[Federal Register Volume 59, Number 167 (Tuesday, August 30, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-21217]
[[Page Unknown]]
[Federal Register: August 30, 1994]
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SMALL BUSINESS ADMINISTRATION
13 CFR Parts 121 and 124
Small Business Size Regulations; Minority Small Business and
Capital Ownership Development Assistance
AGENCY: Small Business Administration.
ACTION: Proposed rule.
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SUMMARY: The Small Business Administration (SBA) proposes to amend 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 proposed rule
would amend both eligibility requirements for and contractual
assistance provisions within the 8(a) program. Of particular note, this
rule would recognize participation of Community Development
Corporations in the 8(a) program to an extent that would not be
inconsistent with the requirements of the 8(a) program as imposed by
the Small Business Act, increase the personal net worth limitations for
8(a) applicants and Program Participants to take into account
inflation, eliminate the distinctions established in SBA's regulations
concerning ``local'' and ``national buy'' 8(a) requirements, eliminate
the restrictions on the number and dollar value of 8(a) contracts
received by Program Participants due to SBA-approved ``support
levels'', and eliminate the distinction for applying the competitive
8(a) requirements currently existing for indefinite quantity or
indefinite delivery requirements.
DATES: Comments must be submitted on or before September 29, 1994.
ADDRESSES: Written comments should be addressed to Herbert L. Mitchell,
Associate Administrator, Office of Minority Enterprise Development,
U.S. Small Business Administration, 409 3rd Street, SW, Washington, DC
20416.
FOR FURTHER INFORMATION CONTACT: Office of Minority Enterprise
Development, (202) 205-6410.
SUPPLEMENTARY INFORMATION: This proposed rule, if adopted in final
form, would (1) make several clarifications of the eligibility
requirements for admission to SBA's 8(a) program, the need for which
has been identified by SBA through the practical experience gained in
operating the program and in defending the agency's actions in 8(a)
eligibility appeals brought before SBA's Office of Hearings and Appeals
(OHA), (2) authorize participation by business concerns owned by
Community Development Corporations in the 8(a) program in accord with
42 U.S.C. 9815, and (3) make several changes to the 8(a) contractual
assistance requirements, including eliminating 8(a) support levels and
the concepts of local buy and national buy 8(a) requirements.
This rule would clarify that 8(a) eligibility decisions are based
on the facts before the Associate Administrator for Minority Small
Business and Capital Ownership Development (AA/MSB&COD) at the time of
his/her eligibility decision. The rule would specify that actual
control of the applicant concern must be in the hands of one or more
socially and economically disadvantaged individuals at the time the
appropriate district Certification and Eligibility Branch (C & E
Branch) determines that an application for the 8(a) program is
complete. Potential control or the power of disadvantaged individuals
to change the applicant concern's Board of Directors or other aspects
of control so that the applicant concern could be controlled by
disadvantaged individuals, no matter how easily exercised, would not
satisfy the requirement that the applicant be actually controlled by
disadvantaged individuals at the time the SBA district office C & E
Branch determines an application to be complete. One reason to require
actual control at the time that an applicant applies for admission to
the 8(a) program is to prevent ``front companies'' from being admitted
to the 8(a) program. It is SBA's view that this potential for abuse
would be greatly lessened by the clarifications made in this rule.
In addition, Section 626(a)(2) of the Omnibus Reconciliation Act of
1981, Pub. L. 97-35, codified at 42 U.S.C. 9815(a)(2), required
``regulations to ensure the availability to community development
corporations of such programs as shall further the purposes of this
subchapter, including programs under section [8(a) of the Small
Business Act].'' The purpose of the subchapter referred to in this
provision ``is to encourage the development of special programs by
which the residents of urban and rural low-income areas may, through
self-help and mobilization of the community at large, with appropriate
Federal assistance, improve the quality of their economic and social
participation in community life in such a way as to contribute to the
elimination of poverty and the establishment of permanent economic and
social benefits.'' 42 U.S.C. 9801. SBA has not heretofore implemented
this authority through regulations. This proposed rule would recognize
participation of Community Development Corporations (CDCs) in the 8(a)
program to an extent that would not be inconsistent with the
requirements of the 8(a) program imposed by the Small Business Act.
SBA believes that only CDC-owned or financed small business
concerns can be eligible for the 8(a) program, and not the CDC itself.
This position is consistent with the Agency's longstanding regulations
implementing the Small Business Act that a small business must be a
for-profit business entity. See 13 CFR 121.403. Since CDCs are non-
profit entities, they could not be considered small business concerns
within the meaning of the size regulations and, hence, would not be
eligible for the 8(a) program on that basis.
This rule is not intended to imply in any way that the basic
requirement of the Small Business Act that 8(a) concerns be owned by
disadvantaged individuals can be administratively changed. Presently,
two statutory exceptions to this ownership requirement have been
implemented in regulations. Subclauses 8(a)(4)(A)(i)(II) and (III) of
the Small Business Act, 15 U.S.C. 637(a)(4)(A)(i)(II) and (III),
statutorily extend 8(a) program eligibility to small business concerns
which are owned by either an economically disadvantaged Indian tribe,
or a wholly owned business entity of such a tribe, or a Native Hawaiian
organization. These provisions have been implemented in 13 CFR
Secs. 124.112 and 124.113, respectively. The authority for extending
eligibility for the 8(a) program to CDC-owned entities is also
statutory. Thus, similar to SBA's treatment of tribally-owned concerns
and concerns owned by Native Hawaiian organizations, this proposed rule
recognizes CDC-owned concerns in accord with the authority set forth in
42 U.S.C. 9815(a)(2).
Pursuant to this proposed rule, SBA would consider CDCs comparable
to Indian tribes. A CDC could have an ownership interest in several
business enterprises, just like an Indian tribe under current
regulations. Where statute and implementing regulations authorize a
tribally-owned business concern to participate in the 8(a) program, but
not the tribe acting on its own behalf, SBA proposes that similar
treatment be afforded CDCs and CDC-owned business concerns. SBA also
believes that the regulatorily created exclusion from affiliation that
has been afforded tribally-owned business concerns (i.e., one tribally-
owned business is not considered affiliated with the tribe or other
businesses owned by the tribe merely because of common tribal
ownership) should be extended to CDC-owned business concerns as well
(this proposal would also make that exclusion available to concerns
owned by Native Hawaiian Organizations).
In order for any CDC-owned business to participate in the 8(a)
program, SBA would apply the basic management and control requirements
imposed by the Small Business Act for 8(a) program participation. Thus,
the proposed rule would require that CDC-owned applicant concerns must
be managed by one or more socially and economically disadvantaged
individuals.
This proposed rule would also make changes, as needed, in various
other eligibility and 8(a) contracting requirements. These changes are
identified below in the section by section analysis of this proposed
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:
Sections 121.906(b)(1)(iv) and 121.1106(b)(1)(iv) would be amended
to permit a small business non-manufacturer to supply other than a
product made in the United States for a small business set-aside or
8(a) contract where the procuring agency makes a non-availability
determination pursuant to Sec. 25.102(a)(4) of the Federal Acquisition
Regulation. There has been some confusion as to whether a non-
manufacturer could qualify as a small business if there was such a non-
availability determination under the Buy American Act and the Federal
Acquisition Regulation. SBA did not intend to exclude non-manufacturers
from small business set-aside and 8(a) contracts where such a non-
availability determination has been made. This clarification should
clear up any ambiguity in this area.
Section 121.1104 would be amended to impose its provisions on
competitive as well as sole source 8(a) contracting opportunities.
Heretofore, this regulation was inconsistent with competitive
contracting procedures. Other minor changes for purposes of improved
clarity would also be made to this section.
Section 121.1703(b) would be amended to clarify that only the AA/
MSB&COD can appeal a Standard Industrial Classification (SIC) code
assigned by a procuring agency contracting officer to either a sole
source or a competitive 8(a) requirement. See discussion relating to
proposed Sec. 124.307(f).
Section 124.100 would be amended by adding definitions of the terms
``CDC-owned concern'', ``Clear and convincing evidence'', and
``Community Development Corporation or CDC''.
The definition of ``Unconditional ownership'' in Sec. 124.100 would
be amended to explain that a disadvantaged owner may use his/her
ownership interest (e.g., stock) in an applicant or 8(a) concern as
collateral for financing during the normal course of business without
affecting his/her ``unconditional'' ownership in such concern, provided
that complete control of the ownership interest remains with the
disadvantaged owner absent any default in fulfilling the terms of the
financing. However, events of default must be defined in commercially
reasonable ways. Events of default beyond those that are deemed
commercially reasonable could lead to a conclusion that unconditional
ownership is not in the hands of the disadvantaged owner. This
clarification is not intended to require a concern to obtain financing
through a financial institution or to preclude, for example, seller-
financed transactions. It is intended only to permit financing terms
that are reasonable within the marketplace. This change is essential to
ensure that applicant and 8(a) concerns have the flexibility they need
to raise necessary capital. The requirement that disadvantaged owners
``unconditionally'' own and control an applicant or 8(a) concern should
not restrict a firm's ability to raise capital under normal commercial
terms and conditions to assist it in becoming viable.
The proposed rule would eliminate the definitions for ``local buy''
and ``national buy'' requirements from Sec. 124.100. All requirements
other than construction requirements would be open to eligible 8(a)
Participants nationally. To the extent possible, SBA seeks to lift
restrictions that are otherwise not imposed in procurements conducted
other than through the 8(a) program. This would result in all eligible
8(a) concerns nationally being able to submit offers in response to
competitive 8(a) solicitations. In addition, a Program Participant
could market and seek sole source 8(a) requirements nationally.
Construction requirements would be 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 proposed rule would make necessary changes in
Sec. 124.308(d), Sec. 124.308(f), revised Sec. 124.311(d), (old
Sec. 124.311(e)), revised Sec. 124.311(e) (old Sec. 124.311(f)), and
revised Sec. 124.311(f) (old Sec. 124.311(h)) to eliminate the local
and national buy concepts.
The proposed rule would make minor technical changes to
Secs. 124.101(a), 124.101(b), 124.102(a), 124.103, 124.104, and
124.109(d) to recognize that CDC-owned concerns would be eligible for
participation in the 8(a) program.
Sections 124.101(a), 124.104 and 124.206(a) would be amended to
clarify that the AA/MSB&COD's decision to approve or decline an
application for 8(a) program participation would be based on whether
the applicant concern complied with each of SBA's eligibility criteria
at the time the concern's completed application for admission to the
8(a) program is sent to the Office of MSB&COD for processing or, in the
case of a request for reconsideration, at the time the reconsideration
application is deemed to be complete by SBA's Central Office. A change
in circumstances submitted by an applicant concern subsequent to the
date that an application or reconsideration action is sent to the
Office of MSB&COD for processing would not be considered, unless it
causes a loss of eligibility. The structure of the concern, including
all necessary corporate formalities, would have to be in place prior to
the Office of MSB&COD's processing of an application or request for
reconsideration. A disadvantaged individual's ability to immediately
change the applicant's structure or effect a change in its control so
that actual control of the concern is in the hands of disadvantaged
individuals and/or other eligibility criteria are met would not satisfy
the requirement that they be met at the time of the completed
application. The rule would specify, however, that SBA, in its sole
discretion, could request clarification of information contained in the
application at any stage in the application process.
The decision of the AA/MSB&COD to approve or decline an application
for 8(a) program admission would then be based on whether the
application, as clarified by any information submitted in response to a
request by SBA, demonstrates that the applicant concern complies with
each of SBA's eligibility criteria. While SBA would be able to request
and consider additional information in processing an 8(a) application,
SBA would not consider information gratuitously submitted by an
applicant concern after it submits its application. This clarification
is needed to streamline the application process and ensure that SBA
meets its statutorily imposed time limitation for processing
applications.
Section 124.103 would be amended by adding a new paragraph (a) that
would require direct ownership of 8(a) applicants or Program
Participants by disadvantaged individuals. This statutory requirement
is currently set forth in Sec. 124.109, but SBA believes that it should
be added to this section for clarification purposes. Present
Secs. 124.103(a) through (j) would be redesignated to become
Secs. 124.103(b) through (k). Sections 124.109(d) and (e) would be
similarly amended.
Newly redesignated Sec. 124.103(i) (old Sec. 124.103(h)) would be
amended to permit a former Program Participant 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. Such a requirement would increase an
8(a) concern's ability to raise capital, while continuing to advance
the economic viability of a former Program Participant after its 8(a)
program term has expired. Section Sec. 124.104(c)(2) would also be
amended to permit the principal of a former Program Participant 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 as the former Program
Participant.
Newly redesignated Sec. 124.103(j) (old Sec. 124.103(i)) would be
amended to make clear that an 8(a) concern may substitute one
disadvantaged individual for another without invoking the termination
for convenience/waiver provision of Sec. 124.317 of these regulations
with respect to any 8(a) contracts that it has been awarded on or after
June 1, 1989. Provided program eligibility is maintained and SBA
approves a substitution of one disadvantaged individual for another,
performance of 8(a) contracts already received could continue without
seeking a waiver under Sec. 124.317. SBA believes that the statutory
termination for convenience/waiver provision did not intend to prohibit
the performance of an 8(a) contract by the 8(a) concern that initially
received it simply where there has been one or more approved changes of
particular individuals upon whom eligibility of the concern was based.
This change is necessary to apprise procuring agencies and 8(a)
concerns that termination of 8(a) contracts is not required in such
instances.
Pursuant to proposed Sec. 124.103(l), SBA would aggregate the
ownership interests of a business concern and its principal(s) in
determining whether a non-disadvantaged individual or business concern
exceeds the 10 percent equity ownership limitations (or, in the case of
a former Program Participant, the 20 percent equity ownership
limitations) established by Secs. 124.103 and 124.104.
This proposed rule would also add a new Sec. 124.103(m), dealing
with the applicability of state community property laws on the
respective ownership interests in an applicant concern or a Program
Participant once admitted to the Program. This revision would not be a
change in SBA policy.
Section 124.104(a) would be reorganized for greater clarity and
easier use. Of particular note, Sec. 124.104(a) would be amended to
specify that one or more disadvantaged individuals who are determined
to manage the applicant or 8(a) concern must be physically located at
the offices of the applicant or 8(a) concern be open during the normal
40-hour work week of most business concerns. Thus, this proposed
provision would require that the disadvantaged individual(s) be present
at the location of the applicant or 8(a) concern during those hours and
not, for example, only at night or on the weekends. This rule does not
imply that business activities of the applicant or 8(a) concern could
not be conducted by such individual(s) outside the offices of the
applicant or 8(a) concern, nor does it prohibit a disadvantaged
individual from establishing an 8(a) concern at his/her home. It is
meant to ensure only that one or more disadvantaged owners devote full-
time to the business of the applicant or 8(a) concern. Under this
proposed amendment, SBA would not permit an individual to be physically
located at a job which is separate and distinct from the applicant or
8(a) concern during normal business hours and claim that he/she is
managing the applicant or 8(a) concern from that location.
Section 124.104(b) would be amended along the lines set forth above
for Secs. 124.101(a), 124,104 and 124.206(a). This amended paragraph
would specify that the Board of Directors must actually be controlled
by disadvantaged individuals. The power of a disadvantaged individual
to control the Board of Directors indirectly through his/her right to
vote his/her stock (i.e., the power to remove and replace directors)
would not be sufficient to establish control of the Board of Directors
if non-disadvantaged individuals on the Board of Directors could
control, or assert negative control on, the Board as currently
structured at the time of the application for admission to the 8(a)
program. This paragraph would also provide that non-voting, advisory or
honorary Directors may be appointed so long as they do not possess
negative control over the Board. Similarly, a separate board of
advisors, particularly in the context of tribally-owned applicants and
8(a) concerns, could be established provided such board of advisors
could not actually run the day-to-day operations of or possess negative
control over the applicant or 8(a) business concern.
In evaluating whether an individual's social disadvantage has
negatively impacted on his or her entry into and/or advancement in the
business world, Sec. 124.105(c) would be amended to clarify that SBA
will entertain any relevant evidence, but that SBA would consider the
experiences of the individual, where applicable, in education,
employment and business history. The failure to establish disadvantage
in any one area (i.e., education, employment, or business history)
would not prevent an individual from meeting this requirement of
negative impact as long as the totality of the circumstances
experienced by the individual demonstrate his/her disadvantage in
entering into and/or advancing in the business world.
Section 124.106(a)(2)(i) would be amended by increasing the entry
level personal net worth limitation from $250,000 to $300,000 in order
to take into account inflation. The $250,000 net worth figure was
established by regulation in April 1989. Inflation increased 19.6
percent between April 1989 and March 1994 based on the Consumer Price
Index for All Urban Consumers. Applying the 19.6 percent inflation rate
to the $250,000 figure would increase the net worth limitation to
$299,000. This proposed rule would round that amount to $300,000.
Section 124.106(a)(2)(ii) would clarify SBA's method of analysis in
determining whether the applicant concern itself, as apart from its
disadvantaged owner(s), should be considered economically
disadvantaged. It would require SBA to compare an applicant concern to
other small business concerns in the same four-digit Standard
Industrial Classification Code which are not owned and controlled by
socially and economically disadvantaged individuals.
Section 124.106(a)(2)(i)(A)(1) would be amended to provide that
assets transferred by an individual claiming disadvantaged status to
any immediate family member within two years prior to the date of
application to the 8(a) program shall be presumed to be the property of
the individual claiming disadvantaged status. Currently, property or
assets transferred by an individual claiming disadvantaged status to
his/her spouse within two years of the date of 8(a) application is
presumed to be the property of the transferor for purposes of
determining his/her economic disadvantage. SBA believes that a change
is needed to prevent circumvention of its eligibility regulations by
asset transfers to other than an applicant individual's spouse. Several
applicants have avoided the intent of this regulation by transferring
assets to children. SBA believes that it is necessary to prevent the
recurrence of this practice, which if left unchanged, could admit firms
into the 8(a) program that SBA believes should be considered
ineligible.
Section 124.106(b) would be amended for clarity, and would increase
the personal net worth limitation for the Small Disadvantaged Business
program from $750,000 to $900,000 to take into account inflation since
the $750,000 standard was set in April 1989.
Section 124.107(b) would be amended to clarify that the requirement
that an applicant concern possess technical and managerial experience
to be deemed to have the required potential for success to be admitted
to the 8(a) program was not meant to contradict the provision in
Sec. 124.104 that the individual(s) upon whom eligibility is based need
not posses both management and technical capabilities. In order to have
the requisite potential for success, an applicant concern must have
both management and technical experience. Conversely, the individual(s)
upon whom eligibility is based must possess either management or
technical capabilities to meet that part of the control requirement
under Sec. 124.104.
Section 124.108 would be amended by adding a new paragraph (d)(3)
that would state that any 8(a) applicant that is a dealer or wholesaler
would not be required to demonstrate that it is capable of supplying
the product of a small business manufacturer in conjunction with its
8(a) application. In the past, there has been confusion as to whether
SBA's non-manufacturer rule (i.e., the rule requiring a regular dealer
to supply the product of a small business in order for it to be
considered small for a specific 8(a) or small business set aside
procurement) should be applied in determining an applicant's initial
eligibility for the 8(a) program. SBA believes that because the Small
Business Act authorizes waivers to the non-manufacturer rule in
connection with a specific contract where SBA determines that no small
business manufacturer can reasonably be expected to offer a product
meeting the specifications of the solicitation, the non-manufacturer
rule should have no bearing on an applicant's eligibility for the 8(a)
program. In addition, the 8(a) program should not be viewed solely as a
contracting program. There is other business development assistance
available to Program Participants which should not be foreclosed
because of the non-manufacturer rule. Regular dealer applicants to the
8(a) program should be aware, however, that they must generally meet
the requirements of the non-manufacturer rule in order to be awarded
specific 8(a) contracts as regular dealers.
Proposed Sec. 124.109(f) would add a provision making an applicant
to the 8(a) program ineligible for program participation if the
proprietor, or a holder of at least 20 percent of the stock, or a
partner, officer, director of the concern is currently incarcerated, on
parole or on probation. This provision is derived from a similar
determination of ineligibility for SBA financial assistance currently
contained in 13 CFR 120.101-2(f).
Section 124.111 would be amended by revising paragraph (a)(2) to
set the same personal net worth limitation for a Program Participant in
either the developmental or transitional stage of program participation
to maintain its continued 8(a) eligibility. Currently, the limit is
$500,000 for firms in the developmental stage of 8(a) program
participation, $750,000 for firms in the transitional stage of 8(a)
program participation, and $750,000 for purposes of eligibility for the
Department of Defense's Small Disadvantaged Business (SDB) program.
This rule would eliminate the separate net worth figure for firms in
the developmental stage (i.e., eliminating the current $500,000
amount). It would then apply the $750,000 amount, adjusted for
inflation, to all participant firms to make the requirement for
developmental firms consistent with continued eligibility for
transitional firms and simplify program administration. As with the
entry level personal net worth limitation amount, the $750,000 figure
would also be increased by 19.6 percent due to inflation (see
discussion relating to proposed Sec. 124.106(a)(2)(i)). A straight
inflation adjustment would produce a net worth limitation of $897,000.
This proposed rule would round that amount to $900,000.
Section 124.111(c)(5) would be amended to further restrict
excessive withdrawals from 8(a) Program Participants by their owners or
managers. Specifically, a Participant could no longer claim that large
withdrawals from the Participant should not be restricted where the
concern's net worth has continued to increase throughout the period of
time the withdrawals are made. Certain Program Participants have
attempted to claim that excessive withdrawals could not be penalized
where the Participant's net worth continued to increase because the
withdrawals were not detrimental to the attainment of its business
plan. The 8(a) program is designed to foster the development of
business concerns owned by disadvantaged individuals. The fact that
Participant's net worth has increased does not mean that it would not
have increased more or achieved greater success but for excessive
withdrawals by its owners/managers.
Section 124.112(c)(2)(iv) would be amended to clarify the
requirements pertaining to a joint venture between an 8(a) concern
owned by an Indian tribe and a concern determined to be other than
small. There has been some concern that this regulation required a
majority of the performance of such a contract to be performed on an
Indian reservation or land owned by the tribe. This was not the intent.
This proposed rule would amend this provision to make it consistent
with the same provision contained in Sec. 124.321 which requires only
that the tribally-owned 8(a) concern must perform most of its
activities generally on the reservation or tribally-owned land in order
to be eligible to joint venture with a large business. This provision
contains no specific requirement that the work done through the joint
venture must be done on the Indian reservation or tribally-owned land.
However, it is necessary not to overlook two requirements which may
perpetuate that requirement in some instances--that the concern must be
located on the reservation or tribally-owned land, and that the 8(a)
participant to a joint venture must meet the performance of work
requirements imposed by Sec. 124.314. See Sec. 124.321(f).
Section 124.113 would be amended by adding an exclusion from
affiliation for concerns owned by a Native Hawaiian Organization, by
prohibiting a Native Hawaiian Organization from owning more than one
current or former 8(a) Participant having the same primary industry
classification, and by excluding from the one-time individual
eligibility requirement any individual who merely manages a concern
owned by a Native Hawaiian Organization.
The proposed rule would add a new Sec. 124.114 which would
specifically authorize CDC-owned small business concerns to participate
in the 8(a) program. The same amendments added to Sec. 124.113 for
Native Hawaiian Organizations would be added to this section regarding
CDC-owned concerns.
Minor clarifying language would be added to Sec. 124.206(c)(1)
regarding the time frame for an applicant concern to request a
reconsideration, and where such a request must be made.
Sections 124.208(c) and 124.209(b) would be amended to streamline
the procedures governing graduation and termination of 8(a) Program
Participants respectively. This rule would eliminate the second letter
of notification and the second 45 day response period provided in
Sec. 124.208(c) and Sec. 124.209(b).
Additionally, this rule would change the time period in which the
Division Director must make a recommendation on graduation to the AA/
MSB&COD. The rule would change the time frame for the Division
Director's recommendation to the AA/MSB&COD from 15 days to 45 days.
Section 124.209(b) currently provides the same procedures and time
limits regarding termination actions as are discussed above with regard
to graduation from the 8(a) program. This rule would make the same
changes to the termination procedures as are discussed above with
regard to graduation from the 8(a) program.
The proposed rule would amend the procedures concerning remands of
8(a) eligibility appeals by OHA to the AA/MSB&COD. Section
124.210(h)(2) would clarify that the AA/MSB&COD would issue a decision
in accordance with a remand order of the Administrative Law Judge
within 10 working days of the remand, unless the AA/MSB&COD requests
and the Administrative Law Judge grants an extension thereof. An
applicant or 8(a) concern could then appeal the AA/MSB&COD's remand
decision to OHA within 20 working days of the date that the decision is
mailed. The failure of an applicant to file an appeal within the 20-day
time frame would serve to make the remand decision the final agency
decision and would not require any further action by OHA.
Section 124.210 would be further amended by adding a new paragraph
(k) to specifically authorize reconsideration of 8(a) eligibility
appeal decisions made by SBA's Office of Hearings and Appeals.
Reconsideration would be specifically authorized where a petitioning
party establishes a clear error of law or fact affecting the decision
in the case.
Section 124.302 would be amended to ease the restrictions on adding
SIC codes once a concern is admitted to the 8(a) program. The proposed
rule would permit SBA to approve an additional SIC code as long as a
rational business explanation exists for acquiring the requested SIC
code. SBA seeks to make it clear that the authority to make decisions
regarding what types of business ventures an 8(a) concern should get
involved in rests with the 8(a) concerns themselves. Thus, for example,
an 8(a) concern may acquire or develop the capability to perform
contracts in an industry not directly related to the 8(a) concern's
primary business and seek to add the appropriate SIC code(s), or it may
hire an additional key employee that opens up new avenues of work to
the 8(a) concern and seek to add additional SIC codes. In addition, SBA
proposes to shorten the time it takes SBA to respond to a request for a
change in SIC code designations from 45 days to 30 days.
The proposed rule would amend Sec. 124.305(b)(3) regarding what a
Program Participant must demonstrate to qualify for an 8(a) bond
exemption. As currently written, in order to qualify for a bond
exemption, an 8(a) Program Participant must, among other things,
demonstrate that it cannot obtain a bond for the performance of the
specific 8(a) requirement at issued by submitting to SBA written
denials from at least two sureties, one of which is a corporate surety
and one of which is an individual surety. Based on experience with this
provision, SBA believes that the requirement that two sureties decline
to issue the required bond is unnecessary. As such, the proposed rule
would amend Sec. 124.305(b)(3) to require a Participant to demonstrate
only that it cannot obtain a bond from one corporate (Treasury-listed)
surety.
The proposed rule would revise Sec. 124.305(c)(4) to provide that a
Program Participant may be eligible to receive only two bond exemptions
at any one time. In other words, although up to five bond exemptions
per Program Participant are authorized, a Participant may not have more
than two active 8(a) contracts at a time for which it has received a
bond exemption.
This proposed rule would also eliminate the requirement that a
Program Participant not be permitted to receive 8(a) contracts in
excess of its approved 8(a) support level. However, this would not
affect SBA's authority to impose a limit on the amount of 8(a) contract
awards as a part of a remedial action plan where a firm fails to meet
its competitive business mix requirements. A concern would still be
required to project in its business plan its anticipated level of 8(a)
contract support, but such level would be used only as a planning and
development tool. Section 124.307 would be amended by redesignating
paragraph ``(d)'' as paragraph ``(e)'' and by adding a new paragraph
``(d)'' that would eliminate approved 8(a) support levels as a basis
for denying 8(a) contract awards in excess of those levels. SBA
believes that Program Participants should be afforded the flexibility
to seek out and receive 8(a) contracts so long as they are capable and
responsible to perform those contracts and meet their competitive
business mix requirements. SBA would still determine whether a
Participant was responsible to perform a particular 8(a) procurement
requirement, and could determine that the concern did not have the
capacity to perform the extra work, but, except as part of an approved
remedial action plan, it could not withhold award merely because the
concern would exceed (or has exceeded) its approved support level.
Section 124.307 would be further amended by adding a new paragraph
``(f)'' that would prohibit any party from challenging the eligibility
of a Program Participant for a specific sole source or competitive 8(a)
requirement at SBA or any other administrative forum. Much of this
provision is currently contained in Sec. 124.311(g) for competitive
8(a) requirements, but no such specific language was set forth for sole
source 8(a) requirements. The regulatory language appearing in
Sec. 124.311(g) would be moved into this new provision and would be
expanded to apply to sole source 8(a) procurements as well. Section
124.311(g) would be removed as unnecessary.
In addition, the proposed rule would specify that only the AA/
MSB&COD could file a SIC code appeal in connection with either a sole
source or competitive 8(a) requirement. While this restriction appears
in Sec. 121.1703, as part of SBA's size and SIC code appeal
regulations, it was not similarly contained in the 8(a) regulations.
SBA believes that it should appear in both places for clarity and ease
of use. It would specifically apply to both sole source and competitive
8(a) requirements. SBA reviews every SIC code to determine its
appropriateness, but so long as the code assigned by the procuring
agency contracting officer is reasonable, SBA will concur. SBA
frequently goes back to a procuring agency to dispute a SIC code when
it feels that the statement of work indicates that the assigned SIC
code is inappropriate. Discussions between SBA and the procuring agency
normally clear up any confusion. As part of this process, any party may
submit evidence to SBA to explain why it believes another SIC code
should be assigned to the procurement. SBA will consider such
information and will seek a SIC code change if it believes that the SIC
code assigned by the procuring agency is unreasonable.
Section 124.308(c) would be amended to specify where 8(a) offerings
should be sent in light of the changes made by this rule eliminating
local and national buy requirements. Under the proposed rule, all
requirements that are offered to the 8(a) program as competitive
procurements and those sole source requirements that are offered to the
program without nominating a specific Program Participant (i.e., open
requirements) would be offered to SBA's Division of Program Development
in SBA's Central Office. Sole source requirements that are offered to
the 8(a) program on behalf of a specific Program Participant would be
offered to the appropriate SBA district office.
Section 124.308(d) would be amended to clarify the distinction
between accepting a competitive 8(a) requirement on behalf of the 8(a)
program generally and a sole source 8(a) requirement on behalf of a
particular 8(a) Program Participant. In addition, the proposed rule
would prohibit a procuring agency from conducting a competitive 8(a)
requirement prior to obtaining SBA's acceptance of the requirement for
the 8(a) program. Any competition so held would not be considered an
8(a) competition. If a procuring agency still wanted to fulfill its
requirement through the 8(a) program, the requirement would have to be
offered to and accepted by SBA for the 8(a) program, and the procuring
agency would have to use applicable 8(a) competitive procedures after
the acceptance. The procuring agency would again be required to
synopsize the procurement in the Commerce Business Daily. A new
solicitation would have to be issued, and new offers would have to be
submitted and evaluated.
Section 124.308 would also be amended, by adding a paragraph
(d)(4), to permit all eligible 8(a) concerns nationally to submit
offers in connection with 8(a) competitive requirements other than
construction requirements.
Sections 124.308(e)(1)(iii), 124.311(f)(4), 124.311(f)(5),
124.312(b), and 124.312(c) would be amended by removing any provisions
pertaining to 8(a) support level requirements.
The rule would add a new Sec. 124.308(i) pertaining to Basic
Ordering Agreements (BOAs). This provision would state that each order
to be issued under a BOA, and not the BOA itself, is a contracting
action. As such, there must be a separate offer and acceptance for each
order. As with any other new offer, SBA would determine eligibility for
an order under a BOA at the time of the issuance of the order. This
would require a concern to remain a small business at the time the
order is to be issued and would prohibit orders from being issued to
concerns whose program terms have expired or who have otherwise exited
the 8(a) program.
Section 124.309(c) would be amended to clarify SBA's intent
regarding the concept of adverse impact. Under the proposed rule,
``adverse impact'' could be found to exist where several requirements
currently being performed by different small business concerns are
bundled into one larger requirement which could be considered ``new''
under SBA's regulations due to the magnitude of the bundled
requirement. This rule would permit SBA to find adverse impact in such
a case where at least one of the small business concerns losing work
that is to be bundles meets the presumption of adverse impact.
This rule also proposes to amend Sec. 124.311(a) concerning how the
competitive threshold requirements should be applied for indefinite
quantity and indefinite delivery requirements. Currently,
Sec. 124.311(a)(2) specifies that ``[f]or purposes of indefinite
quantity/delivery contracts, the thresholds will be applied to the
guaranteed minimum value of the contract.'' This requirement has proven
unworkable because of the immense differences noted between the
``guaranteed minimum'' amounts on procurements offered to the 8(a)
program and the maximum amounts authorized under the procurements, and
has been subject to substantial criticism. Procuring agencies can
presently 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 for
contracts to be procured on a sole source basis, even though the
procurement would likely exceed the applicable competitive threshold
during the performance of the contract. 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. In order to
eliminate this potential abuse, SBA proposes to amend its regulations
to specify that the competitive threshold requirements would be applied
for all types of contracts, including indefinite quantity/delivery
contracts, to the Government estimate of the requirement, including
options, as identified by the procuring agency.
The proposed rule would amend newly redesignated Secs. 124.311(d),
(f) and (g) (old Secs. 124.311(e), (h), and (i)) to take into account
the proposed change made in Sec. 124.308(d)(4) that would permit all
eligible Program Participants nationally to submit offers in response
to 8(a) competitive solicitations, other than for construction
requirements.
Proposed redesignated Sec. 124.311(g) (old Sec. 124.311(i)) would
clarify SBA's implementation of Sec. 8(a)(1)(C) of the Small Business
Act, 15 U.S.C. 637(a)(1)(C), which authorizes competitive 8(a) awards
in limited circumstances to firms which have completed their terms of
participation in the 8(a) program. Of particular note, SBA would
specify in the regulations that eligibility would be determined as of
the initial date specified for the receipt of offers set forth in the
solicitation without regard to extensions of time through amendments to
the solicitation. The date for determining eligibility would thus be
firmly established and could not change during the procurement process.
With such a date certain, firms know up front if their program term
will expire prior to that specified date. Offers would not be prepared
amid uncertainty that the date for determining eligibility could be
changed. As such, firms would not be dissuaded from participating in
8(a) competitive procurements during the later stages of their
participation terms.
Section 124.317 would be amended to specify that only physical or
mental incapacity, and not criminal incarceration or bankruptcy, could
be a basis for a waiver of the termination for convenience requirement
imposed by this section. In addition, this section would be amended to
make clear that the burden is on the concern requesting a waiver to
specify the ground(s) upon which the waiver is being sought and to
demonstrate that it has met the ground(s). The Agency is not expected
to raise every possible basis for waiver and to then dismiss them as
not applicable.
The proposed rule would add a new Sec. 124.319(c). This provision
would clarify that SBA may novate one 8(a) Program Participant for
another (with the consent of the procuring agency) where the first
concern cannot complete performance of an 8(a) contract, without
seeking the approval of the Administrator under Sec. 124.317.
Section 124.321(a) would be amended to clarify that an 8(a) concern
seeking to joint venture with another firm must bring something of
value to the joint venture arrangement other than its status as an 8(a)
concern. While the regulation would continue to state that a joint
venture agreement is permissible only where an 8(a) concern lacks the
necessary capacity to perform the contract on its own, it would specify
for the first time that where the 8(a) concern lacks the management,
technical and financial capacity to perform, a joint venture will not
be approved. An 8(a) concern may be lacking in one or even two of these
areas, but cannot be totally reliant on its proposed joint venture
partner. The purpose of permitting joint ventures is to enable an 8(a)
firm to gain experience and know-how so that it can become self-reliant
in the future. If all an 8(a) concern will gain from the relationship
is a profit, without developing its own capabilities in any way, the
joint venture will not be approved.
Proposed Sec. 124.321(c)(3) would clarify that a joint venture can
be made up of two or more 8(a) concerns without any one firm receiving
at least 51 percent of the net profits earned by the joint venture. In
particular, a 50/50 joint venture arrangement between two 8(a) concerns
would be expressly authorized, provided the other regulatory
requirements were met.
The rule would make minor clarification changes in Sec. 124.321(d)
to recognize the possibility of a joint venture made up of two or more
8(a) concerns.
Proposed new Sec. 124.321(i) would establish criteria relating to
joint ventures for Small Disadvantaged Business (SDB) set-asides and
SDB evaluation preferences. In the past, SBA has held the position that
SBA could not establish eligibility criteria relating to joint ventures
for the Department of Defense's SDB program. A recent decision by the
United States Court of Federal Claims held that ``the power to
interpret the term small business concerns . . . owned and controlled
by socially and economically disadvantaged individuals [for purposes of
DOD's SDB program] is wholly and exclusively within the sphere of SBA's
authority,'' and that ``SBA has both the power and the duty to define
the bounds of [that] phrase.'' Y.S.K. Construction Co., Inc. v. United
States, No. 93-738 at 10, 11 (Fed.Cl. Feb. 18, 1994). This proposed
rule attempts to implement that authority in a way that is consistent
with the purposes of the SDB program. While the rules vary somewhat
from those pertaining to joint ventures in the 8(a) program, the
developmental purposes of the 8(a) program are not totally consistent
with the purposes of the SDB program. In addition, the rule applies the
statutory requirement that the ``majority of the earnings of [an SDB
contract] directly accrue to [disadvantaged] individuals.'' Pub. L. 99-
661, Sec. 1207(a)(1). Therefore, although an 8(a) concern that is 51
percent owned and controlled by disadvantaged individuals can joint
venture with a 100 percent nondisadvantaged concern for a particular
8(a) contract (provided the 8(a) joint venture requirements are met),
an SDB concern that is 51 percent owned and controlled by disadvantaged
individuals cannot joint venture with a 100 percent nondisadvantaged
concern for a particular SDB contract. In such a case, a majority of
the earnings of the SDB contract could not accrue directly to
disadvantaged individuals.
Section 124.501 would be amended by adding a new paragraph ``(c)''
and redesignating current paragraph ``(c)'' as paragraph ``(d).'' The
newly established Sec. 124.501(c) would require the submission of
annual audited financial statements by 8(a) Program Participants.
This proposed rule would also add a new Sec. 124.611 that would
make SBA Small Disadvantaged Business status decisions issued pursuant
to Sec. 7(j)(11)(F)(vii) of the Small Business Act, 15 U.S.C.
636(j)(11)(F)(vii), available in full text. The decisions would be
available for review in the law library located in SBA's central
office. This new section would implement the requirements imposed by
section 221 of the Small Business Credit and Business Opportunity
Enhancement Act of 1992, Pub. L. 102-366, 106 Stat. 986, 999.
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)
This rule was not reviewed under Executive Order 12866.
SBA certifies that this proposed rule would not have a significant
economic impact on a substantial number of small entities within the
meaning of the Regulatory Flexibility Act, 5 U.S.C. 601, et seq. This
rule is necessary to resolve several points relating to eligibility for
SBA's Section 8(a) program and the procedures relating to appeals of
denials of eligibility. It would also clarify/amend the requirements by
which an 8(a) concern could obtain an exemption to the Miller Act bond
requirements. The contracting opportunities offered to the 8(a) program
should not be affected by this proposed rule. Whether a particular 8(a)
concern would be eligible for participation in or, once in, could
receive a bond exemption (and, therefore, whether it, as opposed to
another 8(a) concern, would be awarded a particular 8(a) contract)
could be affected by the rule. The rule would have no effect, however,
on the amount or dollar value of any contract requirement or the number
of such requirements reserved for the 8(a) 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 proposed rule, if adopted in final form, would
contain no new reporting or record keeping requirements.
For purposes of Executive Order 12612, SBA certifies that this rule
would not have any 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 record keeping requirements; Technical assistance;
Tribally-owned concerns.
For the reasons set forth above, SBA hereby proposes to amend part
121 of Title 3, 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 would continue 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 121.906(b)(1)(iv) would be revised to read as follows:
Sec. 121.906 Manufactured products under small business set-aside
procurements.
* * * * *
(b) * * *
(1) * * *
(iv) Represents that it will furnish an end product that was
manufactured or produced in the United States, unless the procuring
agency makes a non-availability determination pursuant to
Sec. 25.102(a)(4) of the Federal Acquisition Regulations.
* * * * *
Sec. 121.1103 [Amended]
3. Section 121.1103(b) would be amended by adding the words ``sole
source or competitive'' after the word ``particular'' and before the
phrase ``section 8(a) contract.''
4. Section 121.1104 would be amended by revising paragraph (a), the
introductory text of paragraphs (b) and (b)(2), and paragraph (f) to
read as follows:
Sec. 121.1104 Section 8(a) self-certification.
(a)(1) After SBA has notified a procuring agency in writing that it
has accepted a requirement for the 8(a) program, the 8(a) concern shall
certify that it is a small business for the purpose of performing that
particular contract (by certifying that it is small with respect to the
size standard corresponding to the SIC code assigned to the
requirement) at the time it submits its initial offer including price
to the procuring agency for that contract.
(2) Size certifications occurring prior to SBA's acceptance of a
requirement for the 8(a) program shall have no effect.
(i) Where a procuring agency conducts an 8(a) competition without
first obtaining SBA's acceptance of the requirement for the 8(a)
program, any size certification made in response to the solicitation
issued by the procuring agency shall have no effect.
(ii) Where a procuring agency negotiates directly with an 8(a)
Program Participant for a sole source 8(a) requirement, any size
certification occurring prior to SBA's acceptance of the requirement
for the 8(a) program shall have no effect.
(b) Once a procuring agency has determined that award of a sole
source or competitive contract should be made to a particular 8(a)
Program Participant, SBA shall verify that the selected concern is
small as of the date of its initial offer including price.
(1) * * *
(2) Where SBA verifies that the selected 8(a) concern is small for
a particular procurement, changes in size subsequent to the concern's
self-certification (i.e., changes occurring between the date of
certification and the date of award), except those due to merger with
or acquisition by another business concern, will not affect the
concern's size status as it relates to that procurement.
(i) * * *
* * * * *
(f) Where the selected 8(a) concern does not timely request a
formal size determination, SBA (1) in connection with a sole source
8(a) requirement, may accept the procurement in support of another 8(a)
concern, or may return the procurement from the 8(a) program, as
appropriate, or (2) in connection with a competitive 8(a) requirement,
shall notify the procuring agency of its determination and shall
request that it select another apparent successful offeror.
5. Section 121.1106(b)(1)(iv) would be revised to read as follows:
Sec. 121.1106 Manufactured products under section 8(a) contracts.
* * * * *
(b) * * *
(1) * * *
(iv) Represents that it will furnish an end product that was
manufactured or produced in the United States, unless the procuring
agency makes a non-availability determination pursuant to
Sec. 25.102(a)(4) of the Federal Acquisition Regulation.
* * * * *
Sec. 121.1703 [Amended]
6 Section 121.1703(b) would be amended by adding the words ``sole
source or competitive'' after the word ``particular'' and before the
words ``8(a) contract.''
PART 124--[AMENDED]
Subpart A--Minority Small Business and Capital Ownership
Development
7. The authority citation for part 124 would be revised to read as
follows:
Authority: 15 U.S.C. 634(b)(6), 636(j), 637(a), 637(d) and Pub.
L. 99-661, sec. 1207, Pub. L. 100-656, Pub. L. 101-37, and Pub. L.
101-574.
Sec. 124.7 [Amended]
8. Section 124.7(b) would be amended by removing paragraph (b)(1)
and by redesignating paragraph (b)(2) as paragraph (b).
9. Section 124.100 would be amended by removing the terms ``Local
buy item'' and ``National buy item'', and by adding, in alphabetical
order, the following new definitions for the terms ``Clear and
convincing evidence'', ``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.
* * * * *
Clear and convincing evidence means an abiding conviction that the
truth of the factual contentions is highly probable.
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 sq.
* * * * *
10. Section 124.100 would be further amended by adding the new
definition ``Unconditional ownership'' to read as follows:
Sec. 124.100 Definitions.
* * * * *
Unconditional ownership * * * The pledge of stock or other
ownership interest in an applicant or 8(a) concern as collateral under
normal commercial conditions does not affect a disadvantaged owner's
``unconditional'' ownership in such concern.
11. Section 124.101 would be amended by revising paragraph (a) and
the first sentence of paragraph (b) to read as follows:
Sec. 124.101 The 8(a) program: General eligibility.
(a) In order to be eligible to participate in the 8(a) program, an
applicant concern and an individual upon whom eligibility is based must
meet all of the eligibility criteria set forth in Secs. 124.102 through
124.109. An applicant concern owned and controlled by an Indian tribe
must meet the requirements set forth in Sec. 124.112 and in
Secs. 124.102 through 124.109 as applicable. An applicant concern owned
and controlled by a Native Hawaiian Organization must meet the
requirements set forth in Sec. 124.113 and in Secs. 124.102 through
124.109 as applicable. 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.
(1) An applicant concern's eligibility will be based on whether the
concern meets each of SBA's eligibility criteria at the time the
concern's completed application for admission to the 8(a) program is
sent to the Office of MSB&COD for processing or, in the case of a
request for reconsideration, at the time the reconsideration
application is deemed to be complete by SBA's Central Office. SBA, in
its sole discretion, may, however, request clarification of information
contained in the application or request for reconsideration at any time
in the application process.
(i) SBA will consider only additional information submitted by an
applicant in response to an SBA request for clarification. Changes in
an applicant concern that SBA becomes aware of between the date of
application (or request for reconsideration) and the decision of the
AA/MSB&COD that adversely affect the applicant's eligibility for 8(a)
program participation will be considered and constitute grounds for
decline.
(ii) The decision of the AA/MSB&COD to approve or decline an
application for 8(a) program admission shall be based on whether the
application, as clarified by any information submitted in response to a
request by SBA, demonstrates that the applicant concern complies with
each of SBA's eligibility criteria.
(2) All determinations made by the AA/MSB&COD concerning the
eligibility of an applicant concern for participation in the 8(a)
program shall be in writing, setting forth the findings based on
relevant facts and in accordance with applicable law and regulations.
(3) An applicant concern which is declined 8(a) program admission
may request a reconsideration of such decline, as set forth in
Sec. 124.206.
(i) If the application is declined on reconsideration based solely
on a negative finding of social disadvantage, economic disadvantage,
ownership or control, such decline may be appealed by an unsuccessful
applicant to the SBA's Office of Hearings and Appeals.
(ii) If no reconsideration is sought, or if after reconsideration
the application is declined based in whole or in part on a ground other
than a negative finding of social disadvantage, economic disadvantage,
ownership or control, the written decline of the AA/MSB&COD is final
and not subject to appeal.
(4) The procedures by which an applicant concern may appeal the AA/
MSB&COD's denial of 8(a) program admission to SBA's Office of Hearings
and Appeals, and the grounds for which such an appeal may be brought,
are set forth in Sec. 124.210 and part 134 of this title. Where such an
appeal is brought, the written decision of the Office of Hearings and
Appeals shall be the final Agency decision.
(5) A concern which has been declined for 8(a) program admission
must wait at least 12 months from the date of the final Agency decision
before it can reapply for program admission.
(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, Pif applicable. * * *
* * * * *
12. Section 124.102(a) would be 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. 124.112, Sec. 124.113 or Sec. 124.114, respectively.
* * * * *
13. Section 124.103 would be amended by revising the introductory
text, redesignating current paragraphs (a) through (j) as paragraphs
(b) through (k), respectively, adding a new paragraph (a), revising
newly redesignated paragraph (g) and the first sentence of newly
redesignated paragraph (i), adding a new sentence at the end of newly
redesignated paragraph (j), and by adding new paragraphs (l) and (m) 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. 124.100, 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.
(a) Ownership of an applicant or 8(a) concern by one or more
disadvantaged individuals must be direct ownership.
(1) An applicant concern owned by another business entity that is
owned and controlled by one or more disadvantaged individuals does not
meet the requirement that it be owned by disadvantaged individuals.
(2) An applicant concern that is owned by a trust which is in turn
owned and controlled by a disadvantaged individual does not meet the
requirement that it be owned by disadvantaged individuals.
* * * * *
(g) The individuals determined to be disadvantaged in one 8(a)
concern, their immediate family members residing in the same household,
and the 8(a) concern itself may not hold, in the aggregate, more than a
10 percent equity ownership interest in any other single 8(a) concern.
(h) * * *
(i) 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 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. * * *
(j) * * * While SBA approval must be obtained, the substitution of
one disadvantaged individual for another disadvantaged individual
within an 8(a) concern that was awarded one or more 8(a) contracts does
not require termination of those contracts under Sec. 124.317 of these
regulations or a request for waiver of that termination requirement.
(k) * * *
(l) The ownership interests of business concern and its
principal(s) are considered to be aggregated in determining whether a
non-disadvantaged individual or business concern exceeds the 10 percent
equity ownership limitations (or, in the case of a former Program
Participant, the 20 percent equity ownership limitations) established
by this section and Sec. 124.104.
(m) In determining the respective ownership interests in an
applicant concern, or in a Program Participant once admitted to the
program, SBA considers applicable state community property laws.
(1) In a community property state, even when only one spouse's name
appears on a document of title or stock certificate, both spouses are
considered to have one-half interest in that property as long as the
property is acquired, earned, or accumulated during the course of the
marriage.
(2) If SBA determines that the stock or assets of an 8(a) applicant
concern are held as community property, and if only one spouse
demonstrates disadvantaged status, SBA shall require as a condition of
demonstrating or maintaining eligibility, the transfer by the non-
disadvantaged spouse or his/her ownership interest to the disadvantaged
spouse. Such a transfer must be in an amount sufficient for the
disadvantaged spouse to meet the minimum 51% unconditional ownership
requirement for 8(a) program eligibility.
Example 1. Title to 8(a) applicant concern A is 100% in the name of
Mrs. X (an individual determined to be socially and economically
disadvantaged). Mr. X is a non-disadvantaged individual. Mr. and Mrs. X
reside in a community property state and concern A is determined to be
community property. By operation of law, Mr. X is deemed to own 50% of
concern A. In order to meet 8(a) eligibility requirements, Mr. X would
have to transfer 1% of his interest in concern A to Mrs. X as non-
community property.
Example 2. Title to 8(a) applicant B is 51% in the name of Mr. Y
(an individual determined to be socially and economically
disadvantaged) and 49% in Mr. Z (an unmarried non-disadvantaged
individual). Mrs. Y is a non-disadvantaged individual. Mr. and Mrs. Y
reside in a community property state and concern B is determined to be
community property. By operation of law, Mrs. Y is deemed to own 25.5%
of concern B. In order to meet 8(a) eligibility requirements, Mrs. Y
would have to transfer all 25.5% of her interest in concern B to Mr. Y
as non-community property.
14. Section 124.104 would be amended by revising the introductory
text, paragraphs (a)(2) through (a)(4), paragraph (b), the introductory
text of paragraph (c), paragraph (c)(2), and paragraph (d)(3) to read
as follows:
Sec. 124.104 Control and management.
Except for concerns owned by Indian tribes, Alaska Native
Corporations, Native Hawaiian Organizations, or Community Development
Corporations, as defined in Sec. 124.100, an applicant concern's
management and daily business operations must be conducted by an
owner(s) of the applicant concern who has (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). In
the case of an applicant concern owned by a Native Hawaiian
Organization, the concern's management and daily business operations
must be conducted by one or more Native Hawaiian individuals. In the
case of a concern owned by a Community Development Corporation, the
concern's management and daily business operations must be conducted by
one or more individuals determined to be socially and economically
disadvantaged. 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. The application
must demonstrate that the applicant concern is actually controlled and
managed by one or more individuals determined to be socially and
economically disadvantaged. A disadvantaged individual's unexercised
right to cause a change in the control or management of the applicant
concern does not satisfy this requirement, regardless of how quickly or
easily the right could be exercised.
(a)(1) * * *
(2) An economically disadvantaged full-time manager must hold the
position of President or Chief Executive Officer in the applicant or
8(a) concern.
(3) One or more disadvantaged individuals determined to manage the
applicant or 8(a) concern on a full-time basis must be present and
available during normal working hours at the place of business of the
applicant or 8(a) concern.
(4) Any disadvantaged individual upon whom 8(a) eligibility is
based who is engaged in the management and daily business operations of
the 8(a) concern and who wishes to engage in outside employment must
notify SBA of the nature and anticipated duration of the outside
employment and obtain the written approval of SBA prior to engaging in
such employment. SBA will review any request for outside employment for
compliance with the requirement of day-to-day management and control of
the 8(a) concern. SBA will deny a request for outside employment which
could conflict with the management of the firm or could hinder it in
achieving the objectives of its business development plan.
(b) The socially and economically disadvantaged individual(s) upon
whom eligibility is based shall control the Board of Directors of an
applicant or 8(a) concern, either in actual numbers of voting directors
or through weighted voting (e.g., in a concern having a two-person
Board of Directors where one individual on the Board is disadvantaged
and one is not, the disadvantaged vote must be weighted--worth more
than one vote--in order for the concern to be eligible for 8(a)
participation).
(1) The powers to appoint, remove, and replace directors (e.g.,
through ownership of voting stock) is not sufficient to satisfy the
requirement that one or more disadvantaged individuals actually control
the Board of Directors.
(2) Non-voting, advisory, or honorary Directors may be appointed
without affecting the control of the applicant or 8(a) concern to allow
the firm to have a varied and experienced Board of Directors, provided
they cannot negatively control the concern.
(3) All arrangements regarding the structure and voting rights of
the Board of Directors must comply with applicable state law.
(c) Individuals who are not socially and economically disadvantaged
may be involved in the management of an 8(a) applicant concern, and may
be stockholders, partners, officers, and/or directors of such concern.
Such partners, officers, directors, and/or more than 10 percent
stockholders of the applicant concern, their spouses or immediate
family members who reside in the individual's household may not
however:
* * * * *
(2) Have an equity ownership interest of more than 10 percent in an
applicant or 8(a) concern where such individual is an officer or
director or more than a 20 percent owner, stockholder, or partner of
another firm in the same or similar line of business as the applicant
or 8(a) concern, except that a principal of a former Program
Participant may have an equity ownership interest of up to 20 percent
in a current 8(a) concern in the same or similar lines of business as
the former Program Participant.
* * * * *
(d) * * *
(3) The nondisadvantaged individual or entity provides critical
financing or bonding support to the 8(a) concern which directly or
indirectly allows the nondisadvantaged individual to gain control or
direction of the 8(a) concern.
* * * * *
15. Section 124.105(c)(1) would be amended by redesignating the
second sentence and remaining text as paragraph (c)(2) and by revising
paragraphs c)(1), introductory text of newly redesignated (c)(2) and
newly redesignated paragraph (c)(2)(v) to read as follows:
Sec. 124.105 Social disadvantage.
* * * * *
(c) Individuals not members of designated groups. (1) An individual
who is not a member of one of the groups presumed to be socially
disadvantaged in paragraph (b)(1) of this section must establish his/
her individual social disadvantage on the basis of clear and convincing
evidence.
(2) A clear and convincing case of social disadvantage must include
the following elements:
* * * * *
(v) The individual's social disadvantage must have negatively
impacted on his or her entry into and/or advancement in the business
world. SBA will entertain any relevant evidence in assessing this
element. In every case, however, SBA will consider the experiences of
the individual, where applicable, in education, employment and business
history. Failure to establish disadvantage in any one of these
components will not prevent an individual from meeting this requirement
as long as the totality of the circumstances experienced by the
individual demonstrates his/her disadvantage in entering into and/or
advancing in the business world.
* * * * *
16. Section 124.106 would be amended by revising the last sentence
of paragraph (a)(1)(i), by changing ``$250,000'' to ``$300,000'' in
paragraph (a)(2)(i), by changing ``$750,000'' to ``$900,000'' in
paragraph (b)(2), by revising the fifth sentence of paragraph
(a)(2)(i)(A)(1), by revising paragraph (a)(2)(ii), and by revising
paragraph (b)(1), introductory text, to read as follows:
Sec. 124.106 Economic disadvantage.
(a) Economic disadvantage for the 8(a) program.
(1)(i) * * * In determining economic disadvantage for purposes of
8(a) program eligibility, SBA will compare the applicant concern's
business and financial profile with the profiles of other small
business concerns in the same business area which are not owned and
controlled by socially and economically disadvantaged individuals.
* * * * *
(2) * * *
(i) * * *
(A)(1) * * * Assets which an individual claiming disadvantaged
status has transferred to a non-applicant immediate family member (or
to a trust the beneficiary of which is an immediate family member)
within two years of the date of application to the 8(a) program will be
presumed to be the property of the individual claiming disadvantaged
status for purposes of determining his/her personal net worth. However,
such presumption shall not apply to transfers to a spouse who is
subject to a legal separation recognized by a court of competent
jurisdiction. * * *
* * * * *
(ii) Business financial condition. This criterion will be used to
provide a financial picture of a firm at a specific point in time in
comparison to other small concerns in the same business area which are
not owned and controlled by socially and economically disadvantaged
individuals. For purposes of this comparison, concerns in the same
business area are those which are primarily engaged in the same four-
digit Standard Industrial Classification (SIC) code. SBA will rely on
published data showing business and financial profiles of similarly
sized businesses operating within the same four-digit SIC code as the
applicant, except where such data is not reasonably available. In such
a case SBA may rely on published data pertaining to small business
concerns in closely related four-digit SIC code(s) to derive the
comparative profiles. In evaluating a concern's financial condition,
SBA's consideration will include, but not be limited to, the following
information: business assets, revenues, pre-tax profit, working
capital, and net worth of the concern (including the value of the
investments in the concern held by the individual claiming
disadvantaged status).
* * * * *
(b) * * * (1) For purposes of the section 8(d) Subcontracting
Program, Small Disadvantaged Business set-asides, Small Disadvantaged
Business Evaluation preferences, and other programs requiring SBA's
determination of disadvantaged status, SBA will consider the same
information and factors set forth in paragraph (a) of this section, but
will apply standards to each factor that are less restrictive than
those applied when determining economic disadvantage for purposes of
the 8(a) program. This approach reflects the Congressional intent that
partial or complete achievement of a concern's 8(a) program business
development goals should not necessarily preclude its participation in
other Federal procurement programs for concerns owned and controlled by
socially and economically disadvantaged individuals.
(2) * * *
17. Section 124.107(b) would be revised to read as follows;
Sec. 124.107 Potential for success.
* * * * *
(b) In determining whether a concern has the requisite potential
for success to be admitted into the 8(a) program, SBA will look at a
number of factors including, but not limited to, the technical and
managerial experience and competency of the applicant concern's
managers and of the concern as a whole, the financial capacity of the
applicant concern and the concern's record of performance on previous
Federal and private sector contracts in the primary industry in which
the concern is seeking 8(a) certification. While the individual(s) upon
whom eligibility is based need not possess both management and
technical capabilities pursuant to Sec. 124.104, the applicant concern
as a whole must demonstrate both technical know-how in the primary
industry in which the concern is seeking 8(a) certification and
management experience sufficient to run its day-to-day operations. SBA
will examine each of these factors to determine whether an otherwise
eligible applicant concern has the potential to successfully perform
subcontracts awarded under the 8(a) program and to meet the business
development objectives and goals of the program.
* * * * *
18. Section 124.108 would be amended by adding the following new
paragraph (d)(3):
Sec. 124.108 Additional 8(a) program eligibility requirements.
* * * * *
(d) * * *
(3) An applicant concern seeking admission to the 8(a) program as a
regular dealer need not demonstrate that it is capable of meeting the
requirements of the non-manufacturer rule (see 13 CFR 121.1106(b)) for
its primary industry classification.
* * * * *
19. Section 124.109 would be amended by revising paragraphs (d) and
(e), and by adding a new paragraph (f), 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).
(e) Concerns owned by other concerns. An 8(a) applicant concern
which is owned by another business concern, even where that ``parent''
concern is itself owned and controlled by disadvantaged individuals,
may not be admitted to the 8(a) program because the applicant concern
would not be owned by disadvantaged individuals. Nothing in this
section is intended to affect the eligibility of joint ventures for
specific 8(a) procurement requirements that are authorized pursuant to
Sec. 124.321.
(f) Parole or probation. An applicant to the 8(a) program is
ineligible for program participation if the proprietor, or a holder of
at least 20 percent of the stock, or a partner, officer, director, or
other persons, including hired managers, who have or will have the
authority to speak for and commit the concern in the management of its
business affairs, is currently incarcerated, on parole or on probation
either pursuant to a pre-trial diversion or following conviction of a
serious offense.
20. Section 124.110 would be amended by revising the first three
sentences of paragraph (a) and by revising paragraph (b) to read as
follows:
Sec. 124.110 Program term.
(a) Each concern certified for participation in the 8(a) program
shall receive a Program Term of nine years from the date of such
certification. The term will consist of two stages: the developmental
stage, which lasts four years, and the transitional stage, which lasts
five years. These stages are described in Sec. 124.303. * * *
(b) Once a Program Term has been established in accordance with
this section, SBA is statutorily prohibited from extending such term
beyond the specified expiration date.
21. Section 124.111 would be amended by revising paragraphs (a)(2)
and (c)(5) 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 $900,000, as
calculated pursuant to Sec. 124.106(a)(2)(i). An individual whose
personal net worth exceeds $900,000, as calculated pursuant to
Sec. 124.106(a)(2)(i), will not be considered economically
disadvantaged.
* * * * *
(c) * * *
(5) If SBA determines, pursuant to paragraph (c)(4) of this
section, that funds or assets have been withdrawn to the detriment of
the achievement of the targets, objectives and goals of the
Participant's business plan, or to the detriment of its overall
business development, SBA shall initiate a termination proceeding under
Sec. 124.209 or shall require an appropriate reinvestment of funds or
other assets and such other actions as SBA may deem necessary to
counteract the detrimental withdrawals as a condition of maintaining
8(a) program eligibility. The mere fact that a concern's net worth has
increased despite withdrawals that are deemed excessive will not
preclude SBA from determining that such withdrawals were detrimental to
the attainment of the concern's business objectives or to its overall
business development.
* * * * *
22. Section 124.112 would be amended by revising paragraphs
(c)(2)(iv)(A) through (C) to read as follows:
Sec. 124.112 Concerns owned by Indian tribes, including Alaska Native
Corporations.
* * * * *
(c) * * *
(2) * * *
(iv) During its Program Term, a tribally-owned Program Participant
may, for up to five 8(a) contracts, be a party to a joint venture which
exceeds the applicable size standard, if the tribally-owned Program
Participant:
(A) Owns and controls 51 percent or more of the joint venture;
(B) Is located on the reservation of or land owned by the tribe;
(C) Performs most of its activities generally on such reservation
or tribally-owned land; and
(D) * * *
* * * * *
23. Section 124.113 would be amended by redesignating the current
text as paragraph (a) and by adding the following new paragraphs (b)
through (d) to read as follows:
Sec. 124.113 Concerns owned by Native Hawaiian Organizations.
(a) * * *
(b) A concern owned by a Native Hawaiian Organization 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 Native Hawaiian Organization will
not, in and of itself, cause affiliation with the Native Hawaiian
Organization or with other entities owned by the Native Hawaiian
Organization. However, affiliation with the Native Hawaiian
Organization or with other entities owned by the Native Hawaiian
Organization may be caused by circumstances other than common
ownership.
(c) No Native Hawaiian Organization shall own more than one current
or former 8(a) Program Participant having the same primary industry
classification.
(d) SBA does not deem an individual involved in the owned by the
Native Hawaiian Organization to have used his or her individual
eligibility within the meaning of Sec. 124.108(c).
24. A new section 124.114 would be added to read as follows:
Sec. 124.114 Concerns owned by Community Development Corporations.
(a) Concerns owned 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 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.
(c) No CDC shall own more than one current or former 8(a) Program
Participant having the same primary industry classification.
(d) 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).
Sec. 124.201 [Amended]
25. Section 124.210 would be amended by removing the second
sentence.
26. Section 124.202 would be amended by revising the last sentence
and by adding a new sentence at the end of the section to read as
follows:
Sec. 124.202 Place of filing.
* * * An 8(a) application will be processed by the appropriate SBA
field office of the Certification and Eligibility Branch. A request for
reconsideration shall be made directly to the AA/MSB&COD at 409 Third
Street, S.W., Washington, DC. 20416.
27. Section 124.206 would be amended by removing the first two
sentences of paragraph (a), by adding four sentences to the beginning
of paragraph (a) and one sentence to the end of paragraph (a), by
removing the first two sentences of paragraph (c)(1), and by adding
three sentences to the beginning of paragraph (c)(1) to read as
follows:
Sec. 124.206 Approval and decline of applications for 8(a) program
admission.
(a) General. The AA/MSB&COD is authorized to approve or decline
applications for admission to the 8(a) program. The decision of the AA/
MSB&COD to approve or decline an application shall be based on whether
the application demonstrates that an applicant concern complies with
each of SBA's eligibility criteria at the time of the application or at
the time of any request for reconsideration. A denial of program
admission based on a finding that the individual(s) claiming social and
economic disadvantage is (are) not socially and/or economically
disadvantaged and/or that such individual(s) does (do) not own and/or
does (do) not control the applicant concern, may be appealed to SBA's
Office of Hearings and Appeals (OHA). Any such appeal must be based
upon the circumstances which existed and were disclosed to SBA at the
time the application or request for reconsideration was forwarded to
SBA's Central Office for processing. * * * Incomplete application
packages will not be processed. The appropriate field office shall
notify the applicant concern when it has forwarded the application to
SBA's Central Office of a final decision.
(b) * * *
(c) Decline. * * *
(1) Reconsideration. Every applicant has the right to request that
the AA/MSB&COD reconsider his/her decline decision. Such request must
be made in writing by certified mail, return receipt requested, within
45 days of the date the decline letter is mailed. The decline letter
shall inform the applicant to whom a request for reconsideration must
be made. As part of the reconsideration request, the applicant should
include any additional information and documentation pertinent to
overcoming the reason(s) for the initial decline. * * *
(2) * * *
* * * * *
28. Section 124.208 would be amended by removing paragraph (c)(2),
by redesignating paragraph (c)(3) as paragraph (c)(2), and by revising
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. The
Division Director shall make a recommendation in writing, as to whether
or not graduation is appropriate, to the AA/MSB&COD within 45 days of
the close of the response period. If he/she seems it necessary, the
Division Director may request additional information from the
Participant.
* * * * *
29. Section 124.209 would be amended by removing paragraph (b)(2),
by redesignating paragraph (b)(3) as paragraph (b)(2), and by revising
newly redesignated paragraph (b)(2) to read as follows:
Sec. 124.209 Program termination.
* * * * *
(b) * * *
(2) Recommendation of the Division. Following the 45 day response
period, the Division Director will have 45 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.
* * * * *
30. Section 124.210 would be amended by revising paragraph (h)(2)
and adding the following new paragraph (k) at the end as follows:
Sec. 124.210 Appeals to SBA's Office of Hearings and Appeals.
* * * * *
(h)(1) * * *
(2) If the Administrative Law Judge determines that, due to the
absence in the written administrative record of the reasons upon which
the determination in question was based, such administrative record is
insufficiently complete to decide whether the determination is
arbitrary and capricious or contrary to law, the case shall be remanded
by the Administrative Law Judge to the AA/MSB&COD for further
consideration in accordance with the terms of such remand. The AA/
MSB&COD shall issue a revised decision in accordance with the remand
order within 10 working days of the remand, unless the AA/MSB&COD
requests and the Administrative Law Judge grants an extension thereof.
An applicant or 8(a) concern may appeal the AA/MSB&COD's remand
decision to OHA within 20 working days of the date that the decision is
mailed. The failure of an applicant to file an appeal within the 20-day
time frame would serve to make the remand decision the final agency
decision and would not require any further action by OHA.
(3)(i) * * *
(k)(1) At any time after a written decision has been issued and
upon notice to all parties to the proceeding, the Administrative Law
Judge may, on his/her own initiative, reopen the proceeding and enter a
new decision confirming, modifying, or setting aside the decision in
whole or in part.
(2) Within 20 calendar days after the issuance of a written
decision and upon notice to all parties to the proceeding, any party
may file a petition for reconsideration of such decision. Such a
petition may be granted only where it establishes a clear error of law
or fact of decisional significance.
31. Section 124.302 would be amended by revising paragraphs
(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;
(B) * * *
* * * * *
(2) SBA will make a decision on such request within 30 days from
the date it receives the request.
* * * * *
32. Section 124.303 would be amended by removing the first two
sentences of paragraph (a) and by adding two sentences to the beginning
of paragraph (a) to read as follows:
Sec. 124.303 Stages of 8(a) program participation.
(a) General. Program participation is divided into two stages, a
developmental stage and a transitional stage. The developmental stage
shall be four years and the transitional stage shall be five years
unless the Participant has exited the program by one of the means set
forth in Sec. 124.110. * * *
Sec. 124.303 [Amended]
33. Section 124.303 would be further amended by removing paragraph
(b), redesignating paragraph (c) as paragraph (b), by removing
paragraph (b)(3) of newly redesignated paragraph (b), and by
redesignating paragraphs (b) (4) through (7) of newly redesignated
paragraph (b) as paragraphs (b) (3) through (6).
34. Section 124.304 would be removed and reserved as follows:
Sec. 124.304 [Reserved]
35. Section 124.305 would be amended by revising paragraphs (b)(3)
and (c)(4) to read as follows:
Sec. 124.305 Statutory exemptions from the Miller Act bond
requirements.
* * * * *
(b) * * *
(3) The Participant must demonstrate that it cannot obtain a bond
for the performance of the 8(a) procurement by submitting to SBA a
written denial from a corporate (Treasury-listed) surety.
* * * * *
(c) * * *
(4) No Program Participant may receive an exemption to the Miller
Act bonding requirements under this section if it is currently
performing two 8(a) contracts for which such a bond exemption was
granted.
* * * * *
36. Section 124.307 would be amended by redesignating paragraph (d)
as paragraph (e), by adding the following new paragraph (d), and by
adding the following new paragraph (f):
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
act as a bar to 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 imposed by Sec. 124.312.
* * * * *
(f)(1) The eligibility of a Program Participant, including its
status as a small business, for a sole source or competitive 8(a)
requirement may not be challenged by another Program Participant or any
other party to SBA or to any other administrative forum as part of a
bid or other contract protest.
(2) The SIC code assigned to a sole source or competitive 8(a)
requirement may not be challenged by another Program Participant or any
other party to SBA or to any other administrative forum as part of a
bid or other contract protest. Pursuant to Sec. 121.1703(b), only the
AA/MSB&COD may appeal a SIC code designation with respect to a sole
source or competitive 8(a) requirement, and such appeal, if initiated
in the discretion of the AA/MSB&COD, shall be made to OHA.
(3) Anyone with information concerning the eligibility of a Program
Participant to continue participation in the 8(a) program may submit
such information to SBA in accordance with Sec. 124.111(c). Similarly,
anyone with information concerning the size eligibility of a Program
Participant for purposes of a specific 8(a) contract may submit such
information to the appropriate SBA field office for consideration. See
Secs. 121.1104(b)-(d).
37. Section 124.308 would be amended by revising the introductory
text of paragraph (c), revising paragraph (d), the first sentence of
paragraph, (f)(1), paragraph (f)(2), the first sentence of paragraph
(g), and by adding a new paragraph (i), to read as follows:
Sec. 124.308 Procedures for obtaining and accepting procurements for
the 8(a) program.
* * * * *
(c) Offering letter. All requirements that are offered to the 8(a)
program as competitive procurements and those sole source requirements
that are offered to the program without nominating a specific Program
Participant (i.e., open requirements) should be offered to SBA's
Division of Program Development, 409 Third Street SW., Washington, DC
20416. Sole source requirements that are offered to the 8(a) program on
behalf of a specific Program Participant should be offered to the
appropriate SBA district office. When a requirement is offered to the
8(a) program, the offering letter or notification from the procuring
agency shall contain the following information:
* * * * *
(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) SBA will not accept a requirement as a competitive 8(a)
procurement where a competition has been conducted by a procuring
agency prior to SBA's formal acceptance of the requirement for the 8(a)
program and the procuring agency seeks SBA's acceptance in order to
select an apparent successful offeror and/or transmit a contract to SBA
for execution. Such a competition conducted without obtaining SBA's
formal acceptance of the procurement requirement for the 8(a) program
will not be considered an 8(a) competitive requirement. In such a case,
SBA may accept the requirement for the 8(a) program as a competitive
8(a) requirement, but the procuring agency would be required to use
appropriate competition procedures again, including issuing a new
solicitation.
(4) 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.
(3) * * *
* * * * *
(g) Formal technical evaluations. Except for the procedures
prescribed by subpart 36.6 of the Federal Acquisition Regulations for
architect-engineer services, SBA will not authorize formal technical
evaluations for sole source 8(a) procurement requirements. * * *
* * * * *
(i) Basic Ordering Agreements (BOAs). (1) For purposes of the 8(a)
program, a Basic Ordering Agreement (BOA) is not an 8(a) contract
award. Each order to be issued under the BOA is an individual contract.
As such, there must be a separate offer and acceptance of each BOA
order before it may be issued through the 8(a) program as an 8(a)
contract award. The 8(a) Participant must be eligible to receive each
new order at the time of the order. For example, a concern's size
status does not relate back to the time that the BOA was executed.
Instead, a concern must be small at the time of the issuance of each
new order.
(2) Once a concern's term of program participation expires, or the
concern otherwise exits the 8(a) program, new orders cannot be issued
through the 8(a) program because the concern is no longer eligible to
receive new 8(a) awards.
Sec. 124.308 [Amended]
38. Section 124.308 would be further amended by removing the words
``approved 8(a) business support level or the'' contained in paragraph
(e)(1)(iii).
39. Section 124.309(c) would be revised to read as follows:
Sec. 124.309 Barriers to acceptance.
* * * * *
(c) Adverse Impact. SBA has made a written determination that
acceptance of the procurement for 8(a) award would have an adverse
impact on an individual small business, a group of small businesses
located in a specific geographical location, or other small business
programs. The adverse impact concept is designed to protect small
business concerns which are performing or are seeking to perform
Government contracts awarded outside the 8(a) program.
(1) In determining whether or not the acceptance of a requirement
would have an adverse impact on an individual small business, SBA will
consider all relevant factors.
(i) In connection with an individual small business, SBA presumes
adverse impact to exist when a small business concern has performed a
specific requirement for at least 24 months, it is performing the
requirement at the time it is offered to the 8(a) program or its
performance of the requirement ended within 30 days of the procuring
agency's offer of the requirement to the 8(a) program, and the dollar
value of the requirement that the small business was performing is 25
percent or more of its most recent annual gross sales (including those
of its affiliates).
(ii) Except as provided in paragraph (c)(2) of this section,
adverse impact does not apply to ``new'' requirements. A new
requirement is a requirement which has not been previously procured by
the relevant procuring agency. Where a requirement is new, no small
business could have performed the requirement and, thus, an impact
determination need not be performed. Construction contracts by their
very nature (e.g., the one-time building of a specific structure) are
new requirements. The expansion or alteration of an existing
requirement shall be considered a new requirement where the requirement
is materially expanded or modified so that the ensuing requirement is
not substantially similar to the prior requirement due to the magnitude
of the expansion or alteration.
(2) In determining whether or not the acceptance of a requirement
would have an adverse impact on a group of small businesses located in
a specific geographical location, SBA shall consider the effects of a
procuring agency bundling various requirements being performed by two
or more small business concerns into a larger contract which would be
considered a ``new'' requirement because of the magnitude of its
expansion as compared to any of the previous smaller requirements. In
such a case, adverse impact may be found if one of the small business
concerns meets the presumption set forth in paragraph (c)(1)(i) of this
section.
(3) In determining whether or not the acceptance of a requirement
would have an adverse impact on other small business programs, SBA will
consider all relevant factors, including but not limited to, whether or
not SBA's acceptance of a proposed 8(a) requirement is likely to result
in SBA taking an inordinate portion of total procurements in the
subject industry to the detriment of the small business set-aside
program.
Sec. 124.309 [Amended]
40. Section 124.309 would be further amended by revising the phrase
``a sole source 8(a) contract'' in paragraph (d) to read ``an 8(a)
contract.''
41. Section 124.311(a)(2) is amended by removing the following
sentence from the end:
``For purposes of indefinite quantity/delivery contracts, the
thresholds will be applied to the guaranteed minimum value of the
contract.''
42. Section 124.311 would be further amended by removing paragraphs
(b) and (g), by redesignating paragraphs (c), (d), (e), (f), (h) and
(i) as paragraphs (b), (c), (d), (e), (f) and (g), respectively, by
adding a new paragraph (a)(3), and by revising newly redesignated
paragraphs (d)(1), (d)(2), (f)(3), (f)(4), and (g) to read as follows:
Sec. 124.311 8(a) competition.
(a) * * *
(3) 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.
* * * * *
(d) Sole source above thresholds. * * *
(1) SBA will not accept a construction requirement above the
competitive threshold amount as a sole source 8(a) requirement.
(2) For purposes of any requirement other than a construction
requirement, 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.
* * * * *
(f) Restricted competition. (1) * * *
* * * * *
(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 solicitations for procurement
requirements offered to the 8(a) program that exceed the applicable
competitive threshold.
(g) Award to firms whose program terms have expired. A concern that
has completed its term of participation in the 8(a) program, as set
forth in Sec. 124.110, may be awarded a competitive 8(a) contract if it
was a Program Participant eligible for award of the contract on the
date specified for receipt of offers contained in the contract
solicitation.
(1) For a negotiated procurement, so long as a Program Participant
is eligible as of the date specified for the receipt of offers in the
solicitation, its program term may expire after that date without
affecting the concern's eligibility to submit revised offers, including
a best and final offer, and receive a competitive award.
(2) Eligibility is determined as of the initial date specified for
the receipt of offers set forth in the solicitation without regard to
extensions of time through amendments to the solicitation.
(3) This provision applies equally to all 8(a) procurement
requirements, including construction requirements.
(4) An 8(a) procurement requirement for architect-engineer
services, in an amount less than the competitive threshold set forth in
Sec. 124.311(a), that uses the evaluation procedures prescribed by
subpart 36.6 of the Federal Acquisition Regulation will not be
considered a competitive 8(a) requirement under this section for which
a firm whose program term has expired may be eligible.
43. Section 124.311 would be further amended by removing the phrase
``business support level and'' in newly redesignated paragraph (e)(4),
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. 124.312 [Amended]
44. Section 124.312 would be amended by removing paragraphs (b)(4),
(b)(5), and (b)(6) and by redesignating paragraph (b)(7) as paragraph
(b)(4).
45. Section 124.312 would be further amended by removing paragraphs
(c)(2), (c)(3), and (c)(9) and 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.
46. Section 124.317 would be amended by revising paragraph (b)(3),
and by adding a sentence at the end of paragraph (c) to read as
follows:
Sec. 124.317 Performance of contracts by original 8(a) concern.
* * * * *
(b) * * *
(3) The individuals upon whom eligibility was based are no longer
able to exercise control of the concern due to physical or mental
incapacity or death; and
* * * * *
(c) * * * The burden is on the concern requesting a waiver to
specify the ground(s) upon which the waiver is being sought and to
demonstrate that it has met that (those) ground(s).
* * * * *
47. Section 124.319 would be amended by adding a new paragraph (c)
to read as follows:
Sec. 124.319 Contract termination.
* * * * *
(c) Substitution of one 8(a) contractor for another. Where a
Program Participant is unable to complete performance of an 8(a)
contract, SBA may authorize another 8(a) Participant to complete
performance and, in conjunction with the procuring agency, novate the
contract to the substitute Program Participant.
48. Section 124.321 would be amended by revising the second
sentence of paragraph (a), by adding a new sentence after the second
sentence of paragraph (a), by revising paragraphs (c)(3), (d)(2),
(d)(3), and (h)(1)(iii), and by adding a new paragraph (i) to read as
follows:
Sec. 124.321 Joint venture agreements.
(a) Prerequisites for joint venture agreement. * * * A joint
venture agreement is permissible only where an 8(a) concern lacks the
necessary capacity to perform the contract on its own, and when the
agreement is fair and equitable. Where an 8(a) concern brings nothing
to the joint venture relationship (i.e., it lacks the management,
technical, and financial capacity to perform the contract), the joint
venture arrangement will not be approved by SBA.
* * * * *
(b) * * *
(c) Contents of joint venture agreement. * * *
(3) A provision stating that not less than 51 percent of the net
profits earned by the joint venture shall be distributed to the 8(a)
concern. In the case of a joint venture that includes two or more 8(a)
concerns, no one 8(a) concern is individually required to receive 51
percent of the profits (e.g., there can be a 50/50 joint venture
relationship between two 8(a) concerns).
* * * * *
(d) Other requirements. * * *
(1) * * *
(2) An 8(a) concern to the joint venture arrangement must be
designated as the lead entity of the joint venture. An employee of the
8(a) concern designated as the lead entity must be appointed project
manager responsible for contract performance.
(3) Accounting and other administrative records relating to the
joint venture shall be kept in the office of the lead 8(a) concern,
unless approval to keep them elsewhere is granted by SBA upon written
request. Upon completion of the contract performed by the joint
venture, the final original records shall be retained by the lead 8(a)
concern.
* * * * *
(h) Joint ventures with concerns owned by Indian tribes. (1) * * *
* * * * *
(iii) Performs most of its activities generally on such reservation
or tribally-owned land; and
* * * * *
(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(1) of these regulations.
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)).
49. Section 124.501 would be amended by redesignating paragraph (c)
as paragraph (d) and by adding the following new paragraph (c):
Sec. 124.501 Miscellaneous reporting requirements.
* * * * *
(c) Submission of financial statements. (1) Program Participant
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, 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 the 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, II. B) within 90 days after the
close of 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 compilation statement prepared by a licensed independent
public accountant (as defined in part 107, Appendix I, 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, every 8(a) concern must submit a final
sales report signed by the CEO or President to SBA within 10 working
days of the end of its fiscal year in order for SBA to determine/verify
the concern's size for 8(a) contract awards and compliance with
competitive business mix targets. This report must show a breakdown of
8(a) and non-8(a) sales.
(6) Audited or reviewed annual and/or quarterly statements may be
required when 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.
(7) The requirements for submitting financial statements also apply
to 8(a) joint venture agreements.
50. The following new Sec. 124.611 would be added to read as
follows:
Sec. 124.611 Availability of Small Disadvantaged Business status
decisions.
(a) Any SDB status decision issued pursuant to Sec. 124.609 or
Sec. 124.610 of these regulations shall
(1) be made available to the protester, the protested party, the
contracting officer, and all other parties to the proceeding in full
text; and
(2) be published in full text in SBA's law library, 409 3rd Street,
SW., 7th Floor, Washington, DC, 20416, and be made available for
inspection upon request.
(b) Any SDB status decision shall include findings of fact and
conclusions of law, with specific reasons supporting such findings and
conclusions, upon each material issue of fact and law of decisional
significance regarding the disposition of the case.
Dated: July 28, 1994.
Erskine B. Bowles,
Administrator.
[FR Doc. 94-21217 Filed 8-29-94; 8:45 am]
BILLING CODE 8025-01-M
