[Federal Register Volume 60, Number 109 (Wednesday, June 7, 1995)]
[Rules and Regulations]
[Pages 29969-29978]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-13722]
=======================================================================
-----------------------------------------------------------------------
SMALL BUSINESS ADMINISTRATION
13 CFR Parts 121 and 124
Small Business Size Regulations; Minority Small Business and
Captial Ownership Development Assistance
AGENCY: Small Business Administration.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The Small Business Administration (SBA) hereby amends its
regulations governing the Minority Small Business and Capital Ownership
Development program authorized by sections 7(j)(10) and 8(a) of the
Small Business Act, 15 U.S.C. 636(j)(10), 637(a). This final rule
amends both eligibility requirements for and contractual assistance
provisions within the 8(a) program. It is designed to streamline the
operation of the 8(a) program and to ease certain restrictions
perceived to be burdensome on Program Participants.
EFFECTIVE DATE: Except for Sec. 124.311(a)(2), this rule is effective
on June 7, 1995.
Section 124.311(a)(2) shall be effective August 7, 1995. It is
applicable for all 8(a) requirements accepted by SBA on or after August
7, 1995.
FOR FURTHER INFORMATION CONTACT:
Michael P. McHale, Deputy Associate Administrator for Minority
Enterprise Development, (202) 205-6410.
SUPPLEMENTARY INFORMATION: On August 30, 1994, SBA published a proposed
rule in the Federal Register (59 FR 44652) to amend both eligibility
requirements for and contractual assistance provisions within the SBA's
section 8(a) program. That proposal called for a 30-day comment period
which was scheduled to close on September 29, 1994. In response to
concerns raised that the 30-day comment period may not have been a
sufficient amount of time to permit proper and thoughtful public
comments, SBA, on October 27, 1994, extended the comment period through
November 28, 1994. 59 FR 53947.
SBA received a total of 175 comments in response to its proposed
rule. After reviewing these comments, SBA now issues this final rule.
SBA proposed this rule initially in order to simplify the operation
of the [[Page 29970]] 8(a) program, to make clarifying changes to the
regulations deemed necessary through experience, and to permit program
participants to proceed in a more entrepreneurial manner, while
maintaining a high degree of program integrity. After considering the
comments received, and after further review of all proposed changes,
SBA has concluded that the number and scope of the proposed changes was
broader than was necessary to achieve SBA's immediate and most
important objectives. Accordingly, this final rule is limited to only
those changes that will streamline the operation of the 8(a) program or
are particularly significant, as set forth below. The remaining
proposed changes will be considered as part of a more far-reaching
review of the 8(a) program and will not be implemented at the present
time.
This rule makes eleven significant revisions to current
regulations, as follows:
(1) It permits participation in the 8(a) program by qualified small
businesses owned by Community Development Corporations to an extent
that is not consistent with the requirements of the 8(a) program as
imposed by the Small Business Act.
(2) It simplifies 8(a) contracting procedures by eliminating the
distinction established in SBA's regulations between ``local buy'' and
``national buy'' requirements, except with regard to construction
projects.
(3) It eliminates the restriction on the dollar value of 8(a)
contracts received by Program Participants previously imposed by SBA
regulations.
(4) It eliminates the separate treatment for applying the
requirements for 8(a) competitive procurements which has existed for
indefinite quantity or indefinite delivery type contracts.
(5) It eliminates the separate treatment for individuals who are
owners and participants of 8(a) concerns in the developmental stage of
program participation so that they, like owners and principals of 8(a)
concerns in the transitional stage, are eligible if their includable
net worth is $750,000 or less.
(6) It streamlines procedures by eliminating the requirement that
an 8(a) concern be notified twice of a termination or graduation
action.
(7) It makes it easier for an 8(a) firm to add SIC codes to its
business plan. Previously, concerns would have to show that a proposed
new business SIC was a logical progression from its existing SIC. Under
the new regulations, a concerned need merely show that it has a sound
business explanation for requesting the new SIC code.
(8) It eases the ownership restrictions placed on former Program
Participants.
(9) It streamlines SBA regulations by eliminating provisions
dealing with SBA's expired authority to grant exemptions to the
requirements of the Walsh-Healey Act and Miller Act.
(10) In response to a Court of Federal Claims directive, it
establishes eligibility requirements for small disadvantaged business
joint ventures.
(11) It reduces reporting requirements imposed on program
participants.
Each of these changes is discussed below in SBA's summary of and
response to the comments received to its August 30, 1994 proposed rule.
This final rule also makes various technical changes to the regulations
necessary to implement these significant revisions.
Summary of Issues Raised by Public Comment
Initially, many commenters objected to the brevity of the 30-day
comment period and requested that SBA extend it. As a result of these
requests, SBA extended the comment period until November 28, 1994.
SBA received many comments regarding provisions for its 8(a)
regulations that were not the subject of proposed changes.
Because such comments are outside the scope of this rulemaking
process, SBA does not respond to them in this final rule. One commenter
objected to the process by which the regulations were proposed on the
grounds that SBA failed to adhere to economic analysis, planning,
review, and comment requirements mandated by Executive Order 12866. SBA
maintains that its issuance of the proposed rule was proper. SBA
submitted the proposed rule to the Office of Management and Budget
(OMB) in conformity with the requirements of the Executive Order. OMB
did not believe that a full analysis of the proposed rule under
Executive Order 12866 was necessary and directed SBA to publish the
rule without its review under the Executive Order.
Addition of CDC-owned businesses to the 8(a) Program.
The rule adds a new Sec. 124.114 which specifically authorizes CDC-
owned small business concerns to participant in the 8(a) program. The
regulation prohibits more than one concern with the same primary
industry classification owned by the same CDC from entry into the
program. It also establishes that disadvantaged individuals involved in
the management and control of the business are not considered to have
used up their eligibility under Sec. 124.108(c) even if their personal
disadvantage is used to establish eligibility of the CDC-owned concern.
This rule also makes a technical amendment to Sec. 121.401(b) that
recognizes that concerns owned by a Community Development Corporation
(CDC), authorized by 42 U.S.C. 9805 et seq., are not deemed to be
affiliated with the CDC. This exemption from affiliation is contained
in the proposed rule at Sec. 124.114(b). SBA believes that it should
also appear in this section as well. In making this amendment, the
final rule separates the various provisions of Sec. 121.401(b) into
distinct paragraphs for clarity and ease of use.
This final rule adds definitions of the term ``CDC-owned concern''
and ``Community Development Corporation or CDC'' to Sec. 124.100.
Finally, the rule makes minor technical changes to Secs. 124.101(a),
124.101(b), 124.102(a), 124.103, 124.104, and 124.109(d) in order to
recognize the eligibility of CDC-owned concerns for participation in
the 8(a) program.
A number of commenters objected to the participation of CDCs in the
8(a) program generally. As noted in the proposed rule, the
participation of CDCs in the 8(a) program is required by statute and
cannot be administratively eliminated by SBA.
In addition, one commenter, an association representing CDCs, urged
that SBA not require that the management and control of a CDC-owned
business be in the hands of one or more disadvantaged individuals. The
commenter pointed out that CDCs may acquire already existing business
concerns, and that it may not be a prudent business decision to
immediately replace nondisadvantaged managers of such a concern in
order to meet 8(a) eligibility requirements. After further review, SBA
has decided to revise the rule.
In issuing regulations implementing the inclusion of CDCs pursuant
to 42 U.S.C. 9815, SBA has analogized CDCs to Indian tribes. In the
case of an applicant concern that is tribally-owned, section
8(a)(4)(B)(ii) of the Small Business Act, 15 U.S.C. 637(a)(4)(B)(ii),
permits the management and daily business operations of the concern to
be controlled by one or more members of an economically disadvantaged
Indian tribe. Thus, a tribally-owned concern need not be controlled by
an individual determined to be socially and economically disadvantaged.
SBA believes that similar treatment can be provided to CDC-owned
companies. This result is also consistent with the treatment of
concerns owned by Alaska Native Corporations (ANCs), which are entities
established for the economic [[Page 29971]] development of their
villages or regions. ANC-owned concerns are not required to be
controlled by Alaska Natives in order to participate in the 8(a)
program. The Alaska Native Claims Settlement Act provides that a
concern owned by an ANC shall be deemed to be both owned and controlled
by such ANC. Thus, the final rule provides that a concern that is at
least 51% owned by a CDC shall be deemed to be controlled by such CDC
and eligible for participation in the 8(a) program, provided that it
meets other eligibility criteria and its management and daily business
operations are conducted by one or more individuals determined to have
managerial or technical experience and competency directly related to
the primary industry in which the applicant concern is seeking
certification. Because of this change, the requirement that a CDC-owned
concern be controlled by socially and economically disadvantaged
individuals is deleted from the final rule.
Simplifying 8(a) Contracting Procedures by Eliminating the Distinction
Established in SBA's Regulations Between ``Local Buy'' and ``National
Buy'' Requirements, Except With Regard to Construction Projects
The rule eliminates the definitions for ``local buy'' and
``national buy'' requirements from Sec. 124.100. The limitations in
former Sec. 124.311 (h)(3) and (h)(4) effecting who may bid on local
contracts has been eliminated, except for construction contracts. All
requirements other than construction requirements will now be open to
eligible 8(a) Participants nationally. Construction requirements are
exempt from this change because section 8(a)(11) of the Small Business
Act, 15 U.S.C. 637(a)(11), requires, ``to the maximum extent
practicable,'' that 8(a) construction contracts ``be awarded within the
county or State where the work is to be performed.'' The final rule
limits competition for 8(a) construction contracts to those Program
Participants within the geographical boundaries of one or more SBA
district offices. SBA believes that a Program Participant may be
considered as being located within a geographical boundary if it
regularly maintains an office which employs at least one full-time
individual within that geographical boundary. SBA also believes that a
procuring agency may offer a local sole source 8(a) construction
requirement to SBA on behalf of a concern that regularly maintains an
office which employs at least one full-time individual within that
geographical boundary.
Several commenters expressed concern that eliminating the
distinction between local and national buy requirements will adversely
affect new or smaller 8(a) firms. Based on its experience with the
operation of the present regulations, SBA believes that the adverse
effect on new and smaller 8(a) firms will be negligible. In addition,
SBA believes that the elimination of the local/national buy distinction
will eliminate artificial barriers and promote national competition,
something necessary for the survival of 8(a) concerns once they leave
the program.
One commenter claimed that the elimination of the local/national
buy distinction would restrict procurement opportunities to all but
those firms located around major procurement centers such as
Washington, DC, and Los Angeles, CA. SBA believes that the physical
location of firms will have little bearing on where they can market
themselves. In fact, 8(a) firms will have more opportunities to market
themselves because they will not be restricted by district or regional
boundaries.
One Federal agency opposed the elimination of the definitions for
local and national buys because it believed that such elimination would
create an increased opportunity for fraud and abuse. SBA does not
believe fraud and abuse will increase simply by permitting 8(a)
concerns to seek 8(a) contracts nationwide. SBA remains committed,
however, to opposing any kind of fraud in the 8(a) program, and will
work with procuring agencies to thwart such possibilities.
Eliminating Support Requirements
Section 124.307 is amended by redesignating paragraph (d) as
paragraph (e) and by adding a new paragraph (d) that eliminates
approved 8(a) support levels as a basis for denying 8(a) contract
awards in excess of those levels. Most of the commenters supported the
proposed rule. One commenter recommended that 124.307(d) be amended by
adding the clause ``or approved remedial plan'' after the words
``competitive business mix'' and before the words ``imposed by
124.312'' for clarification. SBA believes that this is a logical
clarification of the intent of this proposed rule, and as such, it is
to be incorporated into the final rule.
The SBA Inspector General recommended that there should be some
type of support level requirements. He urged that if annual levels are
impractical, SBA should establish an overall dollar limit of 8(a)
contracts that any individual company can receive. According to the
comment, this would simplify administration of the program concerning
continued eligibility and would eliminate concentration of 8(a)
contracts within a small number of companies. SBA believes that a
maximum support level, whether on an annual or some other basis, is not
necessary with careful enforcement of competitive business mix
requirements. SBA also believes that support levels unnecessarily
impede the growth of 8(a) firms that are in full compliance with the
mix requirements. Therefore, this recommendation was not incorporated
into the final rule.
Indefinite Quantity, Indefinite Delivery
This rule also amends Sec. 124.311(a) concerning how the
competitive threshold requirements should be applied for indefinite
quantity and indefinite delivery (IDIQ) requirements. Before this
amendment, Sec. 124.311(a)(2) specified that ``[f]or purposes of
indefinite quantity/delivery contracts, the thresholds will be applied
to the guaranteed minimum value of the contract.'' Based on its
experience with the rule, SBA now believes this provision to be
unacceptable because of the wide differences commonly occurring between
the ``guaranteed minimum'' amounts on procurements offered to the 8(a)
program and the amounts actually expended under the procurements.
The prior regulation was subject to substantial criticism. Under
the prior rule, procuring agencies could offer very large procurement
requirements to the 8(a) program as indefinite quantity type
requirements with guaranteed minimum amounts below the applicable 8(a)
competitive threshold in order that such contracts could be procured on
a sole source basis, even though the procurement would very likely
exceed the applicable competitive threshold during the performance of
the contract. SBA believes that requirements that traditionally were
procured through other contract types were being offered and accepted
into the 8(a) program as indefinite quantity requirements solely to
take advantage of the guaranteed minimum rule and avoid the necessity
for competition. In order to eliminate this potential abuse, SBA
proposed to amend its regulation to specify that the competitive
threshold requirements which would be applied for all types of
contracts, including quantity/delivery contracts, would be the
Government estimate of the requirement, including options, as
identified by the procuring agency.
SBA received 96 comments regarding this proposal. Most of the
comments [[Page 29972]] objected to the proposed change. Many comments
suggested that the change would result in a decline in the number of
requirements being offered to the 8(a) program, and that this would
increase costs to Program Participants as they would have to compete
for requirements outside the confines of the 8(a) program that were
previously accepted as sole source 8(a) awards.
Many of the individual comments that opposed the proposed change
were reflected also in the comments made by the National Association of
Minority Business (NAMB). NAMB opposed the change because it contended
that many IDIQ contracts do not exceed the guaranteed minimum value,
and that many procuring activities do not exercise options on such
contracts. Accordingly, they believed that the guaranteed minimum
amount is a more accurate reflection of the value of the contract than
any other figure. NAMB also claimed that the expansion work under an
IDIQ contract is the direct result of strong performance by the 8(a)
company, and that the proposed change would, therefore, penalize 8(a)
firms for good performance.
SBA's Inspector General and the Department of the Treasury
submitted strong comments in support of the proposed change, citing
various abuses they have found conducting periodic reviews of 8(a)
contracts.
SBA shares some of the same concerns voiced by NAMB.
Clearly, not all IDIQ contracts ultimately exceed the guaranteed
minimum amount. Many commenters, NAMB among them, argue that most
contracts do not exceed the guaranteed minimum amount and some fall
short even of that figure. Certainly, reliance on a contract's maximum
authorized amount as a basis for determining the contract's value could
leave small disadvantaged firms with inflated expectations and
adversely affect their business development under the 8(a) program. It
is for these same reasons that SBA initially adopted the separate
competitive threshold requirement for IDIQ requirements.
SBA now believes, however, that the frequency of abuses to the 8(a)
procurement process caused by the inappropriate use of IDIQ contracts
outweighs the possible disruption to business planning caused when a
guaranteed minimum amount is not exceeded. Because of the overriding
need for controlling the potential for abuse in this area, SBA adopts
the proposed language in this final rule, although the formatting of
the section is changed for clarity from the proposed rule.
In addition, as pointed out in the NAMB analysis, SBA believes that
a majority of IDIQ contracts, even when measured by the Government
estimate, do not exceed the applicable competitive threshold amount.
Because most IDIQ contracts will not exceed the competitive threshold,
the change made in this final rule should not greatly affect the number
of requirements offered to the 8(a) program.
Other commenters felt that no change was needed to the IDIQ
requirement because the newly enacted Government-wide Small
Disadvantaged Business (SDB) program will consolidate competitive
requirements and will result in the entry of fewer firms into the 8(a)
program. However, SBA does not believe that the enactment of a
Government-wide SDB program lessens SBA's responsibility to deal with
the inappropriate use of 8(a) IDIQ contracts.
Because of the change concerning IDIQ requirements, one commenter
was concerned that procuring agencies would circumvent the competitive
threshold requirement, and, thus, perpetuate past abuses of the
program, by dividing one contract that exceeds the threshold amount
into several smaller contracts, each below the competitive threshold
amount and all to be awarded as sole source 8(a) contracts to the same
Program Participant. SBA agrees that such a division would not be
appropriate where a procuring agency seeks to award one large
requirement to one 8(a) concern through a series of smaller sole source
8(a) awards. SBA has made a change to the regulation to take this
concern into account. Specifically, the new provision will state that
an 8(a) requirement with an estimated value exceeding the applicable
competitive threshold amount shall not be divided into several
requirements for lessor amounts in order to use 8(a) sole source
procedures for award to a single contractor. SBA does not, however,
believe that it would be inappropriate for a procuring agency to divide
a large contract into smaller sole source contracts where different
Program Participants would be awarded the smaller contracts. Such an
action would be consistent with the developmental purposes of the 8(a)
program and with the statutory requirement that SBA equitably
distribute 8(a) awards.
Under the prior rule, contracting agencies were obligated to let
contracts competitively among 8(a) concerns if the estimated value of
the contract was more than $5 million for manufacturing work or more
than $3 million for all other types of work. Where the anticipated
price of the contracts was less than this threshold, the contracting
agency was permitted to use a sole source even when the negotiated
contract amount exceeded the threshold. A requirement of good faith on
the part of the contracting agencies was implicit in the prior rule.
The new rule makes the good faith requirement explicit, and requires
that the ultimate price arrived at through negotiations not be
significantly higher than the competitive threshold amount.
Economic Disadvantage Threshold for Individuals Who Are Principals or
Owners of Concerns in the Developmental Stage
This rule also amends Sec. 124.111(a)(2) to establish a $750,000
net worth economic disadvantage threshold for Program Participants in
either the development or transitional stage. Previously, concerns in
the developmental stage were subject to possible termination or
graduation from the program if their principals had an includable net
worth in excess of $500,000. This rule operated to penalize success in
the program and to discourage entrepreneurship and risk-taking. Under
the amended rules, concerns in the developmental stage have the same
threshold as concerns in the transitional stage. SBA received no
objections to this proposed elimination of a different net worth figure
for firms in the developmental stage of program participation.
Streamlining Termination and Graduation
Sections 124.208(c) and 124.209(b) streamline the procedures
governing graduation and termination of 8(a) Program Participants
respectively. This rule eliminates the second letter of notification
and the second 45 day response period provided in Sec. 124.208(c) and
Sec. 124.209(b). SBA received no objections to this amendment, which
will improve SBA's efficiency by eliminating an unneeded procedural
step.
Making it Easier To Add SIC Codes to a Concern's Business Plan
Section 124.302 eases the restrictions on adding SIC codes once a
concern is admitted to the 8(a) program, and shortens the time it takes
SBA to respond to a request for a change in SIC code designations from
45 days to 30 days. Henceforth, a concern need not show that the new
SIC Codes will be a logical extension of the old ones; just that there
is a sound business reason for them. These amendments will make it
easier for 8(a) concerns to maintain a diversified portfolio of
products and [[Page 29973]] services. No comments were received
regarding these provisions, and they remain unchanged in the final
rule.
Easing Ownership Restrictions on Former Program Participants
Section 124.103 is amended to permit a former Program Participant
(except those that have been terminated from 8(a) program participation
pursuant to Sec. 124.209) to have an equity ownership interest of up to
20 percent in a current 8(a) concern in the same or similar line of
business. SBA believes that allowing such ownership, and thus easing
the previous restriction imposed by SBA, will enhance the development
of both current and former 8(a) Participants. SBA received forty-four
comments in support of this provision. Two commenters, however, were
concerned that this change would permit current 8(a) concerns to become
``fronts'' for former 8(a) concerns, and, thus, prolong their
participation, albeit indirect, in the 8(a) program. SBA believes that
there are enough safeguards in place to protect against abuse of this
sort. The regulations require that management and control be in the
hands of the disadvantaged owners of current 8(a) concerns. Failure to
meet this requirement, which is confirmed yearly during the annual
review process, is grounds for termination from the 8(a) program under
Sec. 124.209 and may cause termination of previously awarded 8(a)
contracts under Sec. 124.317. In addition, Sec. 124.314 requires the
current 8(a) concern itself (and not a subsidiary of or another concern
affiliated with the 8(a) concern) to perform specified percentages of
awarded 8(a) contracts. Thus, a current 8(a) participant could not
shift performance of an 8(a) contract to the former 8(a) concern
partial owner. Finally, one commenter recommended that SBA increase the
allowable equity ownership interest by a former Program Participant to
35%. SBA believes that such an increase could give former Program
Participants undue influence in current 8(a) Participants, and, thus,
rejects it.
Streamlining Regulations by Removing References to Expired Authority
The final rule repeals Sec. 124.304, (implementing statutory
authority given SBA to grant Program Participants in the developmental
stage of program participation a maximum of two exemptions to the
requirements of the Walsh-Healey Act). It also repeals Sec. 124.305
(implementing statutory authority given SBA to grant Program
Participants exemptions from Miller Act bonding requirements). The rule
reserves these sections. The former legislative authority expired on
October 1, 1992, and the latter on October 1, 1994.
Establishing Joint Venture Rules for Small Disadvantaged Businesses
The final rule institutes criteria for joint ventures for small
disadvantaged business (SDB) set-asides and for SDB evaluation
preferences. The majority of such joint venture's earnings must accrue
to the socially and economically disadvantaged individuals in the small
disadvantaged business, and disadvantaged individuals must own at least
51% of the joint venture as a whole. Thus, as the examples make
explicit, where a small disadvantaged concern which is 51% owned by one
or more disadvantaged individuals enters a joint venture with a small
concern which is 100% owned by nondisadvantaged individuals, the joint
venture is not eligible even if the small disadvantaged concern earns
90% of the contract's proceeds, since 51% of 90% is only 45.9%.
SBA received seven comments pertaining to the section. For the most
part, the commenters concurred with the provisions proposed by SBA.
However, some commenters urged more restrictive provisions to protect
against the possibility that a small disadvantaged business will
``front'' for a nondisadvantaged business. SBA has concluded that the
present language, which requires that both a majority of the joint
venture's proceeds and 51% of its ownership accrue directly to
disadvantaged individuals, is sufficient protection against abuse.
Eliminating Quarterly Reporting Requirements
Section 124.501 adds a new paragraph (c) and redesignates current
paragraph (c) as paragraph (d). The newly established Sec. 124.501(c)
requires the submission of annual audited financial statements only by
larger 8(a) Program Participants, those with revenues in excess of $5
million. The requirement to submit such financial statements is not a
change in SBA policy. The requirement for financial statements is
currently contained in Secs. 124.312 (b)(7) and (c)(10) (which have
elsewhere been redesignated as paragraphs (b)(4) and (c)(7) in this
final rule), and failure to comply with it is referenced as a basis for
finding good cause to terminate a Program Participant in
Sec. 124.209(a)(6)(i). An earlier SBA Notice had established guidelines
regarding these reporting requirements.
A majority of the comments concerning this provision of the
proposed rule opposed it because of cost. Taking into account this
concern, SBA has determined that it should reduce the overall reporting
requirements imposed by SBA on Program Participants. Accordingly, this
rule eliminates the quarterly reporting requirements previously imposed
by Secs. 124.312 (b)(7) and (c)(10), and the reference to a failure to
submit quarterly financial statements as a basis for termination
contained in Sec. 124.209. This will lessen the paperwork burden
imposed on Program Participants, and is consistent with the Agency's
initiative to streamline the operation of the 8(a) program.
SBA is particularly sensitive to imposing administrative burdens on
8(a) participants. The rule as proposed was designed to make compliance
as inexpensive as possible. Only Program Participants with annual gross
income of $5 million or more need submit audited financial statements
prepared by a licensed independent public accountant. Program
Participants with a gross annual income of at least $1 million and less
than $5 million need only submit reviewed financial statements prepared
by a licensed independent public accountant. Program Participants with
annual gross revenues of less than $1 million need merely submit an
annual statement prepared by a licensed independent public accountant.
The actual cost of this last type of report is negligible, and in many
cases is prepared as part of tax preparation. In addition, the
regulation authorizes the District Director to waive the requirement
for an audited financial statement for the first year a concern is
required to submit one, and authorizes the Associate Administrator for
Minority Enterprise Development to waive the requirement in subsequent
years. One of the grounds for waiver can be financial hardship. SBA
believes that the benefits to program integrity which will result from
clear and accurate financial accounting requirements is significant,
and that the elimination of quarterly financial statements will reduce
the overall administrative burden placed on 8(a) concerns.
Compliance With Executive Orders 12612, 12778, and 12866, the
Regulatory Flexibility Act (5 U.S.C. 601, et seq.), and the Paperwork
Reduction Act (44 U.S.C. Ch. 35)
SBA certifies that this rule does not have a significant economic
impact on a substantial number of small entities within the meaning of
Executive Order 12866 or the Regulatory Flexibility Act, 5 U.S.C. 601,
et seq. This rule is necessary to resolve several points regarding
eligibility for SBA's Section [[Page 29974]] 8(a) program, eliminate
certain regulatory restrictions imposed on the amount of 8(a) contract
dollars and the type of 8(a) contracts received by a given 8(a) Program
Participant, and to ensure that the statutory requirement governing
which 8(a) requirements must be competed among eligible 8(a) Program
Participants not be circumvented. Whether a particular 8(a) concern is
eligible for participation in, or once in, whether it, as opposed to
another 8(a) concern, would be awarded a particular 8(a) contract can
be affected by the rule.
As discussed above in the supplementary information, several
commenters were concerned that the change in this rule relating to the
application of the competitive threshold requirement in the IDIQ
context would cause a reduction in the number of procurement
requirements offered to the 8(a) program. SBA does not believe that any
such possible reduction will be significant. In addition, also as
discussed above, SBA believes that the potential for abuse that a
failure to change the regulation would perpetuate outweighs any loss of
contract dollars to the program. Therefore, it is not likely to have an
annual economic effect of $100 million or more, result in a major
increase in costs or prices, or have a significant adverse effect on
competition or the United States economy.
For purposes of the Paperwork Reduction Act, 44 U.S.C. Ch. 35, SBA
certifies that this rule contains no new reporting or record keeping
requirements. In fact, it eliminates a prior requirement imposed on
Program Participants to submit quarterly financial statements to SBA.
For purposes of Executive Order 12612, SBA certifies that this rule
has no federalism implications warranting the preparation of a
Federalism Assessment.
For purposes of Executive Order 12778, SBA certifies that this rule
is drafted, to the extent practicable, in accordance with the standards
set forth in Section 2 of that Order.
List of Subjects
13 CFR Part 121
Government procurement; Government property; Grant programs--
business; Loan programs--business; Small businesses.
13 CFR Part 124
Government procurement; Hawaiian natives; Minority businesses;
Reporting and recordkeeping requirements; Technical assistance;
Tribally-owned concerns.
For the reasons set forth above, SBA hereby amends part 121 of
title 13, Code of Federal Regulations, and subpart A, part 124 of title
13, Code of Federal Regulations (CFR), as follows:
PART 121--[AMENDED]
1. The authority citation for 13 CFR part 121 continues to read as
follows:
Authority: 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(b) is revised to read as follows:
Sec. 121.401 Affiliation.
* * * * *
(b) Exclusion from affiliation coverage. (1) Portfolio or client
concerns owned in whole or substantial part by investment companies
licensed, or development companies qualifying, under the Small Business
Investment Act of 1958, as amended, or by Investment Companies
registered under the Investment Company Act of 1940, as amended, are
not considered affiliates of such investment companies or development
companies.
(2) Business concerns owned and controlled by Indian Tribes, Alaska
Regional or Village Corporations organized pursuant to the Alaska
Native Claims Settlement Act (43 U.S.C. 1601, et seq.), or Native
Hawaiian Organizations are not considered affiliates of such tribes,
Alaska Regional or Village Corporations, or Native Hawaiian
Organizations, or with other concerns owned by these entities solely
because of their common ownership. However, affiliation with other
concerns owned by these entities may be caused by circumstances other
than common ownership under this section.
(3) Business concerns owned and controlled by a Community
Development Corporation (CDC) authorized by 42 U.S.C. 9805 et seq. are
not considered affiliates of such CDC or with other concerns owned by
the CDC solely because of their common ownership. However, affiliation
with other concerns owned by a CDC may be caused by circumstances other
than common ownership under this section.
* * * * *
PART 124--[AMENDED]
Subpart A--Minority Small Business and Capital Ownership
Development
3. The authority citation for part 124 is revised to read as
follows:
Authority: 15 U.S.C. 634(b)(6), 636(j), 637(a), and 637(d), Pub.
L. 99-661, sec. 1207, Pub. L. 100-656, Pub. L. 101-37, Pub. L. 101-
574, and 42 U.S.C. 9815.
Sec. 124.7 [Amended]
4. Section 124.7(b) is amended by removing paragraph (b)(1) and by
redesignating paragraph (b)(2) as paragraph (b).
5. Section 124.100 is amended by removing the terms ``Local buy
item'' and ``National buy item'', and adding, in alphabetical order,
the following new definitions of the terms ``Community Development
Corporation or CDC'', and ``CDC-owned concern'':
Sec. 124.100 Definitions.
* * * * *
CDC-owned concern means any concern at least 51 percent owned by a
Community Development Corporation as defined in this section.
* * * * *
Community Development Corporation or CDC means a nonprofit
organization responsible to residents of the area it serves which has
received financial assistance under 42 U.S.C. 9805 et seq.
* * * * *
6. Section 124.101 is amended by adding the following new sentence
after the third sentence in paragraph (a), and by revising the first
sentence in paragraph (b) to read as follows:
Sec. 124.101 The 8(a) program: General eligibility.
(a) * * * An applicant concern owned and controlled by a Community
Development Corporation must meet the requirements set forth in
Sec. 124.114 and in Secs. 124.102 through 124.109, as applicable. * * *
(b) In order to continue its participation in the 8(a) program, a
Program Participant must continue to meet all eligibility requirements
described in Secs. 124.102 through 124.109, Sec. 124.111(a), and
Sec. 124.112, Sec. 124.113 or Sec. 124.114, if applicable. * * *
* * * * *
7. Section 124.102(a) is revised to read as follows:
Sec. 124.102 Small business concern.
(a) In order to be approved for participation in the 8(a) program,
an applicant concern must qualify as a small business concern as
defined in part 121 of this title. The particular size standard to be
applied will be based on the primary industry classification of the
applicant concern. The size of a tribally-owned concern, a concern
owned by a Native Hawaiian Organization, or a concern owned by a
Community Development Corporation shall be additionally determined by
reference to Sec. 124.122, Sec. 124.113 or Sec. 124.114, respectively.
* * * * * [[Page 29975]]
8. Section 124.103 is amended by revising the introductory text and
the first sentence of paragraph (h) to read as follows:
Sec. 124.103 Ownership requirements.
Except for concerns owned by Indian tribes, Alaska Native
Corporations, Native Hawaiian Organizations, or Community Development
Corporations, as defined in Sec. 124.110, in order to be eligible to
participate in the 8(a) program, an applicant concern must be at least
51 percent unconditionally owned by an individual(s) who is a citizen
of the United States (specifically excluding permanent resident
alien(s)) and who is determined by SBA to be socially and economically
disadvantaged. Special ownership requirements for concerns owned by
Indian tribes and Alaska Native Corporations are set forth in
Sec. 124.112. Ownership requirements for Native Hawaiian Organizations
are set forth in Sec. 124.113. Ownership requirements for Community
Development Corporations are set forth in Sec. 124.114.
* * * * *
(h) A non-8(a) concern in the same or similar line of business is
prohibited from having an equity ownership interest in an 8(a) concern
which exceeds 10 percent, except that a former Program Participant
(except those that have been terminated from 8(a) program participation
pursuant to Sec. 124.209) may have an equity ownership interest of up
to 20 percent in a current 8(a) concern in the same or similar line of
business. * * *
* * * * *
9. Section 124.104 is amended by revising the introductory text to
read as follows:
Sec. 124.104 Control and management.
Except for concerns owned by Indian tribes, Alaska Native
Corporations (ANCs), Native Hawaiian Organizations, or Community
Development Corporations (CDCs), as defined in Sec. 124.100, an
applicant concern's management and daily business operations must be
conducted by one or more owners of the applicant concern who have been
determined to be socially and economically disadvantaged. (See
Sec. 124.112 for the requirements for tribally-owned entities and those
owned by ANCs, Sec. 124.113 for requirements for concerns owned by
Native Hawaiian Organizations, and Sec. 124.114 for requirements for
CDC-owned concerns). In order for a disadvantaged individual to be
found to control the concern, that individual must have managerial or
technical experience and competency directly related to the primary
industry in which the applicant concern is seeking certification.
* * * * *
10. Section 124.109 is amended by revising paragraph (d) to read as
follows:
Sec. 124.109 Ineligible businesses.
* * * * *
(d) Non-profit organizations. A non-profit organization does not
meet the general definition of a concern as set forth in part 121 and
Sec. 124.100 of these regulations and is, therefore, ineligible for
8(a) program participation. In addition, a business entity owned by a
non-profit organization is not eligible for 8(a) program participation
because such a concern does not meet the requirement of being owned and
controlled by disadvantaged individuals. Nothing in this paragraph
affects the eligibility of a for-profit concern owned and controlled by
an Indian tribe, including an Alaskan Native Corporation, a Native
Hawaiian Organization or a Community Development Corporation (see
Secs. 124.112, 124.113 and 124.114).
* * * * *
11. Section 124.111 is amended by revising paragraph (a)(2) to read
as follows:
Sec. 124.111 Continued 8(a) program eligibility.
(a) * * *
(2) In order for a Program Participant to maintain continued 8(a)
program eligibility, the net worth of an individual claiming to be
socially and economically disadvantaged cannot exceed $750,000, as
calculated pursuant to Sec. 124.106(a)(2)(i). An individual whose
personal net worth exceeds $750,000, as calculated pursuant to
Sec. 124.106(a)(2)(i), will not be considered economically
disadvantaged.
* * * * *
12. A new Sec. 124.114 is added to read as follows:
Sec. 124.114 Concerns owned by Community Development Corporations.
(a) Concerns owned at least 51% by Community Development
Corporations (CDCs), as defined in Sec. 124.100, are eligible for
participation in the 8(a) program and other federal programs requiring
SBA to determine social and economic disadvantage as a condition of
eligibility. Such concerns must meet all eligibility criteria set forth
in Secs. 124.102 through 124.109 and Sec. 124.111(a) of this part.
(b) A concern that is at least 51% owned by a CDC shall be deemed
to be controlled by such CDC and eligible for participation in the 8(a)
program, provided it meets all eligibility criteria set forth or
referred to in this section and its management and daily business
operations are conducted by one or more individuals determined to have
managerial or technical experience and competency directly related to
the primary industry in which the applicant concern is seeking
certification.
(c) A concern owned by a CDC must qualify as a small business
concern as defined for purposes of Government procurement in part 121
of this title. The particular size standard to be applied shall be
based on the primary industry classification of the applicant concern.
Ownership by the CDC will not, in and of itself, cause affiliation with
the CDC or with other CDC-owned entities. However, affiliation with the
CDC or other CDC-owned entities may be caused by circumstances other
than common CDC ownership.
(d) No CDC shall own more than one current or former 8(a) Program
Participant having the same primary industry classification.
(e) SBA does not deem an individual involved in the management or
daily business operations of a CDC-owned concern to have used his or
her individual eligibility within the meaning of Sec. 124.108(c).
13. Section 124.208 is amended by removing paragraph (c)(2), by
redesignating paragraphs (c)(3), (c)(4), (c)(5), and (c)(6) as
paragraphs (c)(2), (c)(3), (c)(4), and (c)(5), and by revising the
first sentence in newly redesignated paragraph (c)(2) to read as
follows:
Sec. 124.208 Program graduation.
* * * * *
(c) * * *
(2) Recommendation of the Division. Following the 45 day response
period, the Division Director will consider the facts of the proposed
graduation, including all information submitted by the Participant. * *
*
* * * * *
14. Section 124.209 is amended by removing paragraph (b)(2), by
redesignating paragraphs (b)(3), (b)(4), (b)(5) and (b)(6) as
paragraphs (b)(2), (b)(3), (b)(4) and (b)(5), by revising the first
sentence of paragraph (a)(6)(i) and newly redesignated paragraph
(b)(2), and by adding the following new sentence to the end of newly
redesignated paragraph (b)(3) to read as follows:
Sec. 124.209 Program termination
(a) General. * * *
(6) * * *
(i) Failure by the concern to provide required financial statements
to SBA [[Page 29976]] pursuant to Secs. 124.312 (b)(4), 124.312(c)(7),
and 124.501(c). * * *
* * * * *
(b) * * *
(2) Recommendation of the Division. Following the 45-day response
period, the Division Director will have 15 days to consider the facts
of the proposed termination, including all information submitted by the
Participant. The Division Director may, if he/she deems it necessary,
request additional information from the Participant. If the grounds for
the proposed termination continue to exist, the Division Director shall
recommend in writing to the AA/MSB&COD that the Participant be
terminated.
(3) Decision of the AA/MSB&COD. * * * Unless appealed to OHA, the
decision of the AA/MSB&COD to terminate a Program Participant shall be
effective 45 days after its issuance.
* * * * *
15. Section 124.302 is amended by revising paragraph (c)(1)(i)(A)
and (c)(2) to read as follows:
Sec. 124.302 Review and modification of business plan.
* * * * *
(c) Changes in SIC code designations. * * *
(1) * * *
(i)(A) A sound business explanation exists for obtaining the
requested SIC code, including, for example, the acquisition of the
capability to perform contracts in an industry, even if unrelated to
the 8(a) concern's primary SIC code;
* * * * *
(2) SBA will make a decision on such request within 30 days from
the date it receives the request.
* * * * *
Sec. 124.303 [Amended]
16. Section 124.303 is amended by removing paragraphs (c)(3) and
(c)(4), and by redesignating paragraphs (c) (5) through (7) of
paragraph (c) as paragraphs (c)(3) through (c)(5).
17. Section 124.303 is further amended by changing the reference in
paragraph (d)(1) to ``paragraphs (c)(1), (c)(2), (c)(6) and (c)(7) of
this section'' to a reference to ``paragraphs (c)(1), (c)(2), (c)(4)
and (c)(5) of this section.''
Sec. 124.304 [Removed and Reserved]
18. Section 124.304 is removed and reserved.
Sec. 124.305 [Removed and Reserved]
19. Section 124.305 is removed and reserved.
20. Section 124.307 is amended by redesignating paragraphs (d) and
(e) as paragraphs (e) and (f), and by adding the following new
paragraph (d):
Sec. 124.307 Contractual assistance.
* * * * *
(d) While a Program Participant's projected level of 8(a) contract
support is required as part of its business plan under Sec. 124.302(b)
as a planning and development tool, the level approved by SBA will not
prevent contract awards above that level so long as SBA determines the
concern to be competent and responsible to perform any such contracts
and the Participant is in compliance with any applicable competitive
business mix requirement, or approved remedial plan, imposed by
Sec. 124.312.
* * * * *
21. Section 124.308 is amended by revising paragraph (d), the first
sentence of paragraph (f)(1), and paragraph (f)(2), to read as follows:
Sec. 124.308 Procedures for obtaining and accepting procurements for
the 8(a) program.
* * * * *
(d) Acceptance of the requirement. Upon receipt of the procuring
agency's offer of a procurement requirement, SBA will determine whether
it will accept the requirement for the 8(a) program. SBA's decision
whether to accept the requirement will be transmitted to the procuring
agency in writing within 15 working days of receipt of the written
offering letter, unless SBA requests, and the procuring agency grants,
an extension. SBA is not required to accept any particular procurement
offered to the 8(a) program.
(1) Where SBA decides to accept an offering of a sole source 8(a)
procurement, SBA will accept the offer both on behalf of the program
and in support of the approved business plan of a specific 8(a) Program
Participant.
(2) Where SBA decides to accept an offering of a competitive 8(a)
procurement, SBA will accept the offer for the 8(a) program generally.
(3) Except for requirements assigned a construction SIC code by the
procuring agency contracting officer, all competitive 8(a) requirements
accepted by SBA may be competed among all eligible 8(a) Program
Participants nationally. The only geographic restrictions pertaining to
8(a) competitive requirements, other than those for construction
requirements, would be those imposed by the solicitations themselves.
* * * * *
(f) Open requirements. * * *
(1) If the procurement is a construction requirement, SBA will
examine the portfolio of 8(a) concerns for the SBA district office
where the work is to be performed for selection of a qualified 8(a)
concern. * * *
(2) If the procurement is anything other than a construction
requirement, SBA may select any eligible, responsible Program
Participant nationally to perform the contract.
* * * * *
Sec. 124.308 [Amended]
22. Section 124.308 is further amended by removing the words
``approved 8(a) business support level or the'' contained in paragraph
(e)(1)(iii).
23. Section 124.311 is amended by revising paragraph (a)(2), by
removing paragraph (b), by redesignating paragraphs (c), (d), (e), (f),
(g), (h), and (i) as paragraphs (b), (c), (d), (e), (f), (g), and (h),
respectively, by adding a sentence to the end of newly redesignated
paragraph (d) introductory text, by removing newly redesignated (d)(1)
and (d)(2), and by revising newly redesignated paragraphs (g)(3) and
(g)(4), to read as follows:
Sec. 124.311 8(a) competition.
(a) * * *
(2) The anticipated award price of the contract, including options,
will exceed $5,000,000 for contracts assigned manufacturing Standard
Industrial Classification (SIC) codes and $3,000,000 for all other
contracts.
(i) For all types of contracts, the applicable competitive
threshold amounts will be applied to the procuring agency estimate of
the total value of the contract, including all options.
(ii) Where a procuring agency good faith estimate of the total
value of a proposed 8(a) contract is less than the applicable
competitive threshold amount and the requirement is accepted as a sole
source requirement on that basis, award may be made even though the
ultimate price arrived at through negotiations exceeds the competitive
threshold, provided that the ultimate price is not significantly
greater than the competitive threshold amount.
Example. If the anticipated award price for a professional
services requirement is determined to be $2.7 million and it is
accepted as a sole source 8(a) requirement on that basis, a sole
source award will be valid even if the contract price arrived at
after negotiation is $3.1 million.
(iii) A proposed 8(a) requirement with an estimated value exceeding
the applicable competitive threshold amount shall not be divided into
several requirements for lesser amounts in order [[Page 29977]] to use
8(a) sole source procedures for award to a single contractor.
* * * * *
(d) Sole source above thresholds. * * * SBA will accept a contract
opportunity above the applicable competitive threshold as a sole source
8(a) requirement only if there are not two eligible offerors in the
United States capable of performing the requirement at a fair price.
* * * * *
(g) Restricted Competition. * * *
(3) Construction competitions. Where a construction requirement
offered to the 8(a) program exceeds the $3 million competitive
threshold, SBA will determine, based on its knowledge of the 8(a)
portfolio, whether the competition should be limited only to those
Program Participants located within the geographical boundaries of one
or more SBA district offices, an entire SBA regional office, or
adjacent SBA regional offices. Only those Participants located within
the appropriate geographical boundaries are eligible to submit offers.
(4) Competition for all non-construction requirements. Except for
construction requirements, all eligible Program Participants nationally
may submit offers in response to any solicitation for a competitive
8(a) procurement requirement.
* * * * *
24. Section 124.311 is further amended by removing the Example
following newly redesignated paragraph (e)(4)(iii), by adding the word
``and'' after the semi-colon (``;'') in newly redesignated paragraph
(e)(5)(iii), by removing newly redesignated paragraph (e)(5)(iv) in its
entirety, by redesignating paragraph (e)(5)(v) as paragraph (e)(5)(iv),
and by revising newly redesignated paragraph (e)(5)(iv) to read as
follows:
Sec. 124.311 8(a) competition.
* * * * *
(e) * * *
(5) * * *
(iv) If the firm is in the transitional stage of program
participation, whether it has achieved its competitive business mix
targets under Sec. 124.312, or is in compliance with a remedial plan
that does not include the denial of future 8(a) contracts.
* * * * *
Sec. 124.311 [Amended]
25. Section 124.311 is further amended by revising the reference in
newly redesignated paragraph (e)(7) to ``paragraph (f)(5) of this
section'' to a reference to ``paragraph (e)(5) of this section.''
26. Section 124.312 is amended by removing paragraphs (b)(4),
(b)(5), and (b)(6), by redesignating paragraph (b)(7) as paragraph
(b)(4), and by revising the first sentence of newly redesignated
paragraph (b)(4) to read as follows:
Sec. 124.312 Competitive business mix.
* * * * *
(b) * * *
(4) Reporting and verification of business activity. Once admitted
to the 8(a) program, a Program Participant must provide annual
financial statements to SBA in accord with Sec. 124.501(c). * * *
27. Section 124.312 is further amended by removing paragraphs
(c)(2), (c)(3), and (c)(9), by redesignating paragraphs (c)(4), (c)(5),
(c)(6), (c)(7), (c)(8), (c)(10), (c)(11), and (c)(12) as paragraphs
(c)(2), (c)(3), (c)(4), (c)(5), (c)(6), (c)(7), (c)(8), and (c)(9),
respectively, by revising the reference to ``paragraphs (c)(4) and
(c)(5)'' in the last sentence of newly redesignated paragraph (c)(7) to
a reference to ``paragraphs (c)(2) and (c)(3)'', and by revising the
first sentence of newly redesignated paragraph (c)(7) to read as
follows:
Sec. 124.312 Competitive business mix.
* * * * *
(c) * * *
(7) Reporting and verification of business activity. Program
Participants during the transitional stage shall provide annual
financial statements to SBA with a breakdown of 8(a) and non-8(a)
revenue in accord with Sec. 124.501(c). * * *
* * * * *
Sec. 124.312 [Amended]
28. Section 124.312 is further amended by changing the reference in
paragraph (c)(1) to ``paragraph (c)(4) of this section'' to a reference
to ``paragraph (c)(2) of this section'' and by changing the reference
in the same paragraph to ``paragraph (c)(5) of this section'' to a
reference to ``paragraph (c)(3) of this section''.
29. Section 124.312 is further amended by changing the reference in
newly designated paragraph (c)(8) to ``paragraph (c)(12) of this
section'' to a reference to ``paragraph (c)(9) of this section''.
30. Section 134.312 is further amended by changing the reference in
newly designated paragraph (c)(9) to ``paragraphs (c)(4) and (c)(5) of
this section'' to a reference to ``paragraphs (c)(2) and (c)(3) of this
section''.
31. Section 124.321 is amended by adding a new paragraph (i) to
read as follows:
Sec. 124.321 Joint venture agreements.
* * * * *
(i) Joint ventures for Small Disadvantaged Business Set-Asides and
Small Disadvantaged Business Evaluation Preferences. Joint ventures are
permitted for Small Disadvantaged Business (SDB) set-asides and SDB
evaluation preferences, provided that the requirements set forth in
this paragraph are met.
(1) For purposes of this paragraph, the term joint venture has the
same meaning as that set forth in Sec. 121.401(l) of this chapter. Two
or more concerns that form an ongoing relationship to conduct business
would not be considered ``joint venturers'' within the meaning of this
paragraph, and would also not be eligible as an entity owned and
controlled by one or more socially and economically disadvantaged
individuals.
(2) A concern that is owned and controlled by one or more socially
and economically disadvantaged individuals entering into a joint
venture agreement with one or more other business concerns is
considered to be affiliated for size purposes with such other
concern(s). The combined annual receipts or employees of the concerns
entering into the joint venture must meet the applicable size standard
corresponding to the SIC code designated for the contract.
(3) The majority of the venture's earnings must accrue directly to
the socially and economically disadvantaged individuals in the SDB
concern(s) in the joint venture.
(4) The percentage ownership involvement in a joint venture by
disadvantaged individuals must be at least 51 percent.
Example 1. Small business concern A is 100% owned by
disadvantaged individuals. Small business concern B is 100% owned by
nondisadvantaged individuals. The percentage involvement by concern
A in a joint venture between A and B must be at least 51%.
Example 2. Small business concern C is 51% owned by
disadvantaged individuals. Small business concern D is 100% owned by
nondisadvantaged individuals. Any joint venture between C and D
would be ineligible because the amount of ownership involvement in
such a joint venture by disadvantaged individuals would be less than
51%. Even a 90% involvement by concern C in a joint venture with D
would mean an overall ownership involvement by disadvantaged
individuals of only 45.9% (51% of 90), and an overall ownership
involvement by nondisadvantaged individuals of 54.1% (10+(49% of
90)).
32. Section 124.501 is amended by redesignating paragraph (c) as
paragraph [[Page 29978]] (d) and by adding the following new paragraph
(c):
Sec. 124.501 Miscellaneous reporting requirements.
* * * * *
(c) Submission of financial statements. (1) Program Participants
with actual gross annual receipts of $5,000,000 or more must submit to
SBA audited annual financial statements prepared by a licensed
independent public accountant (as defined in part 107, appendix I,
paragraph II. B) within 120 days after the close of the concern's
fiscal year.
(i) Upon request by the Program Participant, SBA may waive the
requirement for audited financial statements. Waivers under this
paragraph may be granted by the appropriate District Director only for
the first year that audited financial statements are required. Beyond
such first year, only the AA/MSB&COD may waive this requirement for
good cause shown by the Program Participant.
(ii) Circumstances where waivers of audited financial statements
may be granted include, but are not limited to, the following:
(A) The concern has an unexpected increase in sales towards the end
of its fiscal year that creates an unforeseen requirement for audited
statements;
(B) The concern unexpectedly experiences severe financial
difficulties which would make the cost of audited financial statements
a particular burden; and
(C) The concern has been an 8(a) Program Participant less than 12
months.
(2) Program Participants with actual gross annual receipts of
$1,000,000 to $4,999,999 shall submit to SBA reviewed annual financial
statements prepared by a licensed independent public accountant (as
defined in part 107, appendix I, paragraph II. B) within 90 days after
the close of the concern's fiscal year.
(3) Program Participants with actual gross annual receipts of less
than $1,000,000 shall submit to SBA an annual statement prepared in-
house or a compilation statement prepared by a licensed independent
public accountant (as defined in part 107, appendix I, paragraph II.
B), verified as to accuracy by an authorized officer, partner, or sole
proprietor of the 8(a) concern, by signature and date, within 90 days
after the close of the concern's fiscal year.
(4) Any audited financial statements submitted to SBA pursuant to
Sec. 124.501(c) shall be prepared in accordance with Generally Accepted
Accounting Principles and reflect the independent public accountant's
opinion.
(5) While financial statements need not be submitted until 90 or
120 days after the close of an 8(a) concern's fiscal year, depending on
the receipts of the concern, a concern seeking to be awarded an 8(a)
contract between the close of its fiscal year and such 90 or 120-day
time period must submit a final sales report signed by the CEO or
President to SBA in order for SBA to determine/verify the concern's
size and its compliance with competitive business mix targets. This
report must show a breakdown of 8(a) and non-8(a) sales.
(6) Notwithstanding a concern's gross annual receipts, audited or
reviewed annual and/or quarterly statements may be required whenever
SBA determines it is necessary to obtain a more thorough verification
of a concern's assets, liabilities, income and/or expenses, or to
determine the concern's capacity to perform a specific 8(a) contract.
* * * * *
Dated: April 5, 1995.
Philip Lader,
Administrator.
[FR Doc. 95-13722 Filed 6-6-95; 8:45 am]
BILLING CODE 8025-01-M
