program into the SBA size
regulations and regulations related to government procurement.
The HUBZone Act requires the Administrator of SBA to establish and
maintain a database of qualified HUBZone SBCs. The proposed rule refers
to this database as the List of those concerns that have been certified
by SBA as qualified HUBZone SBCs (the List). The List will include, to
the extent practicable, the name, address, and type of business of each
concern; must be updated at least annually; and must be provided upon
request to any Federal agency or other entity.
SBA has attempted to write the proposed regulations in plain
English. To this end, SBA has written proposed section headings in
question and answer format for ease of use and has tried to avoid
unnecessary verbiage.
SBA encourages comments on all aspects of this proposed rule. This
is a new government program with the potential to achieve significant
public policy objectives. Like many new programs, it also carries the
potential for abuse. SBA has developed these proposed regulations in an
effort to achieve an appropriate balance; broad public comment will
assist it in developing a final rule.
Section by Section Analysis
The following is a section by section analysis of each provision of
SBA's regulations that would be affected by this proposed rule:
The authority citation for 13 CFR Part 121 would be revised to
include Title VI of Public Law 105-135, as Part 121 would be amended to
include references to the HUBZone program.
Section 121.401 would be amended to add the HUBZone program to the
list of government procurement programs subject to size determinations.
Section 121.1001 would be amended by redesignating paragraph (a)(6)
as (a)(7) and adding a new paragraph (a)(6) to describe who may
initiate a size protest or request for formal size determination in the
HUBZone program.
Section 121.1008 would be amended by adding a sentence which
requires the SBA Government Contracting Area Director, or designee, to
notify the AA/HUB of receipt of a size protest concerning a qualified
HUBZone SBC.
The authority citation for Part 125 of this title would be revised
to include Title VI of Public Law 105-135, as Sec. 125.3 would be
amended to include HUBZone SBCs in the subcontracting assistance
provisions of this section.
A new part 126 would be added to Title 13 of the Code of Federal
Regulations to implement the HUBZone program.
Section 126.100 would explain that the purpose of the HUBZone
program is to provide federal contracting assistance for qualified SBCs
located in historically underutilized business zones in an effort to
increase employment opportunities and investment in those areas.
Proposed Sec. 126.101 lists the departments and agencies affected
directly by the HUBZone program.
Section 126.102 would describe the effect the HUBZone program would
have on the section 8(d) subcontracting program. The HUBZone Act of
1997 amended section 8(d) of the Small Business Act, 15 USC 637(d), to
include qualified HUBZone SBCs in the formal subcontracting plans
required by section 8(d) of the Small Business Act and described in
Sec. 125.3 of this title.
Section 126.103 would define terms that are important to the
HUBZone program. In defining some terms essential to the HUBZone
program, the HUBZone Act of 1997 relied upon definitions provided by
other federal agencies. This proposed rule would cross reference those
definitions for use in connection with the HUBZone program.
For example, the HUBZone Act defines a ``HUBZone'' as an
``historically underutilized business zone which is in an area located
within one or more qualified census tracts, qualified non-metropolitan
counties, or lands within the external boundaries of an Indian
reservation.'' Further, the HUBZone Act states that the term
``qualified census tracts'' has the meaning given that term in section
42(d)(5)(C)(ii)(I) of the Internal Revenue Code. This section of the
Internal Revenue Code refers to the low-income housing credit program
maintained by the Department of Housing and Urban Development (HUD).
The Secretary of HUD designates the qualified census tracts by Notice
published periodically in the Federal Register. These notices are
titled ``Statutorily Mandated Designation of Qualified Census Tracts
and Difficult Development Areas for Section 42 of the Internal Revenue
Code of 1986.'' The most recent Notice may be found at 59 FR 53518
(1994). The proposed rule includes a cross reference to section
42(d)(5)(C)(ii)(I) of the Internal Revenue Code.
The term ``qualified non-metropolitan counties'' is based on the
most recent data available concerning median household income and
unemployment rates. The Bureau of Census of the Department of Commerce
gathers the data regarding median household income and the Bureau of
Labor Statistics of the Department of Labor gathers the data regarding
unemployment rates. One may find the information from the Bureau of
Census at any local Federal Depository Library. To find the nearest
Federal Depository Library, one may call toll-free (888) 293-6498. The
information from the Bureau of Labor Statistics is available for public
inspection at the US Department of Labor, Bureau of Labor Statistics,
Division of Local Area Unemployment Statistics office in Washington DC
(the text of the proposed rule lists the complete address). Again, the
proposed rule would cross reference this information to provide
guidance in determining whether or not a small business concern is
located in a HUBZone.
The terms ``qualified census tract'' and ``qualified non-
metropolitan counties'' are based on statistics gathered periodically
by various federal agencies. The census reflects changes every 10
years, while unemployment statistics are calculated annually. Changes
in either can generate changes in the areas that qualify as HUBZones--
even as often as annually.
[[Page 16150]]
The HUBZone Act of 1997 does not define ``lands within the external
boundaries of an Indian reservation.'' For purposes of the HUBZone
program, SBA has adopted the definition of ``Indian reservation'' used
in the Bureau of Indian Affairs' (BIA) regulations and the proposed
rule includes a cross-reference to 25 CFR 151.2(f). The BIA definition
of ``Indian reservation'' includes ``that area of land over which the
tribe is recognized by the United States as having governmental
jurisdiction, except that, in the State of Oklahoma or where there has
been a final judicial determination that a reservation has been
disestablished or diminished, Indian reservation means that area of
land constituting the former reservation of the tribe as defined by the
Secretary [of the Interior or authorized representative].'' 25 CFR
151.2(f). BIA's definition of ``tribe'' includes Alaska Native
entities. See 25 CFR 81.1(w).
SBA created a website that enables individuals to input the address
of their business to determine if it is located in a HUBZone.
Additionally, through the SBA website, individuals may obtain lists of
the qualified census tracts and qualified non-metropolitan counties on
a state-by-state basis. The website also contains a ``hot link'' to a
directory of BIA's Land Titles and Records Offices and their respective
jurisdictions.
Proposed Sec. 126.200 contains the HUBZone eligibility
requirements. In general, as described in the regulations, the company
must be a small business concern; the company must be owned and
controlled by one or more persons each of whom is a citizen of the
United States; the principal office of the concern must be located in a
HUBZone; and at least thirty-five percent (35%) of the concern's
employees must reside in a HUBZone. To be counted as residing in the
HUBZone, an employee must either be registered to vote in the HUBZone
or have resided in the HUBZone for a period of not less than 180 days.
Proposed Sec. 126.201 describes who is considered to own a HUBZone
SBC.
Proposed Sec. 126.202 explains who is considered to control a
HUBZone SBC.
Section 126.203 would state that a HUBZone SBC must meet SBA's size
standards for its primary industry classification as defined in Part
121.
SBA believes that current size standards for the procurement
assistance program is an effective size standard for HUBZone purposes.
However, because the focus of the HUBZone program is creating jobs in
HUBZone communities rather than development of individual businesses,
SBA is considering whether a different approach for HUBZones may be
more appropriate. SBA is specifically seeking comments on policies that
may help to create HUBZone areas. One way SBA is considering is a
minimum alternative size standard for non-8(a) HUBZone SBCs of at least
16 employees. SBCs in the 8(a) program could have fewer than 16
employees. SBA is also considering a maximum size standard for most
SBCs of one-half the procurement assistance size standard for purposes
of initial qualification only. (The full procurement assistance size
standard would apply to HUBZone contracting opportunities.) SBA is
specifically seeking comments on the potential impact of a minimum size
standard of 16 employees, except for 8(a) SBCs and a maximum size
standard of one-half of the SBA size standard for initial qualification
purposes, except for 8(a) firms and women-owned firms. Comments should
address the potential impact of such size standards on types of
businesses and specific industries, particularly those with large
numbers of firms with very few employees, such as business consulting,
health care, and construction.
SBA believes a minimum size standard might better ensure that the
HUBZone program concentrates its benefits on concerns with at least a
minimum base of employees residing in HUBZones. Such a minimum base
could enhance the impact that a HUBZone contract would have, both in
terms of number of required resident employees and in terms of number
of new employees to perform contracts. Directing HUBZone contracts to
somewhat large firms may also ease the task of contract administration
for contracting officers who will be dealing with HUBZone SBCs for the
first time, and increase the likelihood that they will view favorably
the prospect of working with such concerns.
It should also be noted that, unlike the 8(a) program, the HUBZone
program is not primarily aimed at encouraging the development of
individual concerns. The HUBZone program focuses on job creation and
investment in HUBZone communities, and uses Federal procurement
contract awards to qualified HUBZone SBCs to achieve that purpose. The
exception for 8(a) firms also ties in with the fact that smaller 8(a)
participants have a mechanism in place to assist them with performing
contracts--the Mentor-Protege program.
The minimum size standard of 16 employees also would help
distinguish the HUBZone program from the Very Small Business (VSB)
program. The VSB program sets a maximum size standard of 15 employees.
Like the 8(a) program, the VSB program is primarily designed as a
developmental program and uses Federal contracting opportunities to
assist in the development of individual firms. Setting a minimum size
standard of 16 employees for the HUBZone program could help balance the
objectives of the HUBZone program, the 8(a) program, and the VSB
program.
In addition to the minimum size standard under discussion, SBA also
is reviewing a maximum size standard for qualified HUBZone SBCs. Under
this alternative approach, at the time of application for
certification, a concern could not exceed one-half the size standard
corresponding to the SIC code of the concern's primary industry, unless
the concern is an 8(a) participant or a small business concern owned
and controlled by women.
SBA is inviting public comment on whether this reduced size
standard would best fulfill the purposes of the HUBZone program. SBA
wants to avoid the situation where the award of a single HUBZone
contract likely would result in a qualified HUBZone SBC exceeding the
size standard for its primary industry classification. (Example: Assume
that a qualified HUBZone SBC has 499 employees and its primary industry
has a size standard of 500 employees. Should the concern receive a
HUBZone contract and add 10 new employees to perform the contract, it
would no longer meet the employee size standard.) The program may
better achieve its intended purposes by providing incentives for
existing qualified HUBZone SBCs to remain and expand in HUBZones
without losing their eligibility, and by attracting non-HUBZone SBCs
into HUBZones where they will provide new employment opportunities and
spur community economic development. With a maximum size standard for
qualified HUBZone SBCs, they will have room to grow in HUBZone
communities before they are no longer small for purposes of obtaining
contract awards under the program. SBA specifically invites comments on
the question of whether there should be a maximum size standard for the
HUBZone program that is different from other procurement programs, and
what the impact of such a size standard would be on different types of
business and specific industries.
Additionally, if the commenter believes a lower initial maximum
size standard for the HUBZone program is appropriate, SBA asks that the
commenter address the issue of whether there should be an exception to
that size standard for 8(a) participants or SBCs owned and controlled
by women. SBA
[[Page 16151]]
is discussing exceptions for such firms. The 8(a) program is clearly a
developmental program with its purpose to develop concerns owned and
controlled by socially and economically disadvantaged individuals into
competitively viable businesses that can survive upon graduation from
the 8(a) program. SBA believes the HUBZone program could provide an
additional source of government contract support while the 8(a)
participant remains in the program. It is reluctant to impose any
restrictions on such concerns that would conflict with other
regulations governing the 8(a) program directly.
In addition, the Small Business Act contains a congressional
finding that assistance to women-owned businesses (WOBs) is needed to
remove discriminatory barriers to their development. Similar to the
developmental objectives of the 8(a) program, SBA is seeking comment on
whether allowing WOBs a maximum opportunity to qualify as HUBZone SBCs
would assist in overcoming such barriers and aid in their development.
Under proposed Sec. 126.203, if SBA cannot verify that a concern is
small, SBA may deny the concern status as a qualified HUBZone SBC, or
SBA may request a formal size determination from the responsible
Government Contracting Area Director or designee.
Section 126.204 would provide that qualified HUBZone SBCs may have
affiliates so long as the affiliates are also qualified HUBZone SBCs.
Proposed Sec. 126.205 explains that WOBs, 8(a) participants, and
small disadvantaged business concerns (SDBs) also can qualify as
HUBZone SBCs if they meet the requirements set forth in this part.
Section 126.206 would state the conditions under which regular
dealers can qualify as HUBZone SBCs.
Proposed Sec. 126.207 explains that a qualified HUBZone SBC may
have offices or facilities located in another HUBZone or even outside a
HUBZone. However, in order to qualify as a HUBZone SBC, the concern's
principal office must be located in a HUBZone.
Sections 126.300 through 126.306 would describe how a concern is
certified as a qualified HUBZone SBC. This section would explain how
SBA certifies a concern for the program, when the certification takes
place, and whether a concern can certify itself.
Proposed Sec. 126.304 sets forth what a concern must submit to be
certified by SBA as a qualified HUBZone SBC. Proposed Sec. 126.304(f)
explains that if a concern is applying for certification based on a
location ``within the external boundaries of an Indian reservation'',
it must submit official documentation from the Bureau of Indian Affairs
Land Titles and Records Office governing their area that confirms that
the concern is located within the external boundaries of an Indian
reservation. This additional requirement is necessary because, while
the qualified census tracts and qualified non-metropolitan counties are
contained in databases available in an electronic format, the data
concerning Indian reservations is available only through the BIA Land
Titles and Records Offices and is not available in an electronic
format. Consequently, concerns applying for HUBZone status based on
location within the external boundaries of an Indian reservation must
submit the additional documentation.
Proposed Sec. 126.307 states where SBA will maintain the List and
proposed Sec. 126.308 explains what a concern can do in the event SBA
inadvertently omits it from the List.
Section 126.309 would state that if SBA declines or de-certifies a
concern, it may seek certification or re-certification no sooner than
one year from the date of decline or de-certification, if it believes
that it has overcome all of the reasons for decline or de-
certification. SBA requests comments addressing the prohibition on
seeking certification sooner than one year from the date of decline or
de-certification and, in particular, whether the time period is
appropriate. SBA asks commenters to propose alternatives if they
believe the time period is inappropriate.
Proposed Secs. 126.400 through 126.405 discuss program
examinations, including who will conduct program exams, what the
examiners will review, and when examinations will be conducted. In
addition, this section would set out the action SBA may take when it
cannot verify a concern's eligibility and what action SBA will take
once it has verified a concern's eligibility. Concerns would have an
obligation to maintain relevant documentation for 6 years.
Sections 126.500 through 126.503 would set forth how a concern
maintains its HUBZone status; a qualified HUBZone SBC's ongoing
obligation to SBA and the consequences for failure to uphold that
obligation; the length of time a concern may qualify as a HUBZone SBC;
and when SBA may remove a concern from the List. Specifically, a
concern wishing to remain on the List must self-certify annually to SBA
that it remains a qualified HUBZone SBC. This self-certification must
take place within 30 days after the one-year anniversary of their date
of certification. SBA is particularly interested in comments
specifically addressing the requirement of annual self-certification to
SBA. SBA asks commenters to propose alternatives if they believe the
time period is inappropriate.
This section would also explain the qualified HUBZone SBC's ongoing
obligation to immediately notify SBA of any material change which could
affect its eligibility. The consequences for failure to do so will be
immediate de-certification, removal from the List, and possibly the
imposition of penalties under Sec. 126.900 of this part. In order to be
placed upon the List again, the concern must re-apply for certification
pursuant to Secs. 126.300 through 126.309 of this part. Additionally,
the application for certification must include a full explanation of
why the concern failed to notify SBA of the material change. If SBA is
not satisfied with the explanation, SBA may decline to certify the
concern pursuant to Sec. 126.306 of this part.
SBA proposes that qualified HUBZone SBCs remain eligible for
HUBZone status for a period of 3 years beyond the date that the HUBZone
in which the concern is located ceases to meet the definition of a
HUBZone, if the concern continues to meet all other eligibility
requirements. SBA specifically invites public comment on this
particular issue. SBA desires to balance the need to de-certify
concerns that are no longer located in a HUBZone against the need to
not discourage concerns from investing in HUBZone communities and
creating jobs and expanded business operations in those communities in
reliance on HUBZone program benefits.
Proposed Secs. 126.600 through 126.616 explain the general
conditions applicable to HUBZone contracts. These sections include
provisions regarding sole source contract awards; competitive contract
awards; price evaluation preferences and their effect on qualified
HUBZone SBCs; when SBA may appeal a non-award to a qualified HUBZone
SBC; and when a HUBZone contract may be prohibited by other SBA
programs or other Government programs.
Proposed Sec. 126.609 discusses what a contracting officer may do
if a contract opportunity does not exist for competition among
qualified HUBZone SBCs. This section explains that, in this situation,
the contracting officer may make an award under the 8(a) program on
either a sole source or competitive basis, make award to a HUBZone SBC
on a sole source award basis, or utilize a small business set-aside, in
that order
[[Page 16152]]
of precedence. If the criteria are not met for any of these special
contracting authorities, then the contracting officer may solicit the
procurement through full and open competition. SBA believes this order
of precedence will aid in providing the maximum practicable opportunity
for the development of SBCs owned by members of socially and
economically disadvantaged groups, as Congress intended in the Small
Business Act (15 U.S.C. 632(f)(1)(e)), and yet is consistent with the
new HUBZone legislation.
Proposed Sec. 126.613 explains how a price evaluation preference
affects the bid of a qualified HUBZone SBC in full and open
competition. In a full and open competition, a contracting officer must
deem the price offered by a qualified HUBZone SBC to be lower than the
price offered by another offeror (other than another small business
concern) if the price offered by the qualified HUBZone SBC is not more
than 10% higher than the price offered by the otherwise lowest,
responsive, and responsible offeror. An example of the application of
the HUBZone price evaluation preference is included in this section of
the proposed rule.
Proposed Sec. 126.614 describes how a contracting officer must
apply both HUBZone and SDB price evaluation preferences in a full and
open competition. The HUBZone price evaluation preference is described
in proposed Sec. 126.613 of this part. The SDB price evaluation
preference currently applies to the Department of Defense only, and is
set forth in 10 U.S.C. 2323. The Department of Defense regulations
implementing this preference are set out in Sec. 252.219-7006 of the
Defense Federal Acquisition Regulation Supplement.
This proposed rule requires that the contracting officer first
apply the SDB price evaluation preference, then apply the HUBZone price
evaluation preference. The SDB price evaluation preference should be
applied first in order to establish the lowest, responsive, and
responsible offeror. Once the contracting officer establishes the
lowest, responsive, and responsible offeror, if the qualified HUBZone
SBC's offer is not more than 10 percent higher than that offer (unless
the lowest, responsive, responsible offeror is another small business
concern) the contracting officer must deem the price offered by the
qualified HUBZone SBC to be lower than the price offered by the
otherwise lowest, responsive, and responsible offeror. The SDB price
evaluation must be applied first because if the contracting officer
applies the HUBZone price evaluation preference first, the SDB price
evaluation preference would effectively negate the HUBZone price
evaluation preference. An example of the application of both HUBZone
and SDB price evaluation preferences is included in proposed
Sec. 126.614 of the regulations.
It is possible that the qualified HUBZone SBC that submits an offer
on a contract will be both a qualified HUBZone SBC and an SDB. For
example, a qualified HUBZone SBC (but not an SDB) submits an offer of
$102; a qualified HUBZone SBC that is also an SDB submits an offer of
$105; an SDB (but not a qualified HUBZone SBC) submits an offer of
$107; a small business concern (but not a qualified HUBZone SBC or an
SDB) submits an offer of $100; and a large business submits an offer of
$93. Under this proposal, the contracting officer must go through the
following steps:
1. Apply the SDB price evaluation preference to establish the
lowest, responsive, and responsible offeror. Thus, the qualified
HUBZone SBC's offer becomes $112.2; the qualified HUBZone SBC/SDB's
offer remains $105; the SDB's offer remains $107; the small business
concern's offer becomes $110; and the large business's offer becomes
$102.3. As a result of the SDB price evaluation preference, the large
business is the lowest, responsive, and responsible offeror.
2. Apply the HUBZone price evaluation preference and if a qualified
HUBZone SBC's price is not more than 10 percent higher than the large
business's price, the contracting officer must deem its price to be
lower than the large business's price. In this example, the qualified
HUBZone price of $112.2 is not more than 10 percent higher than the
large business's price, however, the qualified HUBZone/SDB's price of
$105 is also not more than 10 percent higher than the large business's
price and is lower than the qualified HUBZone SBC's price.
Consequently, as specified by this proposed rule, the contracting
officer must deem the price of the qualified HUBZone/SDB as the lowest,
responsive, and responsible offeror.
This example illustrates the potential effect of according a small
business concern a ``dual status'' as both a qualified HUBZone SBC and
an SDB. SBA invites comments specifically addressing whether such an
application of ``dual status'' is appropriate. Should concerns be able
to benefit from both their qualified HUBZone status and their small
disadvantaged status? Or, should they be required to choose one or the
other when submitting an offer on a contract in full and open
competition?
Proposed Sec. 126.616 specifically discusses the circumstances in
which a contracting officer may award a HUBZone contract to a joint
venture. This section explains that a qualified HUBZone SBC may enter
into a joint venture with one or more other qualified HUBZone SBCs for
the purpose of performing a specific HUBZone contract. By allowing
joint ventures between qualified HUBZone SBCs, 8(a) participants and
WOBs, SBA would make it more possible for such concerns to bid on
larger contracts.
Proposed Sec. 126.616(b) explains the size standards applicable to
such joint ventures. A joint venture of qualified HUBZone SBCs could
submit an offer for a HUBZone procurement so long as each concern is
small under the size standard corresponding to the SIC code assigned to
the contract, provided that, for a procurement having an employee-based
size standard, the procurement exceeds $10 million. On August 14, 1997,
SBA proposed a similar rule for the 8(a) program. Although the final
rule for the 8(a) program has yet to be published, SBA anticipates that
the final rule will be the same on this issue. To achieve consistency
within its programs, SBA modeled this section of the proposed rule
after Sec. 124.512 of the 8(a) program proposed rule.
Since a principal purpose of the HUBZone program is job creation
and job growth, SBA would like commenters to address specifically
whether HUBZone contract opportunities should be limited to certain
types of contracts only. For example, should HUBZone contracts only be
available for industries that are considered ``labor-intensive''? The
proposed rule does not now contain such a restriction.
Additionally, SBA requests that commenters discuss whether HUBZone
contract opportunities should be limited to those not now awarded to
SBCs. It also invites suggestions for ways in which HUBZone
implementation can better help government contracting activities meet
their SDB and WOB goals.
Proposed Sec. 126.700 discusses the subcontracting percentage
requirements applicable to the HUBZone program; the limited
circumstances under which the subcontracting percentage requirements
may be changed; and the procedures for changing those requirements. For
purposes of definitions applicable to Sec. 126.700, as well as Secs.
126.304(a)(5) and 126.602(b), SBA specifically solicits comment and, in
particular, with regard to an appropriate definition for ``materials''.
SBA asks commenters to discuss whether substantially completed products
with only minor
[[Page 16153]]
modifications should be considered materials, and whether and how labor
costs involved in producing such products should be considered.
Proposed Sec. 126.800 addresses protests relating to a small
business concern's HUBZone status. This section would explain who may
file a protest, what the protest must contain, how and where a protest
must be filed, who decides the protest, and what appeal rights are
available.
Proposed Sec. 126.900 prescribes the penalties applicable under the
HUBZone program including procurement and non-procurement suspension or
debarment, as well as applicable civil and criminal penalties.
Compliance With Executive Orders 12612, 12778, and 12866, the
Regulatory Flexibility Act (5 U.S.C. 601 et seq.), and the
Paperwork Reduction Act (44 U.S.C. Ch. 35)
SBA certifies that this proposed rule may constitute a major rule
within the meaning of Executive Order 12866, and may have a significant
economic impact on a substantial number of small entities within the
meaning of the Regulatory Flexibility Act, 5 U.S.C. 601 et seq. SBA
submits the following economic analysis prepared pursuant to Executive
Order 12866 and Initial Regulatory Flexibility Analysis (IRFA) prepared
pursuant to the Regulatory Flexibility Act.
In making its determination that this proposed rule may constitute
a major rule and may have a significant economic impact on a
substantial number of small entities, SBA used the definition of small
business set forth in 13 CFR Part 121.
The HUBZone Act of 1997, Title VI of Public Law 105-135, 111 Stat.
2592 (December 2, 1997), creates the HUBZone program and directs the
Administrator of SBA to promulgate regulations to implement it. The
proposed rule sets forth the program requirements for qualification as
a HUBZone SBC, the federal contracting assistance available to
qualified HUBZone SBCs, and other aspects of this program.
The HUBZone program will benefit SBCs by increasing the number of
federal government contracts awarded to them. SBA cannot predict with
any accuracy the number or dollar amount of contracts that will be
awarded to qualified HUBZone SBCs or determine the magnitude of the
shift, if any, among small and large businesses. SBA is seeking data or
comments from the public on the impact of the proposed rule on all
small businesses. The program also will benefit HUBZone communities by
providing much needed jobs and investment in those communities.
Prior to submitting an offer on a HUBZone contract, an interested
small business must apply to SBA for certification as a qualified
HUBZone SBC. The concern must submit information relating to its
eligibility for the program, including supporting documentation. Once a
concern is certified as a qualified HUBZone SBC, it must self-certify
annually to SBA that there has been no material change in its
circumstances that would affect eligibility. The information required
for certification consists of general information about the business.
SBA estimates that each concern will be able to complete the
certification application in one hour or less.
As the HUBZone program is new and this proposed rule is designed to
implement the program, there are no relevant federal rules that may
duplicate, overlap or conflict with the proposed rule. Additionally,
since the HUBZone Act of 1997 directs the Administrator to promulgate
regulations to implement this program, without new legislation there
are no alternatives to implementing this proposed rule.
The small entities who this proposed rule may affect are those who
fit within the definition of a small business concern as defined by SBA
in 13 CFR Part 121 and new Part 126 and who participate in government
contracting. Because the program is new, SBA cannot estimate precisely
the number or classes of small entities that this proposed rule will
affect. However, as explained below, SBA estimates that more than
30,000 SBCs will apply for certification as qualified HUBZone SBCs.
Based on 1992 census data and making reasonable extrapolations to
account for growth in recent years, SBA estimates that there are
approximately 5 million businesses with employees in the United States;
of this number, approximately 4.9 million--or 98 percent--are
considered small. Clearly, not all of the businesses who are considered
small seek to participate in federal government contracting or will
seek to participate in the HUBZone program. Currently, there are
approximately 170,000 SBCs registered on PRO-Net, SBA's database of
SBCs actively seeking federal government contracts.
The number of entities that seek certification as qualified HUBZone
SBCs will depend, first, on the number of businesses located in
HUBZones. The potential number of HUBZones is significant. Based on the
data available, there are approximately 61,000 census tracts in the
United States; of those tracts, about 7,000--or 11 percent--are
qualified census tracts for purposes of the HUBZone program. In
addition, there are approximately 3,000 non-metropolitan counties in
the United States; of those counties, about 900 -or 30 percent--are
qualified non-metropolitan counties for purposes of the HUBZone
program. (At the time of publishing this proposed rule, there was no
data available on the number of Indian reservations in the United
States.) Based on combining the qualified census tract and qualified
non-metropolitan county data, SBA estimates that approximately 12
percent of the census tracts and non-metropolitan counties in the
United States will qualify as HUBZones. For purposes of these
estimates, the number of Indian reservations is not significant.
If all small businesses interested in Federal procurement were
evenly distributed geographically, then approximately 12 percent of the
170,000 SBCs registered on PRO-Net--or 20,000--would be located in
HUBZones. However, SBA believes that a much higher number of small
business are located in qualified census tracts than in qualified non-
metropolitan counties; therefore, SBA adjusts this number upward and
estimates that 25,000 SBCs--or 15 percent--interested in Federal
procurement will be located in HUBZones.
The incentives available through participation in the program
should result in additional relocating to HUBZone areas. SBA is unable
to predict the impact of this factor on the total number of qualified
HUBZone SBCs, but estimates that roughly 30,000 concerns are either now
HUBZone SBCs or will become HUBZone SBCs and will apply for
certification.
Because the HUBZone program is new, SBA also cannot estimate
precisely the economic impact the proposed rule may have on the
economy. According to the Congressional Budget Office (CBO), in 1996
the federal agencies specified in the HUBZone Act contracted for more
than 90 percent of all federal procurement obligations. (143 Cong. Rec.
S8976 (daily ed. September 9, 1997)). In FY 1996, the federal
government spent $197.6 billion on the procurement of goods and
services. The government awarded small businesses $41.1 billion in
direct contract actions--21 percent of the total $197.6 billion in
contract actions.
The HUBZone Act of 1997 amends the Small Business Act to increase
the Government-wide federal contracting goal for SBCs from 20 percent
to 23
[[Page 16154]]
percent of all federal prime contracts. In addition, the HUBZone Act
sets the government contracting goal for HUBZone SBCs initially at 1
percent of all federal prime contracts with a gradual increase to 3
percent by the year 2003. Thus, by 2003, assuming the participating
agencies reach the 3 percent contracting goal, HUBZone SBCs may be
awarded approximately $6 billion in federal contract actions (3 percent
of $197.6 billion).
In addition to the procurement contract awards available to
qualified HUBZone concerns, the HUBZone program will have other effects
on the economy including the possibility of increased costs to the
government. CBO anticipates that implementation of the HUBZone program
will increase the incidence of sole source contracting. According to
CBO, about 19 percent of federal procurement is awarded through sole
source contracts. It is not possible to project any increase in sole
source awards at this time, however, there might not be any increase in
sole source awards at all. Instead, qualified HUBZone SBCs might
receive sole source awards that would otherwise go to large businesses
or other small businesses.
CBO also estimates that implementing the HUBZone program would
significantly increase discretionary spending for the federal agencies
affected by the program. According to CBO, ``[s]uch costs could total
tens of millions of dollars each year, but CBO cannot estimate such
costs precisely.'' (143 Cong. Rec. S8976 (daily ed. September 9,
1997)). CBO anticipated that these additional costs would stem from
both additional administrative responsibilities for SBA and other
federal agencies, as well as the likely increased use of sole source
contracting. SBA is not in a position to shed much additional light on
this subject. It has received an appropriation of $2 million in FY 1998
to begin implementing the program and has requested $4 million for FY
1999. No other cost information is available at the present time.
Assessing whether the government will have a net cost from this program
is very subjective. It is at least possible that increased competition
from HUBZone SBCs will cause competing concerns to lower prices thereby
reducing government procurement costs (perhaps substantially).
Under all of these circumstances, SBA has determined that this
proposed rule may constitute a major rule within the meaning of E.O.
12866, and may have a significant impact on a substantial number of
small entities within the meaning of the Regulatory Flexibility Act.
For purposes of the Paperwork Reduction Act, 44 U.S.C. Ch. 35, SBA
certifies that this proposed rule imposes new reporting or
recordkeeping requirements on concerns applying to be certified as
qualified HUBZone SBCs. The proposed rule requires such concerns to
submit evidence that they meet the eligibility requirements set forth
in the rule; once certified, in order to remain on the List a concern
must self-certify annually to SBA that it remains qualified; and
qualified HUBZone SBCs must notify SBA immediately of any material
change in circumstances which could affect their eligibility.
For purposes of Executive Order 12612, SBA certifies that this
proposed rule has no federalism implications warranting the preparation
of a Federalism Assessment.
For purposes of Executive Order 12778, SBA certifies that it has
drafted this rule, to the extent practicable, in accordance with the
standards set forth in section 2 of that Order.
(Catalog of Federal Domestic Assistance Programs, No. 59.009)
List of Subjects
13 CFR Part 121
Government procurement, Government property, Grant programs-
business, Individuals with disabilities, Loan programs-business, Small
businesses.
13 CFR Part 125
Government contracts; Government procurement; Reporting and
recordkeeping requirements; Research; Small businesses; Technical
assistance.
13 CFR Part 126
Administrative practice and procedure, Government procurement,
Reporting and recordkeeping requirements, Small business.
Accordingly, for the reasons set forth above, SBA proposes to amend
Title 13, Code of Federal Regulations (CFR), as follows:
PART 121--[AMENDED]
1. The authority citation for 13 CFR Part 121 is revised to read as
follows:
Authority: Pub. L. 105-135 sec. 601 et seq., 111 Stat. 2592; 15
U.S.C. 632(a), 634(b)(6), 637(a) and 644(c); and Pub. L. 102-486,
106 Stat. 2776, 3133.
2. Section 121.401 is amended by deleting the word ``and'' before
``Federal Small Disadvantaged Business Programs,'' adding a comma after
``Federal Small Disadvantaged Business Programs,'' and adding the
following language at the end of the sentence ``and SBA's HUBZone
program''.
3. Section 121.1001 is amended by redesignating paragraph (a)(5) as
(a)(6) and by adding the following new paragraph (a)(5) to read as
follows:
Sec. 121.1001 Who may initiate a size protest or a request for formal
size determination?
(c) Size Status Protests. * * *
(5) For SBA's HUBZone program, the following entities may protest
in connection with a particular HUBZone procurement:
(i) Any concern that submits an offer for a specific HUBZone set-
aside contract;
(ii) Any concern that submitted an offer in full and open
competition and its opportunity for award will be affected by a price
evaluation preference given a qualified HUBZone SBC;
(iii) The contracting officer; and
(iv) The Associate Administrator for Government Contracting, or
designee.
* * * * *
4. Section 121.1008 is amended by revising paragraph (a) to read as
follows:
Sec. 121.1008 What happens after SBA receives a size protest or a
request for a formal size determination?
(a) When a size protest is received, the SBA Government Contracting
Area Director, or designee, will promptly notify the contracting
officer, the protested concern, and the protestor that a protest has
been received. In the event the size protest pertains to a requirement
involving SBA's HUBZone Program, the Government Contracting Area
Director will advise the AA/HUB of receipt of the protest. In the event
the size protest pertains to a requirement involving SBA's SBIR
Program, the Government Contracting Area Director will advise the
Assistant Administrator for Technology of the receipt of the protest.
SBA will provide a copy of the protest to the protested concern along
with a blank SBA Application for Small Business Size Determination (SBA
Form 355) by certified mail, return receipt requested, or by any
overnight delivery service that provides proof of receipt. SBA will ask
the protested concern to respond to the allegations of the protestor.
* * * * *
PART 125--[AMENDED]
5. The authority section for 13 CFR Part 125 is revised to read as
follows:
Authority: Pub. L. 105-135 sec. 601 et seq., 111 Stat. 2592; 15
U.S.C. 634(b)(6), 637, and 644; 31 U.S.C. 9701, 9792.
[[Page 16155]]
6. Section 125.3 is amended by revising paragraphs (b) and (c) and
by revising the last sentence of paragraph (d) to read as follows:
Sec. 125.3 Subcontracting assistance.
(a) * * *
(b) Upon determination of the successful subcontract offeror on a
subcontract for which a small business, small disadvantaged business,
and/or a HUBZone small business received a preference, but prior to
award, the prime contractor must inform each unsuccessful offeror in
writing of the name and location of the apparent successful offeror and
if the successful offeror was a small business, small disadvantaged
business, or HUBZone business. This applies to all subcontracts over
$10,000.
(c) SBA Commercial Market Representatives (CMRs) facilitate the
process of matching large prime contractors with small, small
disadvantaged, and HUBZone subcontractors. CMRs identify, develop, and
market small businesses to the prime contractors and assist the small
firms in obtaining subcontracts.
(d) * * * Source identification means identifying those small,
small disadvantaged, and HUBZone firms which can fulfill the needs
assessed from the opportunity development process.
7. Add a new part 126 to read as follows:
PART 126--HUBZONE PROGRAM
Subpart A--Provisions of General Applicability
Sec.
126.100 What is the purpose of the HUBZone program?
126.101 Which government departments or agencies are affected
directly by the HUBZone program?
126.102 What is the effect of the HUBZone program on the section
8(d) subcontracting program?
126.103 What definitions are important in the HUBZone program?
Subpart B--Requirements to be a Qualified Hubzone SBC
126.200 What requirements must a concern meet to receive SBA
certification as a qualified HUBZone SBC?
126.201 For this purpose, who does SBA consider to own a HUBZone
SBC?
126.202 Who does SBA consider to control a HUBZone SBC?
126.203 What size standards apply to HUBZone SBCs?
126.204 May a qualified HUBZone SBC have affiliates?
126.205 May WOBs, 8(a) participants or SDBs be qualified HUBZone
SBCs?
126.206 May regular dealers be qualified HUBZone SBCs?
126.207 May a qualified HUBZone SBC have offices or facilities in
another HUBZone or outside a HUBZone?
Subpart C--Certification
126.300 How may a concern be certified as a qualified HUBZone SBC?
126.301 Is there any other way for a concern to obtain
certification?
126.302 When may a concern apply for certification?
126.303 Where must a concern file its certification?
126.304 What must a concern submit to SBA?
126.305 What format must the certification to SBA take?
126.306 How will SBA process the certification?
126.307 Where will SBA maintain the List of qualified HUBZone SBCs?
126.308 What happens if SBA inadvertently omits a qualified HUBZone
SBC from the List?
126.309 How may a declined or de-certified concern seek
certification at a later date?
Subpart D--Program Examinations
126.400 Who will conduct program examinations?
126.401 What will SBA examine?
126.402 When may SBA conduct program examinations?
126.403 May SBA require additional information from a HUBZone SBC?
126.404 What happens if SBA is unable to verify a qualified HUBZone
SBC's eligibility?
126.405 What happens if SBA verifies eligibility?
Subpart E--Maintaining HUBZone Status
126.500 How does a qualified HUBZone SBC maintain HUBZone status?
126.501 What are a qualified HUBZone SBC's ongoing obligations to
SBA?
126.502 Is there a limit to the length of time a qualified HUBZone
SBC may be on the List?
126.503 When is a concern removed from the List?
Subpart F--Contractual Assistance
126.600 What are HUBZone contracts?
126.601 What additional requirements must a qualified HUBZone SBC
meet to bid on a contract?
126.602 What additional requirements apply during contract
performance?
126.603 Does HUBZone certification guarantee receipt of HUBZone
contracts?
126.604 Who decides if a HUBZone contract opportunity exists?
126.605 What requirements are not available for HUBZone contracts?
126.606 May a contracting officer request that SBA release an 8(a)
requirement for award as a HUBZone contract?
126.607 When must a contracting officer set aside a requirement for
competition among qualified HUBZone SBCs?
126.608 What may the contracting officer do if an award cannot be
made based on a set-aside for competition among qualified HUBZone
SBCs?
126.609 What may the contracting officer do if a contract
opportunity does not exist for competition among qualified HUBZone
SBCs?
126.610 May SBA appeal a contracting officer's decision not to
reserve a procurement for award as a HUBZone contract?
126.611 What is the process for such an appeal?
126.612 When may a contracting officer award sole source contracts
to a qualified HUBZone SBC?
126.613 How does a price evaluation preference affect the bid of a
qualified HUBZone SBC in full and open competition?
126.614 How must a contracting officer apply HUBZone and SDB price
evaluation preferences in a full and open competition?
126.615 May a large business participate on a HUBZone contract?
126.616 What requirements must a joint venture satisfy to bid on a
HUBZone contract?
Subpart G--Subcontracting Percentage Requirements
126.700 What are the subcontracting percentage requirements under
this program?
126.701 Can these subcontracting percentage requirements change?
126.702 How can the subcontracting percentage requirements be
changed?
126.703 What are the procedures for requesting changes in
subcontracting percentages?
Subpart H--Protests
126.800 Who may protest the status of a qualified HUBZone SBC?
126.801 How does one submit a HUBZone status protest?
126.802 Who decides a HUBZone status protest?
126.803 How will SBA process a HUBZone status protest?
126.804 Will SBA decide all HUBZone status protests?
126.805 What are the procedures for appeals of HUBZone status
determinations?
Subpart I--Penalties
126.900 What penalties may be imposed under this part?
Authority: Pub.L. 105-135 sec. 601 et seq., 111 Stat. 2592; 15
U.S.C. 632(a).
Subpart A--Provisions of General Applicability
Sec. 126.100 What is the purpose of the HUBZone program?
The purpose of the HUBZone program is to provide federal
contracting assistance for qualified SBCs located in historically
underutilized business zones in an effort to increase employment
opportunities, investment, and economic development in such areas.
[[Page 16156]]
Sec. 126.101 Which government departments or agencies are affected
directly by the HUBZone program?
(a) Until September 30, 2000, the HUBZone program applies only to
procurements by the following departments and agencies:
(1) Department of Agriculture;
(2) Department of Defense;
(3) Department of Energy;
(4) Department of Health and Human Services;
(5) Department of Housing and Urban Development;
(6) Department of Transportation;
(7) Department of Veterans Affairs;
(8) Environmental Protection Agency;
(9) General Services Administration; and
(10) National Aeronautics and Space Administration.
(b) After September 30, 2000, the HUBZone program will apply to all
federal departments and agencies which employ one or more contracting
officers as defined by 41 U.S.C. 423(f)(5).
Sec. 126.102 What is the effect of the HUBZone program on the section
8(d) subcontracting program?
The HUBZone Act of 1997 amended the section 8(d) subcontracting
program to include qualified HUBZone SBCs in the formal subcontracting
plans described in Sec. 125.3 of this title.
Sec. 126.103 What definitions are important in the HUBZone program?
Administrator means the Administrator of the United States Small
Business Administration (SBA).
AA/8(a)BD means SBA's Associate Administrator for 8(a) Business
Development.
AA/HUB means SBA's Associate Administrator for the HUBZone Program.
ADA/GC&8(a)BD means SBA's Associate Deputy Administrator for
Government Contracting and 8(a) Business Development.
Certify means the process by which SBA determines that a HUBZone
SBC is qualified for the HUBZone program and entitled to be included in
SBA's ``List of Qualified HUBZone SBCs.''
Citizen means a person born or naturalized in the United States.
SBA does not consider holders of permanent visas and resident aliens to
be citizens.
Concern means a firm which satisfies the requirements in
Secs. 121.105(a) and (b) of this title.
Contract opportunity means a situation in which a requirement for a
procurement exists, and either:
(1) HUBZone contracts (including options) awarded by the
contracting activity to HUBZone SBCs do not aggregate more than 3
percent of all contract awards by that activity that fiscal year; or
(2) The contracting activity has reached a HUBZone contracting
level of 3 percent but the contracting activity also has met all other
contracting goals applicable to SDBs and WOBs. See other definitions in
this section for further details.
County unemployment rate is the rate of unemployment for a county
based on the most recent data available from the United States
Department of Labor, Bureau of Labor Statistics. The appropriate data
may be found in the DOL/BLS publication titled ``Supplement 2,
Unemployment in States and Local Areas.'' This publication is available
for public inspection at the Department of Labor, Bureau of Labor
Statistics, Division of Local Area Unemployment Statistics located at 2
Massachusetts Ave., NE, Room 4675, Washington DC 20212. A copy is also
available at SBA, Office of AA/HUB, 409 3rd Street, SW, Washington DC
20416.
De-certify means the process by which SBA determines that a concern
is no longer a qualified HUBZone SBC and removes that concern from its
List.
Employee means a person (or persons) employed by a HUBZone SBC on a
full-time (or full-time equivalent), permanent basis. Full-time
equivalent includes employees who work 30 hours per week or more. Full-
time equivalent also includes the aggregate of employees who work less
than 30 hours a week, where the work hours of such employees add up to
at least a 40 hour work week. The totality of the circumstances,
including factors relevant for tax purposes, will determine whether
persons are employees of a concern. Temporary employees, independent
contractors or leased employees are not employees for these purposes.
Example 1: 4 employees each work 20 hours per week; SBA will
regard that circumstance as 2 full-time equivalent employees.
Example 2: 1 employee works 20 hours per week and 1 employee
works 15 hours per week; SBA will regard that circumstance as not a
full-time equivalent.
Example 3: 1 employee works 15 hours per week, 1 employee works
10 hours per week, and 1 employee works 20 hours per week; SBA will
regard that circumstance as 1 full-time equivalent employee.
Example 4: 1 employee works 30 hours per week and 2 employees
each work 15 hours per week; SBA will regard that circumstance as 1
full-time equivalent employee.
HUBZone means a historically underutilized business zone, which is
an area located within one or more qualified census tracts, qualified
non-metropolitan counties, or lands within the external boundaries of
an Indian reservation. See other definitions in this section for
further details.
HUBZone small business concern (HUBZone SBC) means a concern that
is small as defined by Sec. 126.203, is exclusively owned and
controlled by persons who are United States citizens, and has its
principal office located in a HUBZone.
Indian reservation has the meaning used by the Bureau of Indian
Affairs in 25 CFR 151.2(f). This definition refers generally to land
over which a ``tribe'' has jurisdiction, and ``tribe'' includes Alaska
Native entities under 25 CFR 81.1(w).
Interested party means any concern that submits an offer for a
specific HUBZone sole source or set-aside contract, any concern that
submitted an offer in full and open competition and its opportunity for
award will be affected by a price evaluation preference given a
qualified HUBZone SBC, the contracting activity's contracting officer,
or SBA.
List refers to the database of qualified HUBZone SBCs that SBA has
certified.
Median household income has the meaning used by the Bureau of the
Census, United States Department of Commerce, in its publication
titled, ``1990 Census of Population, Social and Economic
Characteristics,'' Report Number CP-2, pages B-14 and B-17. This
publication is available for inspection at any local Federal Depository
Library. For the location of a Federal Depository library, call toll-
free (888) 293-6498 or contact the Bureau of the Census, Income
Statistics Branch, Housing and Economic Statistics Division, Washington
DC 20233-8500.
Metropolitan statistical area means an area as defined in section
143(k)(2)(B) of the Internal Revenue Code of 1986. (title 26, United
States Code).
Non-metropolitan has the meaning used by the Bureau of the Census,
United States Department of Commerce, in its publication titled, ``1990
Census of Population, Social and Economic Characteristics,'' Report
Number CP-2, page A-9. This publication is available for inspection at
any local Federal Depository Library. For the location of a Federal
Depository Library, call toll-free (888) 293-6498 or contact the Bureau
of the Census, Population Distribution Branch, Population Division,
Washington DC 20233-8800.
Person means a natural person. Pursuant to the Alaska Native Claims
Settlement Act, 43 U.S.C. 1626(e), Alaska Native Corporations and any
[[Page 16157]]
direct or indirect subsidiary corporations, joint ventures, and
partnerships of a Native Corporation are deemed to be owned and
controlled by Natives, and are thus persons.
Principal office means the location where the greatest number of
the concern's employees at any one location perform their work.
Qualified census tract has the meaning given that term in section
42(d)(5)(C)(ii)(I) of the Internal Revenue Code (title 26, United
States Code).
Qualified HUBZone SBC means a HUBZone SBC that SBA certifies as
qualified for federal contracting assistance under the HUBZone program.
Qualified non-metropolitan county means any county that:
(1) Based on the most recent data available from the Bureau of the
Census of the Department of Commerce--
(i) Is not located in a metropolitan statistical area; and
(ii) In which the median household income is less than 80 percent
of the non-metropolitan State median household income; or
(2) Based on the most recent data available from the Secretary of
Labor, has an unemployment rate that is not less than 140 percent of
the statewide average unemployment rate for the State in which the
county is located.
Reside means to live in a primary residence at a place for at least
180 days, or as a currently registered voter, and with intent to live
there indefinitely.
Small disadvantaged business (SDB) means a concern that is small
pursuant to part 121 of this title, and is owned and controlled by
socially and economically disadvantaged individuals, tribes, Alaska
Native Corporations, Native Hawaiian Organizations, or Community
Development Corporations.
Statewide average unemployment rate is the rate based on the most
recent data available from the Bureau of Labor Statistics, United
States Department of Labor, Division of Local Area Unemployment
Statistics, 2 Massachusetts Ave., NE, Room 4675, Washington, DC 20212.
A copy is also available at SBA, Office of AA/HUB, 409 3rd Street, SW,
Washington DC 20416.
Women-owned business (WOB) means a concern that is small pursuant
to part 121 of this title, and is at least 51 percent owned and
controlled by women.
Subpart B--Requirements to be a Qualified HUBZone SBC
Sec. 126.200 What requirements must a concern meet to receive SBA
certification as a qualified HUBZone SBC?
(a) The concern must be a HUBZone SBC as defined in Sec. 126.103;
and
(b) At least 35 percent of the concern's employees must reside in a
HUBZone. When determining the percentage of employees that reside in a
HUBZone, if the percentage results in a fraction round up to the
nearest whole number.
Example 1: A concern has 25 employees, 35 percent or 8.75
employees must reside in a HUBZone. Thus, 9 employees must reside in
a HUBZone.
Example 2: A concern has 95 employees, 35 percent or 33.25
employees must reside in a HUBZone. Thus, 34 employees must reside
in a HUBZone.
Sec. 126.201 For this purpose, who does SBA consider to own a HUBZone
SBC?
An owner of a HUBZone SBC is a person who owns any legal or
equitable interest in such HUBZone SBC. More specifically:
(a) Corporations. SBA will consider any person who owns stock,
whether voting or non-voting, to be an owner. SBA will consider options
to purchase stock to have been exercised. SBA will consider the right
to convert debentures into voting stock to have been exercised.
(b) Partnerships. SBA will consider a partner, whether general or
limited, to be an owner if that partner owns an equitable interest in
the partnership.
(c) Sole proprietorships. The proprietor is the owner.
(d) Limited liability companies. SBA will consider each member to
be an owner of a limited liability company.
Example 1: All stock of a corporation is owned by U.S. citizens.
The president of the corporation, a non-U.S. citizen, owns no stock
in the corporation, but owns options to purchase stock in the
corporation. SBA will consider the option exercised, and the
corporation is not eligible to be a qualified HUBZone SBC.
Example 2: A partnership is owned 99.9 percent by persons who
are U.S. citizens, and 0.1 percent by someone who is not. The
partnership is not eligible because it is not 100 percent owned by
U.S. citizens.
Sec. 126.202 Who does SBA consider to control a HUBZone SBC?
Control means both the day-to-day management and long-term
decisionmaking authority for the HUBZone SBC. Many persons share
control of a concern, including each of those occupying the following
positions: officer, director, general partner, managing partner, and
manager. In addition, key employees who possess critical licenses,
expertise or responsibilities related to the concern's primary economic
activity may share significant control of the concern. SBA will
consider the control potential of such key employees on a case by case
basis.
Sec. 126.203 What size standards apply to HUBZone SBCs?
(a) At time of application for certification. A HUBZone SBC must
meet SBA's size standards for its primary industry classification as
defined in Sec. 121.201 of this title. If SBA is unable to verify that
a concern is small, SBA may deny the concern status as a qualified
HUBZone SBC, or SBA may request a formal size determination from the
responsible Government Contracting Area Director or designee.
(b) At time of contract offer. A HUBZone SBC must be small within
the size standard corresponding to the SIC code assigned to the
contract.
Sec. 126.204 May a qualified HUBZone SBC have affiliates?
Yes. A qualified HUBZone SBC may have affiliates so long as the
affiliates also are qualified HUBZone SBCs, 8(a) participants, or WOBs.
Sec. 126.205 May WOBs, 8(a) participants or SDBs be qualified HUBZone
SBCs?
Yes. WOBs, 8(a) participants, and SDBs can qualify as HUBZone SBCs
if they meet the additional requirements in this part.
Sec. 126.206 May regular dealers be qualified HUBZone SBCs?
Yes. Regular dealers (also known as non-manufacturers) may
certified as qualified HUBZone SBCs if they meet all the requirements
set forth in Sec. 126.200 and they can demonstrate that there are
manufacturers located in a HUBZone who can provide the product required
in the contract. The manufacturer must be located in a HUBZone and must
meet the employee residence requirement set forth in Sec. 126.200(b).
Additional requirements that regular dealers must meet to bid on a
contract are set out in Sec. 126.601(d).
Sec. 126.207 May a qualified HUBZone SBC have offices or facilities in
another HUBZone or outside a HUBZone?
Yes. A qualified HUBZone SBC may have offices or facilities in
another HUBZone or even outside a HUBZone and still be a qualified
HUBZone SBC. However, in order to qualify, the concern's principal
office must be located in a HUBZone.
[[Page 16158]]
Subpart C--Certification
Sec. 126.300 How may a concern be certified as a qualified HUBZone
SBC?
A concern must apply to SBA for certification. The application must
include a representation that it meets the eligibility requirements
described in Sec. 126.200 and must submit relevant supporting
information. SBA will consider the information provided by the concern
in order to determine whether the concern qualifies. SBA, in its sole
discretion, may rely solely upon the information submitted to establish
eligibility, or may request additional information, or may verify the
information before making a determination. If SBA determines that the
concern is a qualified HUBZone SBC, it will issue a certification to
that effect and add the concern to the List.
Sec. 126.301 Is there any other way for a concern to obtain
certification?
No. SBA certification is the only way to qualify for HUBZone
program status.
Sec. 126.302 When may a concern apply for certification?
A concern may apply to SBA and submit the required information
whenever it can represent that it meets the eligibility requirements,
subject to Sec. 126.309. All representations and supporting information
contained in the application must be complete and accurate as of the
date of submission. The application must be signed by an officer of the
concern who is authorized to represent the concern.
Sec. 126.303 Where must a concern file its certification?
The concern must file its certification with the AA/HUB, U.S. Small
Business Administration, 409 Third Street, SW, Washington, DC 20416.
Sec. 126.304 What must a concern submit to SBA?
(a) To be certified by SBA as a qualified HUBZone SBC, a concern
must represent to SBA that under the definitions set forth in
Sec. 126.103:
(1) It is a small business concern that is both owned only by
United States citizens and controlled only by United States citizens;
(2) Its principal office is located in a HUBZone;
(3) Not less than 35 percent of its employees reside in a HUBZone;
(4) It will use good faith efforts to ensure that a minimum
percentage of 35 percent of its employees continue to reside in a
HUBZone so long as SBA certifies it as qualified and during the
performance of any contract awarded to it on the basis of its status as
a qualified HUBZone SBC; and
(5) It will ensure that, where it enters into subcontracts to aid
in performance of any prime contracts awarded to it because of its
status as a qualified HUBZone SBC, it will incur not less than a
certain minimum percentage of certain contract costs for itself or
subcontractor qualified HUBZone SBCs, as follows:
(i) If a service contract, 50 percent of the cost of the contract
performance incurred for personnel on the concern's employees or on the
employees of other qualified HUBZone SBCs;
(ii) If a contract for supplies not from a regular dealer in such
supplies, 50 percent of the manufacturing cost (excluding the cost of
materials) on performing the contract in a HUBZone;
(iii) If a contract for general construction, 15 percent of the
cost of contract performance incurred for personnel on the concern's
employees or the employees of other qualified HUBZone SBCs; and
(iv) If a contract for special trade construction, 25 percent of
the cost of contract performance incurred for personnel on the
concern's employees or the employees of other qualified HUBZone SBCs.
(b) If the concern is applying for HUBZone status based on a
location within the external boundaries of an Indian reservation, the
concern must submit with its application for certification official
documentation from the appropriate Bureau of Indian Affairs (BIA) Land
Titles and Records Office with jurisdiction over the concern's area,
confirming that it is located within the external boundaries of an
Indian reservation. BIA lists the Land Titles and Records Offices and
their jurisdiction in 25 CFR 150.4 and 150.5.
(c) In addition to these representations, the concern must submit
the forms, attachments, and any additional information required by SBA.
Sec. 126.305 What format must the certification to SBA take?
A concern must submit the required information in either a written
or electronic application form provided by SBA. An electronic
application must be sufficiently authenticated for enforcement
purposes.
Sec. 126.306 How will SBA process the certification?
(a) The AA/HUB is authorized to approve or decline certifications.
SBA will receive and review all certifications, but SBA will not
process incomplete packages. SBA will make its determination within 30
calendar days after receipt of a complete package whenever practicable.
The decision of the AA/HUB is the final agency decision.
(b) SBA will base its certification on facts existing on the date
of submission. SBA, in its sole discretion, may request additional
information or clarification of information contained in the submission
at any time.
(c) If SBA approves the application, SBA will send a written notice
to the concern and automatically enter it on the List described in
Sec. 126.307.
(d) A decision to deny eligibility must be in writing and state the
specific reasons for denial.
Sec. 126.307 Where will SBA maintain the List of qualified HUBZone
SBCs?
SBA maintains the List at its Internet website at http://
www.sba.gov/HUB. Requesters also may obtain a copy of the List by
writing to the AA/HUB at U.S. Small Business Administration, 409 Third
Street, SW, Washington, DC 20416 or via e-mail at aahub@sba.gov.
Sec. 126.308 What happens if SBA inadvertently omits a qualified
HUBZone SBC from the List?
A HUBZone SBC that has received SBA's notice of certification, but
is not on the List within 10 business days thereafter should
immediately notify the AA/HUB in writing at U.S. Small Business
Administration, 409 Third Street, SW, Washington, DC 20416 or via e-
mail at aahub@sba.gov. The concern must appear on the List to be
eligible for HUBZone contracts.
Sec. 126.309 How may a declined or de-certified concern seek
certification at a later date?
A concern that SBA has declined or de-certified may seek
certification no sooner than one year from the date of decline or de-
certification if it believes that it has overcome all reasons for
decline through changed circumstances, and is otherwise eligible.
Subpart D--Program Examinations
Sec. 126.400 Who will conduct program examinations?
SBA field staff or others designated by the AA/HUB will conduct
program examinations.
Sec. 126.401 What will SBA examine?
(a) Eligibility. Examiners will verify that the qualified HUBZone
SBC met the requirements set forth in Sec. 126.200 at the time of its
application for certification and at the time of examination.
(b) Scope of review. Examiners may review any information related
to the
[[Page 16159]]
HUBZone SBC qualifying requirements, including documentation related to
the location and ownership of the concern and the employee percentage
requirements. The qualified HUBZone SBC must document each employee's
residence address through employment records. The examiner also may
review property tax, public utility or postal records, and other
relevant documents. The concern must retain documentation demonstrating
satisfaction of the employee residence and other qualifying
requirements for 6 years from date of submission to SBA.
Sec. 126.402 When may SBA conduct program examinations?
SBA may conduct a program examination at the time the concern
certifies to SBA that it meets the requirements of the program or at
any other time while the concern is on the List or subsequent to
receipt of HUBZone contract benefits. For example, SBA may conduct a
program examination to verify eligibility upon notification of a
material change under Sec. 126.501. Additionally, SBA, in its sole
discretion, may perform random program examinations to determine
continuing compliance with program requirements, or it may conduct a
program examination in response to credible information calling into
question the HUBZone status of a small business concern. For protests
to the HUBZone status of a small business concern in regard to a
particular procurement, see Sec. 126.800.
Sec. 126.403 May SBA require additional information from a HUBZone
SBC?
Yes. At the discretion of the AA/HUB, SBA has the right to require
that a HUBZone SBC submit additional information as part of the
certification process, or at any time thereafter. If SBA finds a
HUBZone SBC is not qualified, SBA will de-certify the concern and
delete its name from the List. SBA may choose to pursue penalties
against any concern that has made material misrepresentations in its
submissions to SBA in accordance with Sec. 126.900.
Sec. 126.404 What happens if SBA is unable to verify a qualified
HUBZone SBC's eligibility?
(a) Authorized SBA headquarters personnel will first notify the
concern in writing of the reasons why it is no longer eligible.
(b) The concern will have 10 business days to respond to the
notification.
(c) The AA/HUB will consider the reasons for proposed de-
certification and the concern's response before making a decision
whether to de-certify.
Sec. 126.405 What happens if SBA verifies eligibility?
If SBA verifies that the concern is eligible, it will amend the
date of certification on the List to reflect the date of verification.
Subpart E--Maintaining HUBZone Status
Sec. 126.500 How does a qualified HUBZone SBC maintain HUBZone status?
(a) Any qualified HUBZone SBC wishing to remain on the List must
self-certify annually to SBA that it remains a qualified HUBZone SBC.
There is no limit to the length of time a concern may remain on the
List so long as it continues to satisfy SBA that it meets all
eligibility requirements set forth in Sec. 126.200.
(b) Concerns wishing to remain in the program without any
interruption must self-certify their continued eligibility to SBA
within 30 calendar days after the one-year anniversary of their date of
certification. Failure to do so will result in SBA de-certifying the
concern. The concern then would have to submit a new application for
certification under Secs. 126.300 through 126.306.
(c) The self-certification to SBA must be in writing and must
represent that the circumstances relative to eligibility which existed
on the date of certification showing on the List have not materially
changed.
Sec. 126.501 What are a qualified HUBZone SBC's ongoing obligations to
SBA?
The concern must immediately notify SBA of any material change
which could affect its eligibility. The notification must be in
writing, and must be sent or delivered to the AA/HUB to comply with
this requirement. Failure of a qualified HUBZone SBC to notify SBA of
such a material change will result in immediate de-certification and
removal from the List, and SBA may seek the imposition of penalties
under Sec. 126.900. If the concern later becomes eligible for the
program, the concern must apply for certification pursuant to
Secs. 126.300 through 126.309 and must include with its application for
certification a full explanation of why it failed to notify SBA of the
material change. If SBA is not satisfied with the explanation provided,
SBA may decline to certify the concern pursuant to Sec. 126.306.
Sec. 126.502 Is there a limit to the length of time a qualified
HUBZone SBC may be on the List?
(a)There is no limit to the length of time a qualified HUBZone SBC
may remain on the List so long as it continues to follow the provisions
of Secs. 126.500, 126.501, and 126.503, and so long as the HUBZone in
which it is located remains a HUBZone.
(b) In the event a HUBZone ceases to meet the definition of a
HUBZone, qualified HUBZone SBCs may remain on the List for a period of
3 years from the date of the change in the status of the HUBZone, if
they continue to meet all the eligibility requirements set forth in
this part.
Sec. 126.503 When is a concern removed from the List?
If SBA determines at any time that a HUBZone SBC is not qualified,
SBA may de-certify the HUBZone SBC, remove the concern from the List,
and seek imposition of penalties pursuant to Sec. 126.900. An adverse
finding in the resolution of a protest also may result in de-
certification and removal from the List, and the imposition of
penalties pursuant to Sec. 126.900. Failure to notify SBA of a material
change which could affect a concern's eligibility will result in
immediate de-certification, removal from the List, and SBA may seek the
imposition of penalties under Sec. 126.900.
Subpart F--Contractual Assistance
Sec. 126.600 What are HUBZone contracts?
HUBZone contracts are contracts awarded to a qualified HUBZone SBC
through any of the following procurement methods:
(a) Sole source awards to qualified HUBZone SBCs;
(b) Set-aside awards based on competition restricted to qualified
HUBZone SBCs; or
(c) Awards to qualified HUBZone SBCs through full and open
competition after a price evaluation preference in favor of qualified
HUBZone SBCs.
Sec. 126.601 What additional requirements must a qualified HUBZone SBC
meet to bid on a contract?
(a) In order to submit an offer on a specific HUBZone contract, a
concern must be small under the size standard corresponding to the SIC
code assigned to the contract.
(b) At the time a qualified HUBZone SBC submits its offer on a
specific contract, it must certify to the contracting officer that:
(1) It is a qualified HUBZone SBC which appears on SBA's List;
(2) there has been no material change in its circumstances since
the date of certification shown on the List which could affect its
HUBZone eligibility; and
(3) It is small under the SIC code assigned to the procurement.
(c) If bidding as a joint venture, each qualified HUBZone SBC must
make the
[[Page 16160]]
certifications in paragraphs (b)(1), (2), and (3) separately under its
own name.
(d) A qualified HUBZone SBC which is a regular dealer may submit an
offer on a contract for supplies if it meets the requirements under the
non-manufacturer rule as defined in Sec. 121.406(b) of this title and
if the small manufacturer is located in a HUBZone and meets the
employee residence requirement of Sec. 126.200(b). The Administrator or
designee may waive the requirement set forth in Sec. 121.406(b)(1)(iii)
of this title, but the manufacturer must be located in a HUBZone and
must meet the employee residence requirement of Sec. 126.200(b). The
procedures for waivers of the non-manufacturer rule are set out in
Secs. 121.1201 through 121.1205 of this title.
Sec. 126.602 What additional requirements apply during contract
performance?
(a) The qualified HUBZone SBC must attempt to maintain the required
percentage of employees who reside in a HUBZone during the performance
of any contract awarded to the concern on the basis of HUBZone status.
``Attempt to maintain'' means making substantive and documented efforts
to maintain that percentage such as written offers of employment,
published advertisements seeking employees, and attendance at job
fairs. HUBZone contracts are described more fully in Sec. 126.600.
(b) During the performance of a contract for procurement of
supplies (other than a procurement from a regular dealer in such
supplies), the qualified HUBZone SBC must spend at least 50 percent of
the manufacturing cost (excluding the cost of materials) on performing
the contract in a HUBZone. See Sec. 126.700(a)(4).
(c) Enforcement of paragraphs (a) and (b) of this section will be
the responsibility of the contracting officer and violation of either
requirement may be grounds for termination of the contract at the
election of the contracting officer.
Sec. 126.603 Does HUBZone certification guarantee receipt of HUBZone
contracts?
No. Qualified HUBZone SBCs should market their capabilities to
appropriate procuring agencies in order to increase their prospects of
having a requirement set aside for HUBZone contract award.
Sec. 126.604 Who decides if a HUBZone contract opportunity exists?
The contracting officer for the contracting activity makes this
decision.
Sec. 126.605 What requirements are not available for HUBZone
contracts?
A contracting activity may not make a requirement available for a
HUBZone contract if:
(a) The contracting activity otherwise would fulfill that
requirement through award to Federal Prison Industries, Inc. under 18
U.S.C. 4124 or 4125, or to Javits-Wagner-O'Day Act participating non-
profit agencies for the blind and severely disabled, under 41 U.S.C. 46
et seq., as amended; or
(b) An 8(a) participant currently is performing that requirement or
SBA has accepted that requirement for performance under the authority
of the section 8(a) program, unless SBA has consented to release of the
requirement from the 8(a) program; or
(c) That requirement has an estimated value of between $2,500 and
$100,000 and otherwise would be procured under simplified acquisition
procedures; or
(d) The requirement does not meet the definition of contract
opportunity in Sec. 126.103. This provision does not apply to awards
made to a qualified HUBZone SBC as a result of a price evaluation
preference in a full and open competition.
Sec. 126.606 May a contracting officer request that SBA release an
8(a) requirement for award as a HUBZone contract?
Yes. However, SBA will grant its consent only where neither the
incumbent nor any other 8(a) participant(s) can perform the
requirement, and where the 8(a) program will not be adversely affected.
The SBA official authorized to grant such consent is the AA/8(a)BD.
Sec. 126.607 When must a contracting officer set aside a requirement
for competition among qualified HUBZone SBCs?
(a) The contracting officer first must review a requirement to
determine whether it is excluded from HUBZone contracting or is not a
``contract opportunity,'' pursuant to Sec. 126.605. If the requirement
is not excluded and is not a contract opportunity, then the contracting
officer must set aside the requirement for competition restricted to
qualified HUBZone SBCs if the contracting officer:
(1) Has a reasonable expectation that at least 2 qualified HUBZone
SBCs will submit offers; and
(2) Determines that award can be made at a fair market price.
(b) The contracting officer must review SBA's List of qualified
HUBZone SBCs to determine whether there are 2 or more qualified HUBZone
SBCs available to perform the requirement.
Sec. 126.608 What may the contracting officer do if an award cannot be
made based on a set-aside for competition among qualified HUBZone SBCs?
If the contracting officer sets the requirement aside for
competition restricted to qualified HUBZone SBCs, and
(a) If the contracting officer only receives one acceptable offer
from a responsible qualified HUBZone SBC, the contracting officer may
make an award to that concern on a sole source basis; or
(b) If the contracting officer receives no acceptable offers from
responsible qualified HUBZone SBCs, the contracting officer may
withdraw the set-aside and re-solicit the requirement, if still valid,
as an 8(a) contract or a small business set-aside. If procurement
through the 8(a) program or through a small business set-aside is not
possible, the contracting officer may re-solicit the procurement
through full and open competition.
Sec. 126.609 What may the contracting officer do if a contracting
opportunity does not exist for competition among qualified HUBZone
SBCs?
The contracting officer may make an award under the 8(a) program on
either a sole source or competitive basis, make award to a qualified
HUBZone SBC on a sole source award basis, or utilize a small business
set-aside, in that order of precedence. If the criteria are not met for
any of these special contracting authorities, then the contracting
officer may solicit the procurement through full and open competition.
Sec. 126.610 May SBA appeal a contracting officer's decision not to
reserve a procurement for award as a HUBZone contract?
The Administrator may appeal a contracting officer's decision not
to make a particular requirement available for award as a HUBZone sole
source or a HUBZone set-aside contract.
Sec. 126.611 What is the process for such an appeal?
(a) Notice of appeal. SBA must notify the contracting officer
within 5 business days of SBA's receipt of the contracting officer's
decision if the Administrator intends to appeal the decision. The
contracting officer must notify SBA's procurement center representative
or the AA/HUB as soon as practicable after a decision to not make an
award to a qualified HUBZone SBC on either a HUBZone sole source or
set-aside basis provided the decision was for reasons other than the
applicability of Sec. 126.605.
(b) Suspension of action. Upon receipt of notice of SBA's intent to
appeal, the
[[Page 16161]]
contracting officer must suspend further action regarding the
procurement until the head of the contracting activity issues a written
decision on the appeal, unless the head of the contracting activity
makes a written determination that urgent and compelling circumstances
which significantly affect the interests of the United States compel
award of the contract.
(c) Deadline for appeal. Within 15 business days of SBA's
notification to the contracting officer, SBA must file its formal
appeal with the head of the contracting activity or that agency may
consider the appeal withdrawn.
(d) Decision. The contracting activity must specify in writing the
reasons for a denial of an appeal brought under this section.
Sec. 126.612 When may a contracting officer award sole source
contracts to a qualified HUBZone SBC?
A contracting officer may award a sole source contract to a
qualified HUBZone SBC only if the contracting officer determines that
(a) None of the provisions of Sec. 126.605 apply;
(b) The anticipated award price of the contract, including options,
will not exceed:
(1) $5,000,000 for a requirement within the SIC codes for
manufacturing; or
(2) $3,000,000 for a requirement within all other SIC codes;
(c) Two or more qualified HUBZone SBCs are not likely to submit
offers;
(d) A qualified HUBZone SBC is a responsible contractor able to
perform the contract; and
(e) Contract award can be made at a fair and reasonable price.
Sec. 126.613 How does a price evaluation preference affect the bid of
a qualified HUBZone SBC in full and open competition?
Where a contracting officer will award a contract on the basis of
full and open competition, the contracting officer must deem the price
offered by a qualified HUBZone SBC to be lower than the price offered
by another offeror (other than another small business concern) if the
price offered by the qualified HUBZone SBC is not more than 10 percent
higher than the price offered by the otherwise lowest, responsive, and
responsible offeror.
Example: In a full and open competition, a qualified HUBZone SBC
submits an offer of $102; another small business concern submits an
offer of $100; and a large business submits an offer of $93. The
lowest, responsive, responsible offeror would be the large business.
However, the contracting officer must consider whether to apply the
HUBZone price evaluation preference. If the qualified HUBZone SBC's
offer is not more than 10 percent higher than the large business's
offer, the contracting officer must deem the qualified HUBZone SBC's
price as lower than the price of the large business. In this
example, the qualified HUBZone SBC's price is not more than 10
percent higher than the large business's price and, consequently,
the qualified HUBZone SBC displaces the large business as the
lowest, responsive, and responsible offeror.
Sec. 126.614 How must a contracting officer apply HUBZone and SDB
price evaluation preferences in a full and open competition?
A contracting officer may receive offers from both qualified
HUBZone SBCs and SDB concerns, or from concerns that qualify as both,
during a full and open competition. First, the contracting officer must
apply the SDB price evaluation preference described in 10 U.S.C. 2323
to all appropriate offerors. Second, the contracting officer must apply
the HUBZone price evaluation preference as described in Sec. 126.613 to
all appropriate offerors. A contracting officer must apply both price
preferences to concerns that qualify as both qualified HUBZone SBCs and
SDB concerns.
Example: In a full and open competition, a qualified HUBZone SBC
(but not an SDB) submits an offer of $102; an SDB (but not a
qualified HUBZone SBC) submits an offer of $107; and a large
business submits an offer of $93. The contracting officer first
applies the SDB price evaluation preference and adds 10 percent to
the qualified HUBZone SBC's offer thereby making that offer $112.2,
and to the large business's offer thereby making that offer $102.3.
As a result, the large business is the lowest, responsive, and
responsible offeror. Now the contracting officer applies the HUBZone
preference and, since the qualified HUBZone SBC's offer is not more
than 10 percent higher than the large business's offer, the
contracting officer must deem the price offered by the qualified
HUBZone SBC to be lower than the price offered by the large
business.
Sec. 126.615 May a large business participate on a HUBZone contract?
A large business may not participate as a prime contractor on a
HUBZone award but may participate as a subcontractor to an otherwise
qualified HUBZone SBC, subject to the subcontracting limitations set
forth in Sec. 126.700.
Sec. 126.616 What requirements must a joint venture satisfy to bid on
a HUBZone contract?
A joint venture may bid on a HUBZone contract if the joint venture
meets all of the following requirements:
(a) HUBZone joint venture. A qualified HUBZone SBC may enter into a
joint venture with one or more other qualified HUBZone SBCs, 8(a)
participants, or WOBs for the purpose of performing a specific HUBZone
contract.
(b) For a procurement having an employee-based size standard, the
procurement exceeds $10 million.
(c) Performance of work. The aggregate of the qualified HUBZone
SBCs to the joint venture, not each concern separately, must perform
the applicable percentage of work required by Sec. 126.700.
Subpart G--Subcontracting Percentage Requirements
Sec. 126.700 What are the subcontracting percentage requirements under
this program?
(a) Subcontracting percentage requirements. A qualified HUBZone SBC
can subcontract part of a HUBZone contract, provided:
(1) In the case of a contract for services (except construction),
the qualified HUBZone SBC spends at least 50 percent of the cost of the
contract performance incurred for personnel on the concern's employees
or on the employees of other qualified HUBZone SBCs;
(2) In the case of a contract for general construction, the
qualified HUBZone SBC spends at least 15 percent of the cost of
contract performance incurred for personnel on the concern's employees
or the employees of other qualified HUBZone SBCs;
(3) In the case of a contract for construction by special trade
contractors, the qualified HUBZone SBC spends at least 25 percent of
the cost of contract performance incurred for personnel on the
concern's employees or the employees of other qualified HUBZone SBCs;
or
(4) In the case of a contract for procurement of supplies (other
than a procurement from a regular dealer in such supplies), the
qualified HUBZone SBC spends at least 50 percent of the manufacturing
cost (excluding the cost of materials) on performing the contract in a
HUBZone. One or more qualified HUBZone SBCs may combine to meet this
subcontracting percentage requirement.
(b) Definitions. Many definitions applicable to this section can be
found in Sec. 125.6 of this title.
Sec. 126.701 Can these subcontracting percentage requirements change?
Yes. The Administrator may change the subcontracting percentage
requirements if the Administrator determines that such action is
necessary to reflect conventional industry practices.
[[Page 16162]]
Sec. 126.702 How can the subcontracting percentage requirements be
changed?
Representatives of a national trade or industry group (as defined
by two-digit Major Group industry codes) may request a change in
subcontracting percentage requirements for that industry. Changes in
subcontracting percentage requirements may be requested only for
categories defined by two-digit Major Group industry codes in the
Standard Industry Classification (SIC) Code system. SBA will not
consider requests from anyone other than a representative of a national
trade or industry group or requests for changes for four-digit SIC Code
categories.
Sec. 126.703 What are the procedures for requesting changes in
subcontracting percentages?
(a) Format of request. There is no prescribed format, but the
requester should try to demonstrate to the Administrator that a change
in percentage is necessary to reflect conventional industry practices,
and should support its request with information including, but not
limited to:
(1) Information relative to the economic conditions and structure
of the entire national industry;
(2) Market data, technical changes in the industry and industry
trends;
(3) Specific reasons and justifications for the change in the
subcontracting percentage;
(4) The effect such a change would have on the Federal procurement
process; and
(5) Information demonstrating how the proposed change would promote
the purposes of the HUBZone Program.
(b) Notice to public. Upon an adequate preliminary showing to SBA,
SBA will publish in the Federal Register a notice of its receipt of a
request that it consider a change in the subcontracting percentage
requirements for a particular industry for HUBZone contracts. The
notice will identify the group making the request, and give the public
an opportunity to submit to the Administrator information and arguments
in both support and opposition.
(c) Comments. Once SBA has published a notice in the Federal
Register, it will afford a period of not less than 60 days for public
comment.
(d) Decision. SBA will render its decision after the close of the
comment period. If it decides against a change, it will publish notice
of its decision in the Federal Register. Concurrent with the notice,
SBA will advise the requester of its decision in writing. If it decides
in favor of a change, SBA will propose an appropriate change to this
part in accordance with proper rulemaking procedures.
Subpart H--Protests
Sec. 126.800 Who may protest the status of a qualified HUBZone SBC?
(a) For sole source procurements. SBA or the contracting officer
may protest the apparent successful offeror's qualified HUBZone SBC
status.
(b) For all other procurements. Any interested party may protest
the apparent successful offeror's qualified HUBZone SBC status.
Sec. 126.801 How does one submit a HUBZone status protest?
(a) General. The protest procedures described in this part are
separate from those governing size protests and appeals. All protests
relating to whether a qualified HUBZone SBC is a ``small'' business for
purposes of any Federal program are subject to part 121 of this title.
If a protest includes both the size of the HUBZone SBC and whether the
concern meets the HUBZone qualifying requirements set forth in
Sec. 126.200, SBA will process each protest concurrently, under the
procedures set forth in part 121 of this title and this part.
(b) Format. Protests must be in writing and state all specific
grounds for the protest. A protest merely asserting that the protested
concern is not a qualified HUBZone SBC, without setting forth specific
facts or allegations, is insufficient.
(c) Filing. (1) An unsuccessful offeror must submit its written
protest to the contracting officer.
(2) A contracting officer and SBA must submit their protest to the
AA/HUB.
(3) Protestors may deliver their protests in person, by facsimile,
by express delivery service, or by U.S. mail (postmarked within the
applicable time period).
(d) Timeliness. (1) An interested party must submit its protest by
close of business on the fifth business day after bid opening (in
sealed bid acquisitions) or by close of business on the fifth business
day after notification by the contracting officer of the apparent
successful offeror (in negotiated acquisitions).
(2) Any protest received after the time limits is untimely.
(3) Any protest received prior to bid opening or notification of
intended award, whichever applies, is premature.
(e) Referral to SBA. The contracting officer must forward to SBA
any non-premature protest received, notwithstanding whether he or she
believes it is sufficiently specific or timely. The contracting officer
must send protests to AA/HUB, U.S. Small Business Administration, 409
3rd Street, SW, Washington, DC 20416.
Sec. 126.802 Who decides a HUBZone status protest?
The AA/HUB or designee will determine whether the concern has
qualified HUBZone status.
Sec. 126.803 How will SBA process a HUBZone status protest?
(a) Notice of receipt of protest. (1) SBA immediately will notify
the contracting officer and the protestor of the date SBA receives a
protest and whether SBA will process the protest or dismiss it in
accordance with Sec. 126.804.
(2) If SBA determines the protest is timely and sufficiently
specific, SBA will notify the protested HUBZone SBC of the protest and
the identity of the protestor. The protested HUBZone SBC may submit
information responsive to the protest within 5 business days.
(b) Time period for determination. (1) SBA will determine the
HUBZone status of the protested HUBZone SBC within 15 business days
after receipt of a protest.
(2) If SBA does not contact the contracting officer within 15
business days, the contracting officer may award the contract, unless
the contracting officer has granted SBA an extension.
(3) The contracting officer may award the contract after receipt of
a protest if the contracting officer determines in writing that an
award must be made to protect the public interest.
(c) Notice of determination. SBA will notify the contracting
officer, the protestor, and the protested concern of its determination.
(d) Effect of determination. The determination is effective
immediately and is final unless overturned on appeal by the ADA/
GC&8(a)BD, pursuant to Sec. 126.805. If SBA upholds the protest, SBA
will de-certify the concern as a qualified HUBZone SBC. If SBA denies
the protest, after considering the merits of the protest, SBA will
amend the date of certification on the List to reflect the date of
protest decision.
Sec. 126.804 Will SBA decide all HUBZone status protests?
SBA will decide all protests not dismissed as premature, untimely
or non-specific.
Sec. 126.805 What are the procedures for appeals of HUBZone status
determinations?
(a) Who may appeal. The protested HUBZone SBC, the protestor, or
the
[[Page 16163]]
contracting officer may file appeals of protest determinations with
SBA's ADA/GC&8(a)BD.
(b) Timeliness of appeal. SBA's ADA/GC&8(a)BD must receive the
appeal no later than 5 business days after the date of receipt of the
protest determination. SBA will dismiss any appeal received after the
5-day period.
(c) Method of submission. The party appealing the decision may
deliver its appeal in person, by facsimile, by express delivery
service, or by U.S. mail (postmarked within the applicable time
period).
(d) Notice of appeal. The party bringing an appeal must provide
notice of the appeal to the contracting activity contracting officer
and either the protested HUBZone SBC or original protestor, as
appropriate.
(e) Grounds for appeal. (1) SBA will re-examine a protest
determination only if there was a clear and significant error in the
processing of the protest or if the AA/HUB failed completely to
consider a significant fact contained within the information supplied
by the protestor or the protested HUBZone SBC.
(2) SBA will not consider additional information or changed
circumstances that were not disclosed at the time of the AA/HUB's
decision or that are based on disagreement with the findings and
conclusions contained in the determination.
(f) Contents of appeal. The appeal must be in writing. The appeal
must identify the protest determination being appealed and set forth a
full and specific statement as to why the decision is erroneous or what
significant fact the AA/HUB failed to consider.
(g) Completion of appeal after award. An appeal may proceed to
completion even after award of the contract that prompted the protest,
if so desired by the protested HUBZone SBC, or where SBA determines
that a decision on appeal is meaningful.
(h) Decision. The ADA/GC&8(a)BD will make its decision within 5
business days of its receipt, if practicable, and will base its
decision only on the information and documentation in the protest
record as supplemented by the appeal. SBA will provide a copy of the
decision to the contracting officer, the protestor, and the protested
HUBZone SBC, consistent with law. The ADA/GC&8(a)BD's decision is the
final agency decision.
Subpart I--Penalties
Sec. 126.900 What penalties may be imposed under this part?
(a) Suspension or debarment. The Agency Debarring Official may
suspend or debar a person or concern pursuant to the procedures set
forth in part 145 of this title. The contracting agency debarring
official may debar or suspend a person or concern under the Federal
Acquisition Regulation, 8 CFR part 9, subpart 9.4.
(b) Civil penalties. Persons or concerns are subject to civil
remedies under the False Claims Act, 31 U.S.C. 3729-3733, and under the
Program Fraud Civil Remedies Act, 31 U.S.C. 3801-3812, and any other
applicable laws.
(c) Criminal penalties. Persons or concerns are subject to severe
criminal penalties for knowingly misrepresenting the HUBZone status of
a small business concern in connection with procurement programs
pursuant to sec. 16(d) of the Small Business Act, 15 U.S.C. 645(d), as
amended; 18 U.S.C. 1001; and 31 U.S.C. 3729-3733. Persons or concerns
also are subject to criminal penalties for knowingly making false
statements or misrepresentations to SBA for the purpose of influencing
any actions of SBA pursuant to sec. 16(a) of the Small Business Act, 15
U.S.C. 645(a), as amended, including failure to correct ``continuing
representations'' that are no longer true.
Dated: March 26, 1998.
Aida Alvarez,
Administrator.
[FR Doc. 98-8585 Filed 4-1-98; 8:45 am]
BILLING CODE 8025-01-P
