[Federal Register Volume 63, Number 170 (Wednesday, September 2, 1998)]
[Rules and Regulations]
[Pages 46640-46643]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-23656]
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SMALL BUSINESS ADMINISTRATION
13 CFR Parts 121 and 125
Small Business Size Regulations and Government Contracting
Assistance Regulations; Very Small Business Concern
AGENCY: Small Business Administration.
ACTION: Final rule.
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SUMMARY: This rule amends the regulations pertaining to the Small
Business Administration's (SBA) size and government contracting
programs to incorporate the Very Small Business Set-Aside Pilot
Program. It also defines what a ``very small business concern'' is for
purposes of the SBA's small business set-aside program. Section 304 of
the Small Business Administration Reauthorization and Amendments Act of
1994 (Public Law 103-403) authorized the SBA Administrator to establish
and carry out a pilot program for very small business concerns. The Act
defines a very small business concern as one that has 15 or fewer
employees together with average annual receipts that do not exceed $1
million. The Act established September 30, 1998, as the expiration date
for this pilot.
DATES: This rule is effective on September 2, 1998.
FOR FURTHER INFORMATION CONTACT: Corinne Sisneros, Office of Government
Contracting, at (202) 205-7624.
SUPPLEMENTARY INFORMATION:
I. Background
On January 21, 1997 (62 FR 2979), SBA published a proposed rule in
the Federal Register to amend parts 121 and 125 of title 13 of the Code
of Federal Regulations (CFR) in order to establish a pilot program for
very small business (VSB) concerns. (See Pub. L. 103-403, Section 304.)
The purpose of this pilot program is to improve access to Federal
Government contract opportunities for concerns that are substantially
below SBA's size standards by reserving certain procurements for
competition among such VSB concerns. VSB concerns under this program
that receive a VSB set-aside contract will also be eligible for loan
application support and assistance under the prequalification component
of the program. This pilot program will expire on September 30, 2000,
unless further extended through legislation. See section 508 of Pub. L.
105-135, 111 Stat. 2606.
II. Summary and Analysis of Comments and SBA's Response
SBA received 11 timely comments to the January 21, 1997, proposed
rule. These comments addressed several issues, each of which is
discussed below.
Several commenters sought clarification as to how requirements
under this program would be identified. Some commenters also requested
that SBA clarify what is meant by ``advertise'' and provide guidance on
synopsis and information dissemination requirements. SBA has not made
any changes to the final rule in response to these comments. Procedures
are already in place to address these issues regarding other set
asides, which would cover this program as well. In addition to using
SBA's existing automated reference system, procuring activities can
rely on SBA district office personnel and procurement center
representatives (PCRs) to identify VSB concerns likely to compete on a
requirement. A procuring activity may elect to issue a ``VSB sources
sought'' notice in the Commerce Business Daily. However, this rule does
not require display or synopsizing requirements in excess of those
currently in the Federal Acquisition Regulation (FAR).
One commenter suggested establishing a web page, organized by
region, of all VSBs and their applicable standard industrial
classification (SIC) codes so that procurement offices could check to
see if there were capable VSB vendors for a given requirement. A change
to the proposed regulatory language is not needed to implement this
recommendation. As such, SBA did not change the rule in response to
this comment, but does plan to initiate a web site on the Government
Contracting Home Page (www.sba.gov/GC) to list VSB concerns (and their
applicable SIC codes) that are interested in participating in this
pilot program. Buying activities will be able to review the SBA web
site to search for compatible VSB concerns. Their efforts should not,
however, be limited to the SBA web site. Procuring activities should
also try to identify VSB sources through media pursuant to FAR 5.101 as
well as their agency-specific regulations and polices.
One commenter requested clarification regarding the types of
procurement requirements that will be available through and the
procuring activities that will be involved in the VSB program. Under
the proposed rule, only those VSB concerns whose headquarters are
located within the geographical area serviced by a designated SBA
district office where the procurement is offered would be eligible for
award. Upon further deliberation, SBA has changed the application of
the VSB program for service and construction procurements. Under the
final rule, any procurement requirement between $2,500 and $50,000 may
be set aside for VSB concerns. A contracting officer must set aside for
VSB concerns any such service or construction requirement that will be
performed within the geographical boundaries served by a designated SBA
district office if there is a reasonable expectation of obtaining fair
and reasonable offers from two or more responsible VSB concerns
headquartered within the geographical area served by that designated
SBA district. In the case of a procurement for supplies or manufactured
items, a contracting officer must set aside any such requirement for
VSBs if the buying activity is located within the geographical area
served by a designated SBA district and there is a reasonable
expectation of obtaining fair and reasonable offers from two or more
responsible VSB concerns headquartered within the geographical area
served by that designated SBA district. SBA has made the distinction
between service or construction requirements and requirements for
supplies or manufactured items because of the size of VSB concerns and
their limited ability to perform contracts outside of the geographic
area where they are located. For a service or construction requirement,
the place of performance is what is critical to a VSB, not the location
of the buying activity. This is particularly true where more and more
requirements are being procured on a consolidated basis by a number of
buying activities, which are
[[Page 46641]]
geographically dispersed around the country. The VSB program is
intended to give local smaller businesses a chance to perform local
requirements. For a service or construction business, that means
requirements that will be performed close to where the firm is located.
Conversely, for a manufacturing firm or one that provides supply items,
the place of ultimate delivery is not important. It is the location of
the buying activity that matters to such a firm. Thus, SBA has adopted
the proposed rule language, as clarified, in the final rule for
requirements for supplies or manufactured items.
For purposes of the VSB program, SBA will treat the geographic
areas served by the SBA Los Angeles and Santa Ana District Offices as
one designated SBA district. As such, any VSB whose headquarters is
located within the geographical area served by the Los Angeles or Santa
Ana SBA District Offices will be eligible for a VSB set-aside that will
be performed or in which the buying activity is located within the
geographical area of either SBA district office.
One commenter also sought clarification on how SBA would achieve
nationwide geographic coverage. SBA's plan to achieve nationwide
geographical coverage by assigning this pilot program to widely
dispersed district office pilot sites was already reflected in the
proposed rule. Thus, SBA makes no changes to the rule in response to
this comment.
One commenter asked what sort of data collection will take place
under the VSB program. SBA will obtain a record of all contract awards
under this program after advising the contracting agencies of the
manner and frequency of such reporting. At a minimum, reports will
include the date of solicitation, the date of an award, the
contractor's name and address, the SIC code assigned to the
procurement, and the dollar value of the award. Reporting requirements
are necessary since the SBA must report to Congress on the results of
the program. Without documentation of efforts and activity, SBA will be
unable to comply with the law. However, the final rule makes no changes
to reporting requirements because SBA presently collects this
information.
Four commenters recommended that SBA provide guidance as to whether
the procurement order of precedence would be changed for the purpose of
the VSB program. The order of precedence was eliminated from the FAR in
1996. However, SBA proposed the VSB program as an extension of the
small business set-aside program. Therefore, if a procurement
requirement does not meet the criteria for a small business set-aside,
it cannot be set aside for VSBs. If a contracting officer determines
that there is a reasonable likelihood that two or more VSB concerns
will make offers which are competitive as to price, quality, and
delivery, the contracting officer must complete the requirement as a
VSB set-aside. SBA intends that the procedures in FAR 19.502-2 (as made
applicable to simplified acquisitions by FAR 13.105) should apply.
Where there is not a reasonable likelihood that there are two or more
VSBs who will make offers which are competitive as to price, quality,
and delivery, the contracting officer must then consider an award as a
regular small business set-aside. In situations where the contracting
officer does not agree with the recommendations of SBA's PCR, the
procedures at FAR 19.505 will apply. The final rule reflects these
clarifications. SBA has also added clarifying language to ensure that
contracting officers do not give a preference to the VSB program over
SBA's 8(a) Business Development program for business concerns owned and
controlled by socially and economically disadvantaged individuals.
The proposed rule limited the program to requirements of $50,000 or
less that could be set aside for small business. Two commenters raised
concerns that since the exception to the non-manufacturer rule applies
only to procurements where the anticipated cost will not exceed $2,500
this could result in confusion to some buyers and vendors for
processing requirements between $2,500 and $50,000. One commenter
recommended an extension to $50,000 of the exception to the non-
manufacturer rule for VSB set-aside requirements. SBA will not raise
the exception threshold to the non-manufacturer rule. SBA believes that
the non-manufacturer rule provides important protections to small
businesses by limiting the instances in which the intent of a small
business set-aside is subverted through a subcontract with a large
business. Moreover, SBA disagrees that the $50,000 threshold to the VSB
program will be confused with the $2,500 exception threshold to the
non-manufacturer rule. The processing of VSB set-asides in the $2,500-
$50,000 range will be no different than the processing of small
business set-asides in that range being done presently.
Another commenter suggested raising the VSB set-aside limit from
$50,000 to $100,000. SBA has elected to maintain the $50,000 threshold.
Again, this is a pilot program. If experience shows that the dollar
value of requirements reserved for VSBs should be raised, SBA will
address that issue at that time.
Two commenters expressed concern that without reserving a class of
procurements for the VSB program, SBA will be unable to require
agencies to contract with VSB concerns. SBA has changed the regulatory
language to reserve the class of requirements in the $2,500-$50,000
range for VSB concerns which meet the criteria of the requirement.
Two commenters were concerned about the effect the pilot program
may have on the Small Business Competitiveness Demonstration Program
(Demonstration Program). One of the two comments recommended that the
SBA exclude agencies that are participating in the Demonstration
Program from this pilot program since under the Demonstration Program
set-asides for small business are prohibited in the four designated
industry groups. SBA was also asked to consider the impact this program
may have on emerging small businesses. The Demonstration Program makes
requirements in four designated industry groups ineligible for small
business set-asides. The VSB program applies to requirements that are
eligible to be set-aside for small business. Thus, any requirement
which cannot be set aside because it is excluded by the Demonstration
Program is also ineligible for the VSB program. Therefore, SBA has not
changed the rule in response to this comment.
The proposed rule stated that only VSBs whose headquarters are
located within the geographical area served by a designated SBA
district office where the procurement is offered are eligible for award
of a contract under the pilot program. As noted above, the final rule
distinguishes service and construction procurements from supply and
manufactured item procurements. For service and construction
procurements, only VSBs whose headquarters are located within the
geographical area served by a designated SBA district office where the
requirement will be performed are eligible for award. For supply and
manufactured item procurements, only VSBs whose headquarters are
located within the geographical area served by a designated SBA
district office where the buying activity is located are eligible for
award. One comment requested clarification as to who will be
responsible for determining whether the VSB concern has its
headquarters located within an appropriate designated SBA district. The
determination will fall within the jurisdiction of the cognizant SBA
Government Contracting Area Office
[[Page 46642]]
and will be included as part of any formal size determination (see 13
CFR Secs. 121.1001-121.1009).
One commenter asked how businesses would be certified as VSB
concerns. There is no ``certification'' process under the VSB program.
As with other procurements requiring concerns to be small, concerns
will represent themselves to be VSB concerns for any procurement
reserved as a VSB set-aside. As with any other representation as to
size, absent information to the contrary, a contracting officer may
accept such a self-representation and award a contract. If the size of
a concern representing itself to be a VSB is protested on a VSB set-
aside, the contracting officer will forward the protest to SBA as he or
she would any other size protest in accordance with 13 CFR part 121.
SBA will determine whether the concern qualifies as a VSB by using the
statutorily imposed 15-employee and $1 million in average annual
receipts size standard. Because those regulations are already in place,
no change to the proposed rule is required in response to this comment.
One commenter asked what value the proposed rule would add to SBA's
commitment to serve small businesses. The program will improve access
to Federal contract opportunities by reserving certain procurements for
competition among VSB concerns. Businesses receiving awards will also
be eligible for loan application support and assistance under the pre-
qualification component of the program.
Compliance With Executive Orders 12612, 12788 and 12866, the
Regulatory Flexibility Act (5 U.S.C. 601 et seq.), and the
Paperwork Reduction Act (44 U.S.C., Chapter 3501 et seq.)
SBA certifies that this rule will not be a significant rule within
the meaning of Executive Order 12866. The value of procurements awarded
under the VSB program is expected to be less than $100 million since
the program is being implemented as a pilot program in only 10
locations and is targeted to businesses that have historically
experienced limited participation in the Federal market. This rule does
not impose costs upon the businesses which might be affected by it. The
rule should have no effect on the amount or dollar value of any
contract requirement or the number of requirements reserved for the
small business set-aside program, since it is administered within and
is a component of the small business set-aside program. Therefore, it
would not 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.
As required by the Regulatory Flexibility Act, 5 U.S.C. 601-612,
SBA prepared a regulatory flexibility analysis of this rule. This
analysis has been submitted to the Chief Counsel for Advocacy of the
Small Business Administration, and is available upon request.
For the purpose of the Paperwork Reduction Act, 44 U.S.C. Ch. 35,
SBA certifies that this rule will not impose new reporting or record
keeping requirements, other than those required of SBA.
For purposes of Executive Order 12612, SBA certifies that this rule
does not have any federalism implications warranting the preparation of
a Federalism Assessment.
For purposes of Executive Order 12778, the 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 125
Government contracts, Government procurement, Reporting and
recordkeeping requirements, Small businesses, Technical assistance.
Accordingly, for the reasons set forth above, SBA hereby amends 13
CFR as follows:
PART 121--SMALL BUSINESS SIZE REGULATIONS
1. The authority citation for 13 CFR part 121 is revised to read as
follows:
Authority: 15 U.S.C. 632(a), 634(b)(6), 637(a), 644(c), and
662(5); and Sec. 304, Pub. L. 103-403, 108 Stat. 4175, 4188.
2. Revise Sec. 121.401 to read as follows:
Sec. 121.401 What procurement programs are subject to size
determinations?
The requirements set forth in Secs. 121.401 through 121.413 cover
all procurement programs for which status as a small business is
required, including the small business set-aside program, SBA's
Certificate of Competency program, SBA's 8(a) Business Development
program, the Small Business Subcontracting program authorized under
section 8(d) of the Small Business Act, the Federal Small Disadvantaged
Business (SDB) programs, the HUBZone program, and the Very Small
Business (VSB) program.
3. Add Sec. 121.413 to subpart A to read as follows:
Sec. 121.413 What size must a concern be to be eligible for the Very
Small Business program?
A concern is a very small business (see Sec. 125.7 of this chapter)
if, together with its affiliates, it has no more than 15 employees and
its average annual receipts do not exceed $1 million.
PART 125--GOVERNMENT CONTRACTING PROGRAMS
4. The authority citation for 13 CFR Part 125 is revised to read as
follows:
Authority: 15 U.S.C. 634(b)(6), 637, and 644; 31 U.S.C. 9701,
9702; and Sec. 304, Pub. L. 103-403, 108 Stat. 4175, 4188.
5. Add Sec. 125.7 to read as follows:
Sec. 125.7 What is the Very Small Business program?
(a) The Very Small Business (VSB) program is an extension of the
small business set-aside program, administered by SBA as a pilot to
increase opportunities for VSB concerns. Procurement requirements,
including construction requirements, estimated to be between $2,500 and
$50,000 must be reserved for eligible VSB concerns if the criteria in
paragraph (c) of this section are met.
(b) Definitions. (1) The term designated SBA district means the
geographic area served by any of the following SBA district offices:
(i) Albuquerque, NM, serving New Mexico;
(ii) Los Angeles, CA, serving the following counties in California:
Los Angeles, Santa Barbara, and Ventura;
(iii) Boston, MA, serving Massachusetts;
(iv) Louisville, KY, serving Kentucky;
(v) Columbus, OH, serving the following counties in Ohio: Adams,
Allen, Ashland, Athens, Auglaize, Belmont, Brown, Butler, Champaign,
Clark, Clermont, Clinton, Coshocton, Crawford, Darke, Delaware,
Fairfield, Fayette, Franklin, Gallia, Greene, Guernsey, Hamilton,
Hancock, Hardin, Highland, Hocking, Holmes, Jackson, Knox, Lawrence,
Licking, Logan, Madison, Marion, Meigs, Mercer, Miami, Monroe,
Montgomery, Morgan, Morrow, Muskingum, Noble, Paulding, Perry,
Pickaway, Pike, Preble, Putnam, Richland, Ross, Scioto, Shelby, Union,
Van Wert, Vinton, Warren, Washington, and Wyandot;
(vi) New Orleans, LA, serving Louisiana;
(vii) Detroit, MI, serving Michigan;
(viii) Philadelphia, PA, serving the State of Delaware and the
following
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counties in Pennsylvania: Adams, Berks, Bradford, Bucks, Carbon,
Chester, Clinton, Columbia, Cumberland, Dauphin, Delaware, Franklin,
Fulton, Huntington, Juniata, Lackawanna, Lancaster, Lebanon, Lehigh,
Luzerne, Lycoming, Mifflin, Monroe, Montgomery, Montour, Northampton,
Northumberland, Philadelphia, Perry, Pike, Potter, Schuylkill, Snyder,
Sullivan, Susquehanna, Tioga, Union, Wayne, Wyoming, and York;
(ix) El Paso, TX, serving the following counties in Texas:
Brewster, Culberson, El Paso, Hudspeth, Jeff Davis, Pecos, Presidio,
Reeves, and Terrell; and
(x) Santa Ana, CA, serving the following counties in California:
Orange, Riverside, and San Bernadino.
(2) The term very small business or VSB means a concern whose
headquarters is located within the geographic area served by a
designated SBA district and, together with its affiliates, has no more
than 15 employees and has average annual receipts that do not exceed $1
million. The terms concerns, affiliates, average annual receipts, and
employees have the meaning given to them in Secs. 121.105, 121.103,
121.104, and 121.106, respectively, of this chapter.
(c)(1) A contracting officer must set aside for VSB concerns each
procurement that has an anticipated dollar value between $2,500 and
$50,000 if:
(i) In the case of a procurement for manufactured or supply items:
(A) The buying activity is located within the geographical area
served by a designated SBA district, and
(B) There is a reasonable expectation of obtaining offers from two
or more responsible VSB concerns headquartered within the geographical
area served by that designated SBA district that are competitive in
terms of market prices, quality and delivery; or
(ii) In the case of a procurement for other than manufactured or
supply items:
(A) The requirement will be performed within the geographical area
served by a designated SBA district, and
(B) There is a reasonable expectation of obtaining offers from two
or more responsible VSB concerns headquartered within the geographical
area served by that designated SBA district that are competitive in
terms of market prices, quality and delivery.
(2) The geographic areas served by the SBA Los Angeles and Santa
Ana District Offices will be treated as one designated SBA district for
the purposes of this section.
(3) If the contracting officer determines that there is not a
reasonable expectation of receiving at least two responsible offers
from VSB concerns headquartered within the geographic area served by
the applicable designated SBA district, he or she must include in the
contract file the reason(s) for this determination, and solicit the
procurement pursuant to the provisions of 48 CFR 19.502-2. SBA may
appeal such determination using the same procedure described in 48 CFR
19.505.
(4) If the contracting officer receives only one acceptable offer
from a responsible VSB concern in response to a VSB set-aside, the
contracting officer will make an award to that firm. If the contracting
officer receives no acceptable offers from responsible VSB concerns, he
or she will withdraw the procurement and, if still valid, must
resolicit it pursuant to the provisions of 48 CFR 19.502-2.
(d) Where a procurement is set aside for VSB concerns, only those
VSB concerns whose headquarters are located within the geographic area
served by the applicable designated SBA district are eligible to
submits offers in response to the solicitation.
(e) Nothing in this section shall be construed to alter in any way
the procedures by which procuring activities award contracts under the
SBA's 8(a) Business Development program (see 13 CFR part 124).
(f) This pilot program terminates on September 30, 2000. Any award
under this program must be made on or before this date.
Dated: July 28, 1998.
Aida Alvarez,
Administrator.
[FR Doc. 98-23656 Filed 9-1-98; 8:45 am]
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