2024-12252. Eliminating Self-Certification for Service-Disabled Veteran-Owned Small Businesses

AGENCY:

U.S. Small Business Administration.

ACTION:

Direct final rule.

SUMMARY:

This direct final rule contains amendments to the regulations governing the U.S. Small Business Administration's (SBA) Veteran Small Business Certification (VetCert) Program. The SBA is revising its regulations to implement a provision in the National Defense Authorization Act for Fiscal Year 2024 (NDAA 2024), which eliminates self-certification for service-disabled veteran-owned small businesses that are awarded Federal Government contracts or subcontracts that count towards agency or subcontracting goals This direct final rule amends SBA's regulations to carry out the changes made by NDAA 2024.

DATES:

This rule is effective August 5, 2024 without further action, unless adverse comment is received no later than July 8, 2024. If significant adverse comment is received, SBA will publish a timely withdrawal of the rule in the Federal Register .

ADDRESSES:

You may submit comments, identified by RIN 3245-AI10 or Docket No. SBA-2024-0003, by any of the following methods:

• Federal eRulemaking Portal: https://www.regulations.gov and follow the instructions for submitting comments.
• Mail (for paper, disk, or CD-ROM submissions): Donna Fudge, Office of Government Contracting and Business Development, U.S. Small Business Administration, 409 Third Street SW, Washington, DC 20416.

Instructions: All submissions received must include the agency name and docket number or Regulatory Information Number (RIN) for this rulemaking. All comments received will be posted on https://www.regulations.gov. If you wish to submit confidential business information (CBI) as defined in the User Notice at https://www.regulations.gov, please submit the comments to Donna Fudge and highlight the information that you consider to be CBI and explain why you believe this information should be held confidential.

FOR FURTHER INFORMATION CONTACT:

Donna Fudge, U.S. Small Business Administration, Office of Government Contracting and Business Development, 409 Third Street SW, 8th Floor, Washington, DC 20416; [phone]; [e-mail]. This phone number may also be reached by individuals who are deaf or hard of hearing, or who have speech disabilities, through the Federal Communications Commission's TTY-Based Telecommunications Relay Service teletype service at 711.

SUPPLEMENTARY INFORMATION:

I. Background

In order to be awarded a Service-Disabled Veteran-Owned Small Businesses (SDVOSB) set-aside or sole source contract, firms must be certified by SBA through the Veteran Small Business Certification (VetCert) Program. Currently, firms that do not seek SDVOSB set-aside or sole source contracts but that meet the VetCert Program eligibility requirements may self-certify their SDVOSB status, receive prime contract or subcontract awards that are not SDVOSB set-aside or sole source contracts, and be counted toward an agency's SDVOSB small business goals or a prime contractor's subcontracting goal for SDVOSB awards.

Section 864 of the National Defense Authorization Act for Fiscal Year 2024 (Pub. L. 118-31) (December 22, 2023) amends the SDVOSB requirements so that, effective October 1, 2024, each prime contract award and subcontract award counted for the purpose of meeting the goals for participation by SDVOSBs in procurement contracts for Federal agencies or Federal prime contractors shall be entered into with firms certified by VetCert under section 36 of the Small Business Act (15 U.S.C. 657f). Section 864 also creates a grace period so that firms that file an application for certification with SBA by December 22, 2024, may continue to self-certify for such Federal Government contracts and subcontracts until SBA makes a final decision. SDVOSBs that do not file an application for certification with SBA by December 22, 2024, or are not certified by SBA's VetCert program and do not file an application by the deadline, will not be eligible to self-certify for such Federal Government contracts or subcontracts after December 22, 2024. NDAA 2024 requires SBA to promulgate regulations implementing this change within 180 days of enactment.

With this direct final rule, SBA amends the introductory sentence of 13 CFR 125.3(a) to require SDVOSB certification for subcontracting assistance. This rule also corrects the existing text to remove “certified” from “certified small business concerns owned and controlled by socially and economically disadvantaged individuals.” The Small Disadvantaged Businesses designation is self-certification and “certified” was included in error. To implement the statutory language of section 864 of the NDAA 2024, SBA is amending parts 125 and 128 of its regulations to eliminate self-certification in the VetCert program for SDVOSB concerns seeking a Federal Government contract or subcontract that will count towards an agency's SDVOSB goals or a prime contractor's SDVOSB subcontracting goals.

II. Justification for Direct Final Rule

In general, SBA publishes a rule for public comment before issuing a final rule in accordance with the Administrative Procedure Act. 5 U.S.C. 553. The Administrative Procedure Act provides an exception to this standard rulemaking process, however, where an agency finds good cause to adopt a rule without prior public participation. 5 U.S.C. 553(b)(B). The good cause requirement is satisfied when prior public participation is impracticable, unnecessary, or contrary to the public interest.

SBA is publishing this rule as a direct final rule because public participation is unnecessary. SBA views this as a non-controversial administrative action that is limited to implementing the provisions of NDAA 2024 eliminating self-certification for SDVOSBs. These provisions are mandated by statute, and SBA does not have the authority to alter them in response to comment. Additionally, a 60-day notice and comment period would jeopardize SBA's obligation to meet section 864's deadline to promulgate regulations within 180 days of enactment.

This rule will be effective on the date shown in the DATES section unless SBA receives significant adverse comment on or before the deadline for comments. Significant adverse comments are comments that provide strong justifications for why the rule should not be adopted or for changing the rule. SBA does not expect to receive any significant adverse comments because it is adopting mandatory statutory changes. If SBA receives any significant adverse comments, it will publish a document in the Federal Register withdrawing this rule before the effective date. If SBA receives no significant adverse comments, the rule will be effective 60 days after publication without further notice.

As such, this rule is being implemented as a direct final rule.

III. Compliance With Executive Orders 12866, 13563, 12988, 13132, and 13175, the Paperwork Reduction Act (44 U.S.C. Ch. 35), and the Regulatory Flexibility Act (5 U.S.C. 601-612)

Executive Order 12866

The Office of Management and Budget (OMB) has determined that this direct final rule is not a significant regulatory action for the purposes of Executive Order 12866. This direct final rule implements specific statutory provisions in section 864 of the NDAA 2024.

Expected Impact

Under the existing system, the burden of SDVOSB compliance for goaling purposes is placed upon the awarding contracting officer. Under this direct final rule, this burden is placed upon SBA. The contracting officer's responsibilities would be reduced to confirming that the applying firm is, in fact, a certified SDVOSB in SBA's certification database. This reduced responsibility to verify eligibility at contract award may result in a minor cost savings to the contracting agencies.

While current participants in the VetCert Program would have no additional costs associated with this direct final rule, SBA anticipates costs associated with self-certified SDVOSBs currently seeking prime contracts or subcontracting with the Federal Government. SBA estimates that as many as 20,408 self-certified SDVOSBs could apply for certification. To obtain this estimate, SBA reviewed firms actively registered as SDVOSBs in SAM but not already certified by VetCert. SBA believes that the number of firms listed in SAM is the most recent and reliable data to estimate participation and total costs for the purposes of this regulatory impact study. While it is not anticipated that every firm self-certified in SAM will apply for certification, SAM self-certification serves as what SBA would consider the maximum number of firms that would likely seek certification. SBA anticipates that only 70% of those firms will apply for certification, or 14,285 firms.

SBA estimates that an applicant's cost burden to apply for eligibility for this program would require 2 total hours at a cost burden of $250.96 per applicant. Hourly cost to the participant is based on the estimated manager's salary of $125.48/hour (based on the median hourly wage of $62.74 for construction managers, according to the BLS 2023 Occupational Outlook Handbook, plus 100% for benefits and overhead). Based on an estimate of 2 hours to complete an application and an hourly cost of $125.48, the initial total cost burden will be $3,584,963. Applicants would be required to apply for recertification at the end of the three-year eligibility period. SBA estimates that applicants will incur an additional 1 hour or $125.48 to complete recertification. Assuming all firms that apply for initial certification also apply for recertification at the end of each three-year eligibility period, the total cost burden would increase by $1,792,481 every three years. SBA does not expect that all firms will recertify but includes this estimate as an abundance of caution.

This regulation benefits the SDVOSB community by reducing the ambiguity and uncertainty for contracting officers in the process of Federal contract goaling and subcontracting that previously relied on self-certification. As SBA is implementing statutorily mandated requirements, there are no alternatives to this rulemaking.

Executive Order 13563

Executive Order 13563, Improving Regulation and Regulatory Review (January 18, 2011), requires agencies to adopt regulations through a process that involves public participation, and to the extent feasible, base regulations on the open exchange of information and perspectives from affected stakeholders and the public as a whole. SBA has developed this rule in a manner consistent with these requirements, and the public will have the opportunity to provide comments following the publication of this rule.

Executive Order 12988

This direct final rule meets applicable standards set forth in sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden. The action does not have retroactive or preemptive effect.

Executive Order 13132

This direct final rule does not have federalism implications as defined in Executive Order 13132. It will not have substantial direct effects on the States, on the relationship between the National Government and the States, or on the distribution of power and responsibilities among the various levels of government, as specified in the Executive order. As such it does not warrant the preparation of a federalism assessment.

Executive Order 13175

This direct final rule does not have Tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, because it does not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes.

Congressional Review Act (5 U.S.C. 801-808)

Subtitle E of the Small Business Regulatory Enforcement Fairness Act of 1996, also known as the Congressional Review Act, 5 U.S.C. 801 et seq., provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. SBA will submit a report containing this rulemaking and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States. This rulemaking has been reviewed and determined not to meet the criteria set forth in 5 U.S.C. 804(2).

Paperwork Reduction Act, 44 U.S.C. Ch. 35

To carry out its statutory mandate to certify SDVOSB firms, SBA collects information from SDVOSB applicants or participants through an online application system. This collection of information will require submission or retention of documents that support the applicant's certification and continued eligibility.

As discussed above, this direct final rule will implement the statutory requirement for small business concerns to be certified by SBA in order to be counted toward an agency's or prime contractor's goal for SDVOSB awards. As a result of these changes, the direct final rule eliminates SDVOSB self-certification. SBA anticipates that these changes will impact self-certified firms; however, SBA believes that this impact will be minimal as the information to be collected is already held by applicants during the ordinary course of business, was previously required for self-certification, and would require minimum preparation prior to submission. SBA will seek approval of this updated information collection separately from this rulemaking.

Regulatory Flexibility Act

The Regulatory Flexibility Act (RFA), 5 U.S.C. 601, requires administrative agencies to consider the effect of their actions on small entities, small nonprofit enterprises, and small local governments. Pursuant to the RFA, when an agency issues a rulemaking, the agency must prepare a regulatory flexibility analysis which describes the impact of the rule on small entities. However, the RFA requires such analysis only where notice and comment rulemaking is required. As discussed above, SBA has found good cause that notice and public comment are impracticable, unnecessary, or contrary to the public interest. Accordingly, SBA is not required to conduct a regulatory flexibility analysis and is publishing this rule as a direct final rule without advance notice and public comment to implement NDAA 2024.

List of Subjects

13 CFR Part 125

• Government contracts
• Government procurement
• Reporting and recordkeeping requirements
• Small businesses
• Technical assistance

13 CFR Part 128

• Government contracts
• Government procurement
• Reporting and recordkeeping, requirements
• Small businesses
• Technical assistance
• Veterans

Accordingly, for the reasons stated in the preamble, SBA amends 13 CFR parts 125 and 128 as follows:

PART 125—GOVERNMENT CONTRACTING PROGRAMS

1. The authority citation for part 125 continues to read as follows:

Authority: 15 U.S.C. 632(p), (q), 634(b)(6), 637, 644, 657f, 657q, 657r, and 657s; 38 U.S.C. 501 and 8127.

2. Amend § 125.3 by revising the first sentence of the introductory text of paragraph (a) and paragraph (c)(1)(xi) to read as follows:

§ 125.3

What types of subcontracting assistance are available to small businesses?

(a) General. The purpose of the subcontracting assistance program is to provide the maximum practicable subcontracting opportunities for small business concerns, including small business concerns owned and controlled by veterans, certified small business concerns owned and controlled by service-disabled veterans, certified HUBZone small business concerns, small business concerns owned and controlled by socially and economically disadvantaged individuals, and small business concerns owned and controlled by women. * * *

* * * * *

(c) * * *

(1) * * *

(xi) The prime contractor must provide a written statement of the types of records it will maintain to demonstrate procedures which have been adopted to ensure subcontractors at all tiers comply with the requirements and goals set forth in the subcontracting plan established in accordance with paragraph (c)(1)(x) of this section, including the establishment of source lists of small business concerns, small business concerns owned and controlled by veterans, certified small business concerns owned and controlled by service-disabled veterans, certified HUBZone small business concerns, small business concerns owned and controlled by socially and economically disadvantaged individuals, and small business concerns owned and controlled by women; the efforts to identify and award subcontracts to such small business concerns; and size or socioeconomic certifications or representations received in connection with each subcontract;

* * * * *

PART 128—VETERAN SMALL BUSINESS CERTIFICATION PROGRAM

3. The authority citation for part 128 continues to read as follows:

Authority: 15 U.S.C. 632(q), 634(b)(6), 644, 645, 657f, 657f-1.

4. Amend § 128.200 by revising paragraph (c)(2) to read as follows:

§ 128.200

What are the requirements a concern must meet to qualify as a VOSB or SDVOSB?

* * * * *

(c) * * *

(2) A concern must be certified pursuant to § 128.300 to receive a prime contract that is to be counted by a Federal agency for the purposes of meeting participation goals for SDVOSBs or to receive a subcontract from a Federal prime contractor for the purpose of meeting subcontracting goals for SBVOSBs in Federal procurement contracts. Any small business concern that submits a complete certification application to SBA on or before December 22, 2024, shall be eligible to self-certify for a Federal prime or subcontract that counts towards SDVOSB goaling purposes or SDVOSB subcontracting goals, respectively, until SBA declines or approves the concern's application. Any small business concern that does not submit a complete SDVOSB certification application to SBA on or before December 22, 2024, will no longer be eligible to self-certify for a Federal prime or subcontract that counts towards SDVOSB goaling purposes or SDVOSB subcontracting goals, respectively.

Isabella Casillas Guzman,

Administrator.